Here's our summary of key economic events overnight that affect New Zealand, with news the American equities market is rising, mirroring the Tokyo one and in sharp contrast to China's retreating equities.
But first up today we need to note that American consumer sentiment as measured by the widely-watched University of Michigan survey surged in January, and inflationary expectations retreated. This was a combo that was not expected, or at least, not as decisively. Sentiment is now suddenly its highest in 2½ years. Year-ahead inflation expectations softened to 2.9% after plunging in December. That current reading is the lowest since December 2020. Few analysts saw such a sharp improvement in both measures coming although it is reflective of the steady progress in the American economy in other data, especially labour market data.
But American existing home sales activity dropped by -1.0% in the December month from a month earlier to an annualised rate of under 3.8 million, reaching the lowest level since August 2010 and falling below the market's anticipated 3.82 million units. For all of 2023, they sold 4.1 mln, the lowest level in nearly 30 years.
North of the border, Canadian retail sales jumped in December (but after a drop in November), the sharpest increase in 11 months.
Investors are still withdrawing from China on a net basis. Foreign direct investment into the Middle Kingdom fell by -8% in 2023. But although the transparency on this data is limited, there is a suggestion that there was a small improvement in the month of December from a year ago.
Bloomberg is reporting that things are getting grimmer in Chinese equity markets. Tokyo has overtaken Shanghai as Asia’s biggest equity market, while India’s valuation premium over China has hit a record. The meltdown in Chinese share values is wreaking havoc on the nation’s asset management industry, pushing mutual fund closures to a five-year high. But you won't find any of this in Hong Kong or other Chinese analysis.
Separately, China is going all-in on genetically modified crops as part of its food security push. That is probably triggered by data that shows they imported +12% more grain last year than in 2022.
Japan's December CPI inflation rate came in at 2.6%, down from 2.8% in November. And their core rate was at 2.3%, down from 2.5% in November. That is the 21st consecutive month it has been above the Bank of Japan's 2% target. But with this slippage, the central bank will likely remain very cautious that Japanese inflation is really back. 2.3% is a 17 month low even if over all of 2023 inflation was at a 41 year high in Japan. To help ensure that inflation stays embedded, Japan's government is urging businesses to raise wages ahead of annual spring negotiations between employers and labour unions. The largest union is demanding a 5% rise.
German producer deflation got "worse" in December with producer prices falling a whopping -8.6% from the same month a year ago. On an annual average basis, industrial producer prices were -2.4 % lower in 2023 than in 2022. But the December result is not all bad because a lot is due to extreme base effects. And energy prices in December were down more than -23% from the same month in 2022. Basically it is a gift from Russia. Germany is surviving a cold winter with plenty of gas and low prices.
In the UK, there was a sharp fall in retail sales in December. They tumbled -3.2% in December and far more than the market expectation of a -0.5% fall. It marked the largest monthly decline since January 2021, with non-food store sales plunging by -3.9%.
In Australia, the IMF has released the results of its annual staff review. The IMF wants to see meaningful tax reform and doesn't like that the markets pricing interest rate cuts in 2024. They [rightly] point out that inflation and inflation expectations are still far too high there. The IMF's call for tax reform in Australia is a long-standing position - but one Canberra ignores. (The last IMF review of New Zealand was in August 2023.)
We should perhaps note that makers of electric vehicles are in the midst of a fierce price and margin war, and most are worried whether it is existential for them in that category. It is coming up to a year since the price war started in China. It has spread from there and it shows no sign of ending soon - other than by company collapses. It is not helped by the fact that used EV vehicle prices have always been low and show no sign of stabilising. In many markets used EVs seem worthless which is not a good sign. Some manufacturers see an imminent "bloodbath".
The UST 10yr yield starts today at 4.16% and up another +2 bps from this time yesterday. That means it is up +20 bps for the week. The key 2-10 yield curve is more inverted, now by -24 bps. Their 1-5 curve inversion is little-changed, still by -79 bps. And their 3 mth-10yr curve inversion is also little-changed, by -122 bps. The Australian 10 year bond yield is now at 4.30% and unchanged from yesterday but a week ago it was at 4.07%. The China 10 year bond rate is still at 2.52%, unchanged. The NZ Government 10 year bond rate is up another +6 bps at 4.82% and up +10 bps from a week ago.
Wall Street has opened on Friday with the S&P500 up +1.1% so far and heading for a more modest +0.9% weekly rise but racing to a new all-time high. Overnight European markets mostly closed little-changed although Paris dipped -0.4%. Yesterday, Tokyo ended up +1.4% for a weekly gain of +0.9%. Hong Kong fell -0.5% to tumble -5.8% over the week. Yesterday Shanghai fell -0.5% to be -1.4% lower for the week despite home team intervention. Singapore rose +0.4% yesterday. The ASX ended its Friday session up +1.0% to limit its weekly drop to -1.0% while the NZX50 ended down -0.2% on the day to be -1.6% lower for the week.
