Here's our summary of key economic events overnight that affect New Zealand, with news China has rolled out what might be the first in a set of ¥1 tln stimulus/recovery moves.
But first, American mortgage applications rose for a third consecutive week last week, up +3.7% even though there was little movement on benchmark interest rates. Perhaps this market is emerging from its slumbers.
The 'flash' January PMI data for the US is also quite strong. Service sector activity expanded the most in seven months, while manufacturing firms continued to experience a moderate drop in output. New business expanded for the third consecutive month and at the sharpest pace since June, despite the second consecutive monthly decline in new export orders. This is not a description of a struggling economy - maybe not firing on all cylinders yet but certainly on the up.
The Bank of Canada held its policy rate at 5% for the fourth consecutive time overnight. This was as widely expected, leaving benchmark borrowing costs at a 22-year high. Like its southern neighbour, it is still selling down its bond holdings via its quantitative tightening program.
Japanese exports are firing impressively. They were up +9.8% in December from the same month a year ago, more than expected. And with the sharp drop in oil prices, the cost of their imports fell equally impressively, down -6.8% on the same basis. That enabled them to log an unexpected trade surplus in December. (They can probably thank the missteps from Xi and Putin for this result.)
And Japan's January PMI's were all stronger, which is no surprise.
In China, their central bank announced they will reduce the reserve requirement ratio (RRR) for all banks by 50 basis points to just 10% starting from February 5, releasing up to ¥1 tln to the market to try and get an economic recovery going. (They seem to have a penchant for ¥1 tln policy moves at present - and they are adding up.) This would be the lowest RRR level since March 2007. The PBOC had previously cut its RRR by 25 bps in both March and September last year. Additionally, starting today, they have lowered re-lending and re-discount interest rates by -25 bps, targeting the rural sector and small businesses. These announcements certainly boosted equity markets.
They need a boost. German companies operating in China are less than positive even if they remain committed to staying. 83% of the 566 respondents in a survey released overnight said China “is facing a downward trajectory” economically. Nearly two-thirds said they expected a recovery to take one to three years.
Although China's GDP grew by +5.2% in 2023, achieving Beijing's target of "around 5%", its nominal GDP in US dollar terms fell for the first time in 29 years as its share of the global economy shrank for the second straight year.
In Europe, business activity fell at the slowest rate for six months in January, according to 'flash' PMI survey data. But downturns are persisting in both the manufacturing and service sectors as they get further falls in new orders. The overall contraction of new orders was however the smallest recorded since last June, helping stabilise employment levels and lift business optimism about the year ahead to an eight-month high.
Meanwhile, the ECB has reportedly asked some banks to closely monitor activity on social media to detect a worsening in sentiment which could lead to a deposit run. While early detection might not stop a bank run like SVB or Credit Suisse, regulators and banks are eager not to be caught off guard, according to the people familiar with the regulators' thinking.
In Australia, their 'flash' January PMIs were similarly underwhelming. Activity continued to decline but the pace of reduction eased alongside a slower fall in new orders. However there were improvements in business sentiment while employment levels also continued to rise. Inflation pressure fell.
The UST 10yr yield starts today at 4.16% and little-changed from this time yesterday. The key 2-10 yield curve is slightly less inverted, now by -22 bps. Their 1-5 curve inversion is also less inverted, now by -76 bps. And their 3 mth-10yr curve inversion is less inverted too, by -122 bps. The Australian 10 year bond yield is now at 4.25% and down -2 bps from yesterday. The China 10 year bond rate is unchanged at 2.52%. The NZ Government 10 year bond rate is up +7 bps at 4.79%.
Wall Street has opened its Wednesday session with the S&P500 up +0.7% and a new all-time high. The capitalisation of Microsoft has hit US$3 tln, a notable high, and basically matching Apple. Overnight European markets were about +1.0% led by Frankfurt's +1.6% rise and trailed by London's +0.7% rise. Yesterday Tokyo ended down -0.8%. But Hong Kong rose an impressive +3.6% on the stimulus talk and Shanghai gained +1.8%. Singapore rose +0.6%. The ASX200 ended its Wednesday session virtually unchanged while the NZX50 ended up +0.5% with a good afternoon session.
The price of gold will start today down +US$12/oz from yesterday at just on US$2012/oz.
Oil prices are up +US$1at just over US$75.50/bbl in the US while the international Brent price is still just over US$80/bbl.
The Kiwi dollar starts today at 60.2 USc and -½c lower from this time yesterday (and a new two month low). Against the Aussie we are firmer at 92.8 AUc. Against the euro we are also firmer at 56.2 euro cents. That all means our TWI-5 starts today just under 70.1 and up +30 bps in a day.
The bitcoin price starts today a little higher. It is now at US$40,126 and up +2.5% from this time yesterday. Volatility over the past 24 hours has been modest to moderate at just under +/- 2.0%.
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52 Comments
I like to think of them as figurines rather than people, they could be card-board cut-outs for all the impact they have on the operation of the country.
However, I think Texas is about to give up the on the federation and Florida might be right alongside them. That would be for the best in my opinion but it will be a dangerous move.
OK well we will have to disagree, other than Executive Orders, which are limited in scope they have no legislative powers. Their actions are simply the talking points of the party, they themselves have little effect on actual on the economy.
