Here's our summary of key economic events overnight that affect New Zealand with news that the US Treasury 2-10 bond yield curve has inverted (just - and has now gone positive again), and that usually is an early warning that the US faces recession - in bond investors' minds anyway. But equity investors are shrugging the risk off, with gains on most markets around the world.
The widely watched Conference Board survey of American consumer sentiment reported mixed signals, although perhaps supporting the bond signal. The 'Present Situation' view brightened in March, but the look-forward 'Expectations' view went the other way.
The uptick in the 'Present Situation' is bolstered by a firming of retail sales in the report for last week.
And in a further sign they are feeling confident at the moment, Americans continued to switch jobs at near-record rates in February, with 4.4 mln workers leaving their positions in a historically tight labour market. Employers hired 6.7 mln people that month while reporting 11.3 mln job openings.
And the Dallas Fed services survey was also relatively upbeat, even if it did suggest that retail sales there may have peaked.
There was another US Treasury bond auction this morning, for their 7yr Note, and this one brought a sharp rise in yield to 2.43%, up from 1.84% at the prior event a month ago. It was well supported again.
The war in Ukraine has collapsed German consumer sentiment. The GfK Consumer Climate Indicator fell to -15.5, the lowest since February 2021 and compared to market expectations of -14. These are post GFC lows, where war and inflation corrode German sentiment with a significant downturn.
The World Bank is warning that emerging markets, which account for 40% of global GDP, are under real debt stress and an outsized set of them are likely to be in distress soon.
In China, they are rolling out direct stimulus and business support at a local level to hold their stuttering economy on an even keel.
And China is not happy that Australia is kicking out Chinese students who have spent time in the Chinese military - even though that is a compulsory requirement for young Chinese. It is the lack of honest declaration on immigration documentation that seems to be the key issue.
Australia delivered another impressive retail sales result, beating forecasts that assumed storms and the pandemic would hold them back. They didn't and spending surged to its second-best month - ever. These sales were up +1.8% from the prior month, and an impressive +9.1% higher than a year ago. Because the January activity was strong as well, it is likely that Q1-2022 will end very well.
The 2022/23 Australian Budget delivered overnight was a traditional election budget, delivering AU$40 bln of new spending and tax cuts over the next five years, most of which will be in the immediate year or two. This will juice up their local demand further even though they are in a strong position at present. And in turn that probably brings forward RBA rate hikes, and ensures they will be larger than otherwise.
It is a Budget with upfront cash payments: AU$250 per taxpayer as a cost-of-living adjustment, plus some households will get another AU$3000 for further cost-of-living support. Petrol taxes have been cut for 6 months, and subsidies for medicines increased. There are a vast range of other benefits designed to appeal to voters, and "support business". But through all of this, deficits will run on out to 2026 and on current projections will total -$261 bln over the period - and the economic projections on which everything is based are very optimistic. This is a real election budget with a short-term objective in mind.
The UST 10yr yield opens today at 2.39% and down a further -8 bps from this time yesterday. The UST 2-10 rate curve starts today flat at just +1 bp and heading toward inversion. Their 1-5 curve is however unchanged at +85 bps. Their 30 day-10yr curve is flatter at +220 bps. The Australian ten year bond is up +2 bps at 2.85%. The China Govt ten year bond is unchanged at 2.82%. And the New Zealand Govt ten year is down by -2 bps at just on 3.35%.
On Wall Street, the S&P500has opened up[ +0.5% in Tuesday afternoon trade. In Europe, their equity markets were sharply higher, led by Paris's +3.1% and trailed by London's +0.9% gain. Yesterday Tokyo ended up +1.1% and Hong Kong was also up +1.1% but Shanghai fell -0.3%. The ASX200 ended its Tuesday session up +0.7% but the NZX50 only managed a gain of +0.1%.
The price of gold starts today at US$1915/oz and down another -US$24/oz from this time yesterday.
And oil prices are down another sharpish -US$4.50 to just over US$102/bbl in the US. And the international Brent price is now down to US$106.50/bbl.
The Kiwi dollar will open a little firmer from this time yesterday at 69.2 USc. Against the Australian dollar we are similarly firmer at 92.3 AUc. Against the euro we are softer at 62.4 euro cents. That all means our TWI-5 starts today still just at 74.4.