The Fear & Greed index remains little-changed in the "greed" range which is also where it was a week ago - and two weeks ago.
The price of gold will start today up +US$11/oz from yesterday at just on US$2025/oz. But that is down from US$2043/oz a week ago.
Oil prices are down -50 USc at just on US$73.50/bbl in the US and the international Brent price is now at just over US$78.50/bbl and unchanged from yesterday. But both benchmarks are up +US$1/bbl from a week ago.
The Kiwi dollar starts today at 61 USc and little-changed from this time yesterday. But that caps an almost -2½c retreat since the start of the year, or a -3.8% devaluation. That is large and there could be inflation implications. Against the Aussie we are down -¼c at 92.7 AUc. Against the euro we are also down at 56 euro cents. That all means our TWI-5 starts today just under 70 and a -1.6% devaluation on that basis.
The bitcoin price starts today lower again, now at US$40,551 and down another -3.0% from yesterday. In fact we are in the largest two-week decline since August last year. Volatility over the past 24 hours however has been moderate at +/-2.2%.
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27 Comments
I'm interested int he used EV market commentary. orhers/someone knowledgeable care to chime in?
Costs of battery replacement in common models?
Standardization of batteries and swap in out ease?
Repair costs?
Longevity of non-a battery components?
Wealthy buy new, those in market for second hand just less inclined?
Price of 2nd hand ice vs ev for km traveled or some other measure of remaining useful life?
Just part of a transition phase and we will adapt?
I have no inside knowledge of EVs tech. But I have been watching the market, and the market is a good proxy for the overall experience.
I have been anticipating the next car is an EV, but now not so sure. Largely now because low resale prices are the thing. In Europe certainly, and also the USA.
Curiously I have not seen any NZ info on any of that.
Hertz in europe were going out of EVs, largely because of low resale value and thus higher cost of ownership.
There have been wisecracks that only high income folk buy EVs, but that's also true of ICE vehicles - when the activity is about new vehicles.
I know a couple of beneficiaries who drive old EVs - Leafs - pretty degraded batteries - but such are a really affordable and useful option. A good thing. Time will tell but it's possible this will become a feature.
It's a developing market, and will change, very interesting to see what happens. The market gives us clues to how it will work and what folk think useful.
Used EV's being worthless is a harbinger of what the environmental disaster the used batteries will become.
"Both processes produce extensive waste and emit greenhouse gases, studies have found. And the business model can be shaky: Most operations depend on selling recovered cobalt to stay in business, but batterymakers are trying to shift away from that relatively expensive metal. If that happens, recyclers could be left trying to sell piles of "dirt," says materials scientist Rebecca Ciez of Purdue University."
https://www.science.org/content/article/millions-electric-cars-are-comi…
This is the issue, and it is significant. We can’t even manage to recycle plastic bottles and cans, they get sent to Asia to be incinerated. Looking at the big picture, recycling is a global fraud because not many people care. They just want to sell their new product and party on. Old electric vehicle batteries are going to be devastating to this planet although there are some other factors which may finish us off before then. Anyway, I’m off to a BBQ where I’ll be letting everyone know my thoughts on how recycled EV batteries will be used to power small towns.
I bought an inexpensive used 2012 Leaf two years ago with battery down 40% from new. Use it just around town like a fast, safe enclosed mobility scooter getting 6.7 km per kw. at a fuel cost of 6 cents per km vs 50 cents per km for my ICE car, albeit a supercharged Merc. The only maintenance in two years has been refilling the windscreen wiper fluid and occasional tyre pressure checks (never changes). It's the difference between a simple spinning drivetrain via electrons from NZ hydro and reciprocating parts transfered to spin driven via exploding gasoline from overseas. No noise, no pollution, feel virtuous.
Nissan leafs are the worst thing to happen to EVs. They were trail blazing vehicles but now people see them as representative of wider EVs. They had small batteries and Nissan didn’t invest in the active measures Tesla has to protect what little capacity they have. So people read about cars can only do 60km on a charge and think that’s representative.
My understanding was that used EV prices were very strong but haven’t seen anything about in a while. I’d be interested in how they stack up in different markets and Tesla versus other brands.
Battery replacement costs are very high but you shouldn’t need one of those until 100,000s of KMs.
From my experience electrical motors have fewer moving parts and produce much less heat. I have water pumps that have been operating for 25 years and other than a little bearing noise they work just like new.
No oil changes, fewer brake replacement as they use motor breaking. Maybe you could drive for many years without a service.
I’ve had a lot to do with EV’s over the last few years. My advice is that you don’t want to own something like a Tesla outside of the warranty period. If you do and have a battery problem they don’t want to know you. Quite often battery packs fail with very little warning and can’t be repaired due to design. A new (remanufactured) pack is required and they are uneconomic to do so if you have to pay for it. M3 and MY are much better than X or S, but they can still have major problems like any car or brand.
