Here's our summary of key economic events overnight that affect New Zealand, with news the expected fast rise of the US economy is leading to the world splitting faster into two clear economic camps.
But first in the US, the latest inflation reading, this one for February, has their CPI rising to +1.7%, a rise that was expected. That is up from +1.4% pa in January. Food prices were up +3.6% pa however. But most other elements rose only modestly, including rents, medical costs, and petrol. It is a measure that is not causing any urgent inflationary concerns. Wall Street is up as the inflation fears recede for the moment.
Also not displaying any warning signs are US mortgage applications which dipped last week. Nor mortgage interest rates which were mixed last week.
Congress is about to give final approval to the US$1.9 tln stimulus package, one that has wide bipartisan support outside of politics (even among Republican voters) and none inside. It will be signed later today and start being disbursed within a few days. Many expect it to turbocharge American economic activity for the rest of the year. That could mean today's muted CPI result will be quickly overshadowed.
A big and long-overdue push into infrastructure renewal is the next big American project.
In Canada, their central bank was sat pat at its latest policy review but kept up its bond buying. They are feeling better about their 2021 prospects.
But China has a consumer deflation problem. For the second month in a row and the third month in the past four, consumer prices have been lower than the same month a year-ago. Prices for fuel and services led this drop.
But they do have inflation in their factory sector. Their PPI rose +1.7% above the February 2020 level, after having been in deflation mode for all of last year.
ANZ analysts say China is about to shift policy and put an upward bias on lending rates this year and control collateralisation. The overall goal is to quell asset price inflation. Rather than "supporting growth" the new focus will be to weigh against asset bubbles.
China’s credit expansion slowed slightly in February during a traditionally slow month for lending because of the Lunar New Year holidays. But that still involves a rise of about +13% year-on-year, so debt is growing at about twice the rate their economy is expanding indicating a very inefficient economic policy structure.
Apple is making fast moves to shift product manufacture out of China and to Vietnam and especially India. And the new Washington Administration looks like it will keep its tech-denial pressure up on China. There is also proper coordination in "Quad" activity, and that includes a fast weaning from reliance on Chinese rare earth minerals. In turn, China is ramping up its drive into high-tech chips although it is fraught with some large stumbles so far.
In China, iron ore prices fell hard yesterday although to be fair only back to levels they were at the end of 2020.
In Chengdu, ANZ said it will lay off 850 technology-focused staff even as it claims China remains a core market for them. It is a move viewed sceptically by some. It is shifting those jobs to India, the Philippines, and a few back to Australia.
Hard on the heals that business confidence report in Australia that was at an eleven year high, now comes the news that Australian consumer confidence is back at a ten year high.
But there is still some way to go in Australia. New data out yesterday shows that in Q4-20 compared to Q4-19 their number of jobs fell -2%, hours worked fell -3.2% and the number of people with secondary jobs rose +3.1%. Overall, they are down -284,200 jobs in the year.
And Aussie regulator ASIC has signaled that it will be ramping up scrutiny and regulation of the Buy-Now-Pay-Later sector focusing on "the harms of BNPL".
In New York, the S&P500 has opened today with a +0.9% rise in early afternoon trade. Overnight European markets closed with +0.7% average gains. Yesterday in Asian markets Tokyo closed flat, and Hong Kong was up +0.5%. The Shanghai was down -0.1% despite active "home team" buying. The ASX200 ended its session yesterday down -0.8% but the NZX50 Capital Index gained +0.9%.
The latest global compilation of COVID-19 data is here. The global tally is still rising and at a fast pace, now at 117,717,000 and up +431,000 in one day, so no let-up globally. Global deaths reported now exceed 2,613,000 and +10,000 in a day. Vaccinations in the first world are rising however and in the US more than a quarter (92.9 mln) have now had this protection. That is quelling their daily death rate although it did jump to +1700 yesterday. The number of active cases there is down to 8,711,000 (-45,000 fewer in one day).
The UST 10yr yield is down -3 bps at 1.51%. The US 2-10 rate curve is unchanged at 137 bps. Their 1-5 curve is flatter at +69 bps, while their 3m-10 year curve is flatter too at just under +150 bps. The Australian Govt 10 year yield is down -6 bps at 1.69%. The China Govt 10 year yield is unchanged at 3.27%. But the New Zealand Govt 10 year yield has fallen -7 bps overnight to 1.82%.
