Here's our summary of key economic events overnight that affect New Zealand with news it's all about commodities and inflation today.
Rising commodity prices are no longer news, but the acceleration in their rises is. The iron ore price jumped +10% yesterday. Copper prices rose sharply too. The reason for the sudden move isn't clear, but a suspect is that central banks have been universally signaling that easy money will be here for some time. These sharp rises build on inflation fears.
And that seems to be borne out in the New York Fed's national survey of inflation expectations. That shows them up to 3.4% over the next year, up from 3.1% (and before all the international cost pressures have really bitten).
Also inflating are US state tax revenues. California has announced a huge +US$76 bln surplus, and a very sharp improvement in the Golden State's economic fortunes.
A good way to see the recovery in US economic activity is to look at the CASS trucking activity index. And when you do, you see that the cost of road freight is skyrocketing higher.
In China, major steelmakers are hiking prices sharply.
In Australia, they are a primary beneficiary of the commodities boom. Their stock market is making outsized gains. And the latest NAB business sentiment survey was very strong, even bettering the strong March survey. Confidence rose to a survey high (since 1998). The gain in the month was driven by large increases in mining and the services sectors with finance, business & property now the strongest non-mining industry. Inflationary pressures are not an issue in these results.
On Wall Street, the S&P500 is down -0.7% in afternoon trade with a building selloff. Overnight in European markets most had flat results to start the week. Yesterday, the very large Tokyo market ended up +0.6%, Hong Kong was flat for the day, and Shanghai rise a more modest +0.3%. The ASX200 ended up an impressive +1.3% while the NZX50 Capital Index struggled under the weight of A2 Milk, Synlait and Fonterra, ending down -0.6%.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 158,481,000 people have been infected at some point, up +662,000 in one day, still largely driven by rises in India and Brazil. Global deaths reported now exceed 3,297,000 and up +11,000 in one day. Vaccinations in the world are also rising fast, now up to 1.301 bln (+17 mln per day), and in the US almost half of their population (46.3%) have had at least one dose as they keep up their fast rollout. Now more than one third have been fully vaccinated (115.8 mln people). The number of active cases there has fallen to 6,446,000 with fewer new infections than recoveries recently and improving progress.
The UST 10yr yield starts today at 1.60% and back up +2 bps from this time yesterday. The US 2-10 rate curve is little-changed at +144 bps. Their 1-5 curve is also little-changed at +73 bps, as is their 3m-10 year curve marginally steeper +159 bps. The Australian Govt ten year benchmark rate is up +3 bps at 1.63%. The China Govt ten year bond is down -1 bp at 3.17%. And the New Zealand Govt ten year is up +4 bps at 1.78%.
The price of gold starts today at US$1837/oz and that is up +US$6 since this time yesterday. Chinese gold consumption is recovering very sharply.
Oil prices start today still at just under US$65/bbl in the US, while the international Brent price is still just over US$68/bbl.
The Kiwi dollar opens today at 72.9 USc and little-changed overnight. Against the Australian dollar we are still at 92.8 AUc. Against the euro we are at 60 euro cents. That means our TWI-5 starts today at 74.3.
The bitcoin price is now at US$56,997 and -0.9% lower than this time yesterday. Volatility in the past 24 hours has been a moderate +/- 2.4%. 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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76 Comments
When will Air NZ make a similar announcement? Doesn't surprise me, everything takes longer than you think it will take.
https://australianaviation.com.au/2021/05/qantas-dilemma-as-internation…
Inflation seems to be picking up speed. Perhaps it's not only our property that will hit the million NZD mark, but many commodities too. Let's just hope it's not food.
Reading the summary last night, that A2 is down so much and still our 10th largest stock puts NZ in perspective for much of this. Our economy is miniscule. That means to succeed we need to be smart.
So what have we done about it. In the last 20 years we've scuttled our education sector, replaced our inexperienced youth with foreign imports, and tied our productive capital up in property - a local only illiquid asset class.
We're possibly in the worst position a country could be to weather the likely storm and final act of the GFC. I just hope and pray that any coming austerity brings us to our senses and turns the tide on many of these trends. A good dose of humility could be just what the doctor ordered.
'the likely storm and final act of the GFC.'
Great comment. I think of the current period we are in as starting when Greenspan slashed interest rates to 1% after the Dotcom bubble bursting and 9/11, thus stoking the first period of extreme irrational exuberance and financial recklessness that ended with the first 'GFC crash'. The response to the GFC crash from central banks, led by The Fed, was to administer more of the medicine that made the financial system sick in the first place - slashing interest rates to the bone..and then they launched another reckless experiment: QE. We have then seen the growth of the biggest bubble in history, the 'everything bubble', which central banks have had to defend by tripling down on their foolishness. In many ways the pandemic has only accelerated the bizarre trends and overall deterioration in the picture. Something is very wrong when stock markets rise when they get bad economic news. So we are set up for another 'GFC crash'. GFC Crash II will be the mother of all crashes. The period since the start of the millenium will be seen as 'The Great Financial Madness' - alternating between extreme exuberance and gigantic bubbles, and huge and devastating crashes.
The primary produce sector, i.e. export of mostly raw materials such as 'raw' logs and milk powder etc, is what it is. We only have so much arable land and so many trees. We cannot expand the sector any further, so we've hit peak 'farming' imo. I guess the last resort to eke out more 'GDP gowth' will be to turn the immigration taps on again, increase government spending, and see if they can get some more blood out of the property stone by pushing interest rates into negative territory.
You are correct in the first part there, we export raw materials.
So the next step to boost export earnings is to crate secondary, value add industries such as milling the wood ourselves and export higher value products.
Labour wants to double export earnings in the next decade. With basically all our primary industries having reached max capacity a few years ago, and now rebalancing to sustainable max levels we do not have much room to intensify like the dairy boom in the late 2000's. unless commodity prices basically double (which may happen the way things are going).