If you are talking about politics on the other hand, getting representatives elected and staying elected, they are of course very powerful.
Agreed. Its just such a crap job, every little thing you do will be scrutinised, you basically have no life. Look at all the crap fired at Jacinda Ardern, whether she did a good job or not I am sure she was only trying to do her best. So its no wonder that only the looneys and power trips want to do it.
In the old days you could lead a country and still have a life, an opinion, etc. Muldoon called a snap election while drunk and most of us admire him for it! Imagine if the PM did that today...
That is a lot easier after a few drinks! I doubt it would work these days, there isn't a massive group of voters to appeal to like there was in Muldoon's day. There aren't many strong opinions that 50% or more voters will align with.
Its probably more a problem of demographics than anything else. To win an election you need some of the old vote and some of the younger vote. The old think everything is woke, the young think everything is offensive. So you are better off not saying anything.
Power evolves and increases out of corruption. Corruption in the USA is a huge industry, just in itself. The Republicans don’t care who it is so long as they believe their candidate to be the one most likely to get them into power. Once in power then the snouts can get back in the trough and expect the tap to be turned on.
Interesting that the European markets are in such a buoyant mood considering the actual performance of their economies and their likely prospects. Perhaps their enthusiasm relates to thinking the upsides of the US economy will be rewarding for them, that's old globalisation thinking unfortunately.
US, Japan and to a lesser degree Korea and India are the growth engines I think.
Might be because European countries have, since Brexit at least, understood the need for very strong public institutions to counter the free market neoliberalist fantasy and can see they are better prepared to deal with a low/no growth/degrowth future. They invest more in social capital and climate adaptation/ resilience. The threat from Russia is also serving to coalesce countries around a higher order set of outcomes.
Oz Labour reneges on income tax changes
https://www.abc.net.au/news/2024-01-24/government-rewrites-stage-three-…
Meanwhile, the ECB has reportedly asked some banks to closely monitor activity on social media to detect a worsening in sentiment which could lead to a deposit run. While early detection might not stop a bank run like SVB or Credit Suisse, regulators and banks are eager not to be caught off guard, according to the people familiar with the regulators' thinking.
Bombshell report reveals the truth about the banking crisis This report highlighted two main issues: deposit flight collateral vulnerabilities This really points to the systemic risks in global finance right Link
What would they do, get the talking heads on TV to say there is no problem...... ?
Russia has truely weakened Europe with the war and loss of cheap gas etc.
I still see the USA as winner here, even if there is currency debasement. Their economy is more domestic, I do not like there equities markets, tech dominated narrow breadth and overvalued before international conflict really takes off.
Realistically what are people going to do with cash? Crime is generally high enough around the western world that the idea of holding your life savings at home is a bad idea.
Given the pervasiveness of electronic transactions and online business the actual risk of a bank-run is minimal. A run to Bitcoin or Gold might be more useful.
".....most are net debt except kiwisaver etc until late 50s....." While we have a lot of people with no assets at all, and some credit card debt, we also have a lot of people who got a mortgage in their 20s and 30s and have been building net positive equity ever since. Admittedly fewer that past decades.
There are now 7 comps in the Trillion Dollar Club again. Meta has passed the $1tn mark, and Microsoft is now worth $3tn for the 1st time ever. Link And yet:
$5,500 per unit for, at most, six weeks worth of shells. Scheduled for delivery in 2025. A howitzer shell cost about $800 as recently as 2018. The problem in a nutshell: too expensive, not enough, late delivery.
BREAKING: NATO signs contracts for 220,000 155mm artillery shells worth $1.2 billion - Link
American mortgage applications rising. American stock markets breaking all time highs. Onwards and upwards. Does this all sound right? Like as it should be? Is this kosher or is it just the emotions and manipulations taking hold? And most importantly, is NZ going to follow (looking at the big picture) America’s lead? Serious questions and could someone with more insight than I, answer them please.
Frank - this all time high us equities has very little breadth, its the magnificent 7 then look way down the list. Many funds need performance on a quarterly basis, hence they chase the game, but even a small devaluation of the AI driven tech bubble will be way way bad. NZs stock market is income and dividend based, not going to follow ( see here https://tradingeconomics.com/new-zealand/stock-market )
We are nowhere near record high.
Lots of real risk around NZ trading partners and future demand of our produce.
Bit off topic but posting as it's happening as I speak.
Just listening to a young real estate agent talk to his colleague on the phone. They are pretty sure the property has mould but they are going to sit on getting a report done for as long as possible, ideally until after the property is listed because if they do it now and it tests positive the property owner will probably pull the listing and they will lose the opportunity. The landlord may also might not kick out the tenants and they want the tenants out to put pressure on the landlord to sell as then he'll not have any rent coming in.
Japanese exports are firing impressively. They were up +9.8% in December from the same month a year ago, more than expected.
Japan follows Australian example to resume business with China, taking the cue from the summit at San Francisco and the ensuing improvement in US-China relations. That leaves India as the lone Quad member all dressed up, nowhere to go… Link
India has a very long history of serving it's own needs first, Tata etc are enormous companies that started entirely India-focused. Now they are the most populous country on the planet with a very significant overseas diaspora they will not suffer much at all if they focus domestically.
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