The price of gold starts today little-changed in New York and still just on US$1718/oz.
Oil prices have fallen -US$1 overnight to just under US$63.50/bbl in the US, while the international price is down to just under US$67/bbl.
The Kiwi dollar opens today at 71.7 USc and a small rise overnight. Against the Australian dollar we are unchanged at 93 AUc. Against the euro we are little-changed at 60.3 euro cents. That means our TWI-5 is at 73.8 and little different overnight.
The bitcoin price will start today higher again at US$56,604 and up +4.3% since than this time yesterday. Volatility in the past 24 hours has been +/- 3.3%. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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50 Comments
The remainder 40% is already dumping, hence the increase in bond rates. This is caused by supply or selling exceeding demand buying. So despite the RBNZ going on a buying frenzie, entities are still selling more than they can buy. The only way any one is going to hold govt bonds (the remaining 40%) moving forward is if they are forced or coerced to. Maybe the govt will force kiwisaver funds to have a percent of there holdings in govt bonds. Maybe the RBNZ heavily incentives banks to hold Govt bonds as collateral. Either way nobody on the "free market" is going to purchase government bonds because they think they a worthwhile investment. The NZ bond market will be a phony.
As others said, RBNZ is already nationalised. Think about the government trying to then issue bonds in the future... nobody would trust them. The whole point is that the bond issuer gets money now with the guarantee to pay back more in the future. If that promise is broken, nobody will want our bonds. We would also get ratings downgrades from the big ratings agencies.
Very unwise to look for logic, reason and common sense in politics karl. The government being in collusion with the RBNZ, when it is supposed to be genuinely independent is the death knell. Everything else is the long slow drawn out suicide that was inevitable as soon as they hopped into bed together playing at the smoke and mirrors of creating money out of thin air and moving it between bonds and debt. It's a race to the bottom and we're just about there. The sad thing is, the human condition never seems to learn from their historical mistakes.
If you write them off you get dragged though the international courts. Look at Argentina below. You are better of monetizing the debt.
https://www.theguardian.com/world/2014/jun/16/argentina-debt-crisis-fea…
If you're under the illusion that public debt will ever be paid back - I don't think you understand the rules of the game.
US national debt now $27 trillion and climbing. That debt will never be paid back.
At some point the USD will fail and will no longer be the world reserve currency (why? because the value of that fiat currency is being destroyed). When that happens, people who are owed debts denominated in USD, won't want to own that debt and the financial system as we know it will need to be restructured.
I'd be more worried about what the Fed is doing rather than what the reserve bank is doing here in NZ.
Part right. Fiat has to "fail" at some point
But this part ... "the financial system as we know it will need to be restructured" .... makes it sound like all you will need is to get a focus group and a committee together ....
fiat "fails" when belief fails and belief fails when supply chains break and incomes evaporate ...
At this point ALL wealth claims are toast
Yet some loopies think they will still be able to order their decaf beans from Brazil with Bitcon ...
Fiat money has no inherent value. The system is based on trust. The system fails when people lose trust in the money as a store of value. Once more people start to read though the bogus inflation figures trust may be lost. I mean who wants to hold a bank deposit which pays 1% (pre tax) when inflation runs at 5+%? But you must understand the NZ govt will do everything & anything to try & convince people their money (the NZD) is sound. So hard to say the fate of our fiat.
No and yes Donny you're partially wrong and partially right. I know it seems backwards but; fiat money does have value - it is backed up by the nation that issues it, and all things that gives that nation some value, but you are also correct that a lot of that value is highly dependent on trust, trust in the Government of that nation to manage it's economy and affairs well, and ensure the value that underlies the currency is preserved and grown. Countries don't get to dictate what that value is, if they want their currency to be internationally traded and to have some value externally, because the whole world market gets together and decides what the value is. There is considerable inequity in this which is obvious as a currency's 'value' is often determined in the market by things that are quite amorphous, and hard to pin down and control.
The debt is owed to the banks which monetised the government's IOU (created deposits) in the first place. Furthermore, New Zealand Debt Management has to redeem the bonds possessed by the RBNZ upon maturity to pay back the banks which sold those bonds, so the deposits can be extinguished together with the bonds.
This is a common misunderstanding - and one that I had for quite a while before I went through the balance sheet analysis. I'll go through it...