But how are we going to do this with no capital investment in business, R&D, electricity supply and the big one, a secure water supply to both urban and rural residents and industries!!!.
We cant keep letting he country be held hostage by a small number of greenies that oppose every bloody hydro project.
The billions of dollars required for business investment etc are earmarked for the property market. That is our flagship economic plan and the source of all our nations wealth. Nigel and Jenny need to borrow $800,000 so they can buy a house built in the 1950's from Susan and Pete for $450,000 more than Susan and Pete paid for it. If you don't support 'KiwiPonzi' then you are very much on the outside looking in, and your objections will fall on deaf ears.
Those greenies may see the light when the new EV they have bought is more object de 'art than transport. Some interesting talks at last weeks EWorld conference. Without some serious (and think expressway+ in scale) investment in the network and charging infrastructure we will be in a pickle.
Well good luck buying an ICE car in about 6 years..
Electric vehicles (EVs) will be cheaper to produce compared to fossil fuel-powered vehicles by 2027, according to a study published Monday,
A drop in the cost of making batteries will make EVs cheaper to buy, while stricter emissions regulations could enable them to take a sizeable chunk of the market share within the next decade.
https://www.dailysabah.com/business/automotive/evs-to-be-cheaper-to-pro…
JAO,
Well, i don't think of our EV-a Nissan Leaf- as an objet d'art, but as a practical second car. We use it for almost all our local journeys. With a range when fully charged of around 160ks, we never have 'range anxiety'. It gets recharged in the garage overnight.The saving in running costs is significant and it's fun to drive.
Gallowhatever - your comment comes out of the 1980's.
So many assumptions I don't know where to start.
https://www.sciencedirect.com/science/article/pii/S0921800919310067
Happy reading....
Bloody Greenies are to blame. We should be able to throw a dam across every trickle and slap ourselves on the back for being so clever. Personally I believe the exponential growthists are to blame. We always need to squeeze more juice out of old mother Earth to accommodate their fetish.
NZ has obvious advantages for growing the raw material: plenty of water and land, very informed (relative to other countries) farmers, established market positions, etc.
However, when it comes to processing NZ is in a serious disadvantage compared to other countries (that for example produce lumber): very expensive energy (compared to Russian, Norway, Sweden, Finland, USA, Canada etc), expensive labour (may be similar in terms of pay but with less productivity), and with significant expensive transportation to consumer markets.
It does look like that with current global trading setting, and global competition, the only way "processing" will be profitable in NZ would be via direct government subsidization, which I do not think is possible due to trading agreements, or via currency manipulation (which mean harder life for locals as NZ will be able to import less and consume less).
Come on Tom, get with the asset bubble! Surely we can financialise these raw materials through collateralised derivatives and take our asset prices to the moon through leverage? :)
Yes immigration will be back on-line shortly, I hear this morning that we have opened 1250 student visas so we can expect the trickle to build from there.
Couple of thought-provoking links (via Automatic Earth):
http://econintersect.com/pages/analysis/analysis.php?post=202105090307
https://greenwald.substack.com/p/antony-blinken-continues-to-lecture
CH floundering on RNZ this morning on the pay freeze. He is saying it's not, and also taking small groups out of context to justify his position. Labour will pay a huge price for this one!
The MSM a missing a huge opportunity as well. In the past the difference in living standards between Aussie and NZ was an area of concern, and this is not even being raised in any of the discussions, as this government seeks to drive down living standards, and widen the gap!
The government is pushing its way into a dead end canyon. They don’t seem to know that but they will when, in the usual style of Westerns, the Indians arrive above and the arrows begin to rain down. Friendly fire a lot of it too with this latest faux pas. Right now people are being hurt in the pocket at retail and more. Hardly an ideal time for a wage freeze. What helped sealthe fate of the last National government was a view by Joe Public that they had lost both contact and care for them. A parallel vein has now been opened by this government.
Agree, and National have done nothing to redeem themselves in the last 4 years. Will be interesting to see if Collins is the leader come the election, as I suspect Top, ACT and The Communists masquerading as Environmentalists Greens will see numbers like never before if the major parties carry their tainted leadership still.
I agree - this lot is so out of touch with the economic reality of this country.
Three-fourths of primary teachers across NZ schools are either on the top step of the salary (90k a year) or on the one below it. Pay negotiations are to begin next year and the resultant wage increase will be kicking in 2 years from now.
So all these workers will be receiving a big pay cut in real terms over the next 2 years at least.
The First World is full of people who have a sense of entitlement. Some just project that, and nothing more. Others realise things aren't great, impact-wise, but want to carry on in an entitled manner. I'm coming to the conclusion that Wokeness - RNZ's Maori-dash being a classic example, the current she/her/it naming frenzy another - is a cranial attempt to self-justify, to accommodate the widening dissonance.
The connection between 'money' and 'depleting the planet by spending it' is the biggie - an almost universally-held wilful dissonance. We should be asking to be paid less. Much less. Or there won't be a planet, at best there will be a compromised existence, and money will be worth diddly-squat anyway.
We live in interesting times......
The connection between 'money' and 'depleting the planet by spending it' is the biggie
Absolutely - and anyone with a mobile phone in their pocket is kidding themselves if they think they're not single-handedly destroying the environment and oppressing third world labourers. The inconvenient truth is that we all love to act virtuous, but don't get in the way of our personal convenience at any cost.
PDK, you're missing the point. People aren't asking for more money to be able to spend on more consumer goods. They're asking for more to keep the standard they currently have. Everything is getting dearer, not just housing, and our Government has just told us it doesn't care for all the Government employees. They have utterly failed to address core costs of most people, which are utterly out of