The bitcoin price is virtually unchanged from this time yesterday at US$47,487. Volatility over the past 24 hours has been modest at +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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67 Comments
The Germans are linked to the war directly so they should be feeling nervous, those gas supplies are irreplaceable despite noise from the US. These so called sanctions seem light-weight as I suspect 20mins after they were announced the trade desks of China got the call up to wash that trade clean.
India is in pretty deep here as well, buying the oil at discount rates, Saudi not picking up the phone, I think even the yanks might be feeling the chill now.
Became a net exporter in 2019 thanks to fracking.
https://www.aei.org/wp-content/uploads/2020/01/energycons2-1024x579.png…
Shame fracking is such a drain for investor funding then. https://priceofoil.org/2020/06/26/with-u-s-shale-peaking-having-never-m…
Suppose it depends how long the Ukraine situation lasts? As all the shale sweet spots are tapped out, the shale "revolution" will end in a terminal decline as conventional oil, only much steeper. https://partners.wsj.com/ceraweek/connection/sweet-spot-key-shale/
Yeah, nah.
"Shale gas and associated natural gas from tight oil plays are the primary contributors to the long-term growth of U.S. natural gas production through 2050."
https://www.eia.gov/outlooks/aeo/narrative/production/img/Production_Fi…
The Europeans are choosing to fund the war by following a hysterical teenage energy policy, and not tapping their own gas resources. Why would Germany get 50% of it's gas from Russia when it could get it from Europe? Virtue signalling has come at a high cost to Ukraine. Or in our case Kalimantan.
Eastern and Western Europe, excluding Russia, have similar shale gas reserves to the USA.
https://www.eia.gov/analysis/studies/worldshalegas/
...
In a hurry to turn Earth into Venus are we? https://www.iea.org/news/methane-emissions-from-the-energy-sector-are-7…
Prof. Richard Werner speaks with RT International about the wider impact of Russia sanctions on Europe. Werner explains how reliance on Russian energy may lead to further fuel rationing, and recent policy changes will create additional demand for the ruble and complicate Russia sanctions. Link
Meanwhile I sent $200 to Aerorozvidka
2. PAY PAL:
(for Aerorozvidka)
That should help pay for a drone part. My small contribution to kicking the Russians out of Ukraine.
We could just bludge off the Aussies like usual.
https://newatlas.com/military/boeing-loyal-wingman-drone-mq-28a-ghost-b…
Bond yields inverting... either:
- Bond investors think that Fed increasing rates + Govt spending dropping off quickly + households money going to higher rents, fuel and debt servicing costs = recession by late 2022, forcing the Fed to loosen again; and / or
- Bears shorting the front end whilst bulls buy the long; and / or
- Market signals are wrong and gamblers are just betting on whatever they need to make a quick buck next week
My view is that number one might not be the driver of the inversion, but it is almost certainly true. It's like we are re-playing 1920 - end of First World War and Spanish Flu. The boom that followed was quickly extinguished by crashing Govt spending and major increases to the discount rate. We know what came next.
You might find this interesting, HM - looks like Tony Alexander agrees with you about rate rises:
"Auckland house prices have not fallen 19%".... yeah, not across the board yet Tony... but on some measures they have and they're not going to stop falling until rates stop rising.... as no one can calculate their new cost of debt (their affordability) until then.
So the RBNZ would be better to hike quickly... and aim to kill two birds with one stone.
Funny how when the market is rising the spruikers annualise the monthly increases, but when they are steadily falling that method disappears.
Don’t for one second think Tony is an ‘independent’ economist. He knows exactly which side his is bread is buttered on and will continue to commentate on the market as such.
His article clearly proves his true sentiment is that we have a housing market with an economy tacked on.
#mainstreetbets
Yes, as rates rise steeper and steeper we will see the sharp revival of the auction as thousands of distressed First Home Owners are forced into mortgagee sales. The cashed up investors will then swoop. These bargains will inevitably be at much lower prices as the banks just want their outstanding mortgage amounts back. And of course those who have their properties undergo forced mortgagee sales will inevitably loose what equity they had and yet could still be in hock to the bank for monies still owing that the mortgagee sale price didn't cover.
Have a good day.
100% agree streetwise. We've had such a long cycle this time that many seem to have forgotten how they end... it's carnage for many.
It's always boom and bust, always has been... and even when prices eventually stabilise, the increased cost of debt will hurt the majority of people.
Hope you had a good day too.