We won’t know for another 5yrs if the current battery tech from all manufacturers will have true longevity. Hopefully, it does. But the space is moving so quickly that Sodium or Solid State tech could render all current EV’s next to worthless in comparison. Basically, if you compare it to mobile phones we are at the Nokia stage and the next battery tech will be BlackBerry and the following will be iPhone. It’s still very early days.
re ... "But the space is moving so quickly that Sodium or Solid State tech could render all current EV’s next to worthless in comparison."
Unlikely.
With the new batteries based on new tech being cheaper I expect a thriving industry will exist (for a time) switching out old batteries with new ones. While some manufacturers (looking at you Elon) make changing the batteries an onerous task, others make it far easier.
When you look at a 'battery pack' on a laptop many look bespoke so people conclude they'll be hard to replace. But if you open the 'battery pack' you'll find many of the actual batteries are stock standard parts. I've renewed many laptop batteries by doing this. The same goes for EVs. And pictures on the internet of car 'battery packs' that have been dissembled show this will be possible with EV batteries. People don't think twice in change the whole engine on an ICE for a reconditioned one. We'll think the same of battery packs in the future.
Maybe and let’s hope that does happen. If you have a look at Sandy Munro’s teardown of a Tesla pack you can see why they can’t be repaired and can only be replaced with another Tesla pack. The other big concern with Tesla is getting bricked due to hardware being obsolete and unable to be upgraded. Model S and X owners from the early years are finding this out. The same will happen to 3 and Y owners in years to come. Being unsupported doesn’t sound great with such a high tech piece of kit.
The Minister for Regulation is on the job
https://www.nzherald.co.nz/nz/politics/man-wins-fight-with-nzta-over-of…
"...the balls are in your court" lol
The retort angled at then President Bush senior “it’s the economy, stupid,” doesn’t appear to be resonating particularly well in a positive sense for the Biden administration given the steady economic improvement(s) being recorded, such as above. That can only mean that Americans, generally speaking, are still pretty uncomfortable in their own back yards. Thus the Democrats have a problem. A President who was nominated only because other candidates were realised as being unelectable and who might beat Trump and might last a full term. This Biden has done but he is well past his best before date and this the electorate knows full well. That the Democrats didn’t think to cultivate a worthy successor in the last four years or so, is beyond belief.
The fact that Biden is not Trump should see him win if Trump gets the Republican nomination.
(Not all 'Mericans are bibble bashing, redneck, conspiracy theorist, knee-jerkers who watch too much Fox News and believe social media is a 'research tool'. The fact there are such people - and they number in the millions - is truly disturbing.)
In fact, as I said of my local MP for North Shore when Maggie retired, they could put up a sheep-dog and it'd be not only elected given NS is so blue, it would be just as productive. (Too harsh? I don't think so. Towing the party line isn't beyond the capabilities of most sheep dogs.) Likewise, just not being Trump gives any candidate a massive chunk of the vote even before any issues are considered.
Outsourcing to China at it's best.
"...This American virologist, University of North Carolina Prof. Ralph Baric, was set to engineer twenty or more “chimeric” SARS-related viral spike proteins per year of the proposal, and two to five full-length engineered SARS-related viruses. Documents previously reported by U.S. Right to Know show that some of the experimentation could secretly occur in Wuhan at a lower biosafety level than specified in the grant, apparently to save costs."
https://usrtk.org/covid-19-origins/scientists-proposed-making-viruses-w…
They are restarting the largely low ROI Roads of National Significance. They gotta pay for all those damn roads somehow and ripping the heart out of the cycling/pedestrian/train budgets won't make up for the extra billions needed to create more roads we don't need.
China Swap Market Goes Into Overdrive as Traders Seek FX Bypass
Attractive rates for those with dollars to lend, strong demand for the US currency in China’s banking system and even shadow intervention from officials keeping the yuan in check are some of the suggested reasons that have driven one measure of client activity to the highest since 2015.
Swaps are becoming more common tools to manage currency positions, with a market share now of 10%, according to Bloomberg calculations, compared to about 75% for old school buying and selling via so-called spot trading.
A key factor behind the growth has been investors taking advantage of low interest rates on the yuan relative to the dollar after the stark divergence of monetary policies between the world’s two largest economies. A gauge measuring funding costs in the Chinese currency has sunk to the lowest since 2008 in the swaps market, making it highly profitable to borrow in yuan with dollars.
Bitcoin ETFs have now overtaken silver ETFs in terms of value of assets held. Because of the conversion of the existing Grayscale Bitcoin Trust into an ETF, there was immediately almost $30 billion stashed in bitcoin ETFs. Silver ETFs have combined assets of about $11 billion, Will be monumental when the BTC ETFs overtake gold.
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