When Govt spends $100m on stuff (e.g. nurses salaries) it instructs RBNZ to credit the relevant bank accounts with $100m. This immediately increases the Govt liability (debt) by $100m and increases the money in circulation by the same amount ($100m). Govt spending creates a liability or debt for Govt and creates an asset in the non-Govt sector.
As commercial banks collect loan repayments and take in savings etc they build up reserves in the reserve accounts they have to have at RBNZ. These reserves currently earn 0.25% interest. Banks have to have a minimum amount in their reserves to cover inter-bank transactions - but they typically have way more than that (aka excess reserves). So, when Govt offers the commercial banks the opportunity to swap $100m of the money earning 0.25% in their reserve account for $100m of Govt bonds that pays 2% interest (for example) they are only too pleased to make the trade. They will then sell these bonds on in the secondary market - hoping to make a profit.
Importantly, bond sales do NOT change the Govt liability ('debt') - because this liability is created when money is spent into the economy. Bond sales are just Govt swapping one liability (cash in bank reserves) for another (bonds). Bonds sales do not change Govt debt - and neither do bond purchases...
So, when RBNZ *buy* bonds they:
1. Issue $100m of new money into the bank account of the bond seller (adding another $100m to the Govt debt!)
2. Receive a $100m bond. This $100m becomes an asset for RBNZ and it *continues* to be a liability for the Govt
3. If Govt and RBNZ agreed to cancel the bond - they would reduce $100m from RBNZ assets and $100m from Treasury's liabilities - in other words it would be neutral for the 'Govt as a whole' balance sheet. However, Govt would *still* have the $100m debt they created when they bought the bond.
So, RBNZ and Treasury agreeing to cancel the bond does not reduce Govt liability (debt) because the Govt increased its liabilities to buy the bond back in the first place.
None of this means makes bond sales any less bonkers, but there we go!
More sense being spoken by what must be an increasingly nervous set of economists, as noted above, China has her foot on our collective throats is not about to take it off before we cry Uncle.
"China is about to shift policy and put an upward bias on lending rates this year and control collateralisation. The overall goal is to quell asset price inflation. Rather than "supporting growth" the new focus will be to weigh against asset bubbles."
ANZ chief economist Zollner raised the prospect that central banks could ultimately lose a battle with the market ..., reminding those assembled of some “fundamental truths”.
“People say to me ‘the Fed won’t let equities fall’ or ‘the Reserve Bank won’t let house prices fall’, as if central banks are omnipotent, and that fails the ‘too good to be true’ test,” she said.
“The point at which the central bank would ‘lose the game’ is if they print more money to buy bonds and the market focuses on the fact they have printed more money – more than that they are buying more bonds...at that point it’s “game over”, she says.
https://www.stuff.co.nz/business/opinion-analysis/124491620/reserve-ban…
“The point at which the central bank would ‘lose the game’ is if they print more money to buy bonds and the market focuses on the fact they have printed more money – more than that they are buying more bonds...at that point it’s “game over”, she says.
Hmmm..
The market, meaning dealers, is pointedly focusing upon the fact central banks are buying too many bonds.
I have been pounding the table for months about QE and its inverse relationship with vital banking liquidity. In engaging in Large Scale Asset Purchases (LSAP) central banks, particularly in the US and Japan, are playing a very dangerous game. Despite conventional “wisdom” that when a central bank engages in such a monetary easing program it must lead to an increase in liquidity (how could “money printing” not?), such a belief is far too simplistic. QE is actually the opposite of liquidity.
The problem of QE, as we saw all too well in 2011 as QE 2 ramped up, is it active[ly] removes vital collateral from repo circulation. QE 2 was particularly insidious in that regard because of its focus on bills – the security most often associated with repo. Operation Twist “fixed” that problem by “selling” bills back into the markets and replacing them on the Fed’s balance sheet with notes and bonds.
Earlier in March 2013, there was curious activity in the 10-year US treasury repo market, with repo rates dropping all the way to the 3% fail penalty “floor”. I noted at the time that it appeared QE 4 was having a negative impact in US treasury repo liquidity, including a noticeable uptick in repo fails.Link
There is a constant stream of dealers lining up to borrow NZGBs at the RBNZ's bond lending facility, presumably to cover uncovered short positions or initiate them.