The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. The coming economic slump will require action on the first of these goals - sustaining employment.
ok cool me naive, but i dont' understand the issue with an inverted yield curve when it's due to short term rates going up. In the short term people expect rates to go up to fight inflation but in 10 years time they expect rates to lower so are willing to accept a lower rate on the 10y. What am i missing?
Is anybody else having trouble withdrawing their Kiwisaver funds from Kiwibanks Fund? My wife is over 65 and they have been totally obstructive and unresponsive to our emails. We have filled out all the right forms and provided all the requested witnessed documents, but to no avail. Is any body else having the same problems?
It's a very busy time for fund managers right now. They are all swamped.
Large aging population ticking over into retirement, and the current market volitility is increasingly call volumes even further.
Its not malicious, I mean they have a vested interest in keeping your money in their funds, but that's just normal sales/retention activity.
There is always a problem the very first time you want to withdraw because the IRD want to verify that all their contributions are accounted for correctly and you are eligible to withdraw them. Once that is done then the next withdrawal is a still a painful exercise but a little easier, they really don't like giving any of it back.
...lack of honest declaration on immigration documentation that seems to be the key issue.
Obviously if you blatantly lie about something reasonably easy to verify there will likely be consequences later.
And oil prices are down another sharpish -US$4.50 to just over US$102/bbl in the US. And the international Brent price is now down to US$106.50/bbl.
Lovely stuff, drill baby drill!
We would, but we own the land, not the crop. In years to come we'll take over the cropping ourselves, but for now we're sinking all our efforts (read: money) into land improvement. Funnily enough drainage is next on the list but can't be done until the crop is harvested.
I really don't get these petrol tax cuts.
Why just temporary? The taxes are either needed or not, and if we are throwing out bread and circuses why do it on the one of the major items we really need to cut back our dependence on.
Higher petrol costs will push markets towards alternative transportation options, bio fuel, evs, public transport, WFH, bikes...
OK. Maybe. But it's not like it's directly resulted in the exact discount been applied at pumps right. A cash hand out per rego, or Waiver of rego fee for 12 months etc would be much more direct..
Looks to me like reaction to bad press and polls etc.
And what they lifting all sanctions in 6 months? I don't think the Russians are going anywhere fast...
I assume this is the case.
Not sure whether the following is true, or whether this is just due to recent events causing heightened focus, though this govt comes accross as one of The most reactionary and short sighted I've observed.
I'll give them a solid B- on covid, but aside it just looks like the are fluttering from one media release to another.
We really are lacking of choice in NZ. We either get scatter brained socialist. Or nationals army of Chinese immigrants.
In my opinion the MSM is largely to blame, whenever fringe parties get momentum, there's always a lot of negative press, should be Doing more to promote political diversity.
I agree re MSM, anything not mainstream is discounted, mostly due to the near total lack of intellectual horsepower to meaningfully engage with the ramifications of new policy.
Before they lost the plot on some key policy the TOP party had some solid ideas, most importantly we do not have anyone discussing the real benefits of a universal income approach to benefits. These were not engaged with.
US Treasury 2-10 bond yield curve has inverted (just - and has now gone positive again), and that usually is an early warning that the US faces recession - in bond investors' minds anyway.
Buying the UST flattener trade has been extremely profitable over the last 12 months for those who believed.
This FRED graph effectively illustrates that every recession since 1957 has been preceded by a yield curve inversion. (Note that the lag between the inversion and a recession varies: With the 10-year and 1-year yields, the lag is between 8 and 19 months, with an average of about 13 months.)
Australia has been calling China out for a couple of years now. This could all change if Albanese & his angry birds take the election in May. Whatever happens, for Morrison to stand up to China for so long & so strong shows up all other Western leaders as being cake mix (tastes good but is no good for you in the long term).
Does anyone know for Kiwi's working in Australia, do they benefit from these changes announced by the Aus government?
"It is a Budget with upfront cash payments: AU$250 per taxpayer as a cost-of-living adjustment, plus some households will get another AU$3000 for further cost-of-living support."
House price growth has stopped but is the fall just begun....
https://www.macrobusiness.com.au/2022/03/soaring-mortgage-rates-pummel-…
It's just the start, if the RBNZ does what it should do (raising rates by 100 bps right now), then it will get worse. Likely though they will sit on their hands and just do wee increments to spread the pain out over the next few years. Likely that will make the pain worse and longer, best to whip the bandaid off straight away and deal with the mess, rather than have a few years of real depression blasting the real economy as well. But central banks always seem to take the worst possible path...
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