Heritage. In the early 1860's, when oil production began, there was no standard container for oil, so oil and petroleum products were stored and transported in barrels of all different shapes and sizes (beer barrels, fish barrels, molasses barrels, turpentine barrels, etc.). By the early 1870's, the 42-gallon barrel had been adopted as the standard for oil trade. This was 2 gallons per barrel more than the 40-gallon standard used by many other industries at the time. The extra 2 gallons was to allow for evaporation and leaking during tranport (most barrels were made of wood). Standard Oil began manufacturing 42 gallon barrels that were blue to be used for transporting petroleum. The use of a blue barrel, abbreviated "bbl," guaranteed a buyer that this was a 42-gallon barrel.
Unfortunately the bit about the blue barrel is a myth.
https://www.aoghs.org/transportation/history-of-the-42-gallon-oil-barre…
"...the abbreviation “bbl” had been in use before the 1859 birth of the petroleum industry. In the early 19th century, wooden barrels of all capacities were common containers of trade: hogsheads, puncheons, tierces, butts, tuns, and other long since forgotten terms. Shipping manifests reveal that quantities of honey, rum, whale oil, and other commodities were shipped by the “bbl” – well before John D. Rockefeller and Standard Oil’s blue barrels."
Canada (overnight) held its overnight rate at 0.25 percent. A quick look at their mortgage rates
https://www.ratespy.com/ and in Australia, where the cash rate is 0.1 percent Westpac lowered mortgage rates yesterday.
https://www.news.com.au/finance/economy/interest-rates/westpac-slashes-…
next wave of infection and death is coming.
World deaths did fall to about 8000 a day at bottom. Now it is 10,000. Peak was 14,400 per day 11.1.21
Similarly, infections fell to 363k on February 21st, having peaked at 763k on January 11th. Now 431k
Easter should see next rapid rise but not as rapid or as high as previous high.
Continuous government failures over housing are fully out of hand: https://www.stuff.co.nz/national/300246795/rotorua-has-become-a-dumping…
Even if the borders were open again, can we fit tourists? When our hotels/motels are being used by citizens as emergency housing, how are tourists going to fit? Then again, with the rise in crime and nuisance, are they going to want to come?
I had an "experience" in Tokoroa earlier in the year - out for a walk one night and a guy propositioned me for some paid sex. Had a chat to him as well, he was from Auckland, WINZ have been shifting them all over the place, he had been in Rotorua too, now stuck in a motel (that is normally pretty empty, but now was pretty full).
I can see this turning very bad, quite quickly. Those with property fleeing to gated communities, those without adding to crime and social ill stats. Those trying hard, squashed in the middle. At the same time we have an oblivious bunch of fools in government with zero vision on how to solve the issue, in fact making the problem worse seemingly on purpose.
Money is our God and it cares not for the welfare of the individual. All of the morals and principals of our Judeo-Christian roots in the West have turned into worthless virtue signaling with no substance or real sense of belief backing them. We'll get exactly what we deserve, unless we replace entitlement with humility and collectively turn away from our current path.
Need to correct you there, those trying hard such as plenty of new Healthcare graduates (Med, Nursing, Pharmacist, Physiotherapist etc.) - can only see one dimmer lights beacon from across the ditch. Govt & RBNZ are both heavily sided on the equation promoted by those with vested interest as 'economic stability' - They may listened to Phds, Professors within science & engineering field, but for economic? - all of them claim to be wise already.
https://www.reinz.co.nz/Media/Default/Statistic%20Documents/2021/Reside…
Latest REINZ data for February has just been released and in Auckland the number of properties sold in February increased by 34.6% year-on-year (from 2,061 to 2,775) – the highest for the month of February in 14 years.
Auckland’s median house price increased by 24.3% from $885,000 at the same time last year to $1,100,000 – a new record for Auckland.
interesting article on Bitcoin
https://www.msn.com/en-nz/money/news/bitcoin-emits-triple-the-amount-of…
If you think that's bad, wait until you hear about the amount of CO2 being released by the servers that Amazon, Google and Microsoft have that run the internet. And if you think that's bad, wait until you hear about the rare earth metals mined under duress with no attention paid to the environment so you can have that new iPhone you love. And if you think that's bad, wait until you hear about the industrial military complex. And if you think that's bad - ad nauseam.
https://www.zerohedge.com/markets/china-censors-stock-market-popular-so…
China stock market peak about 22.2.21.
Off 15% since.
Now then, what was that I said about Feb 18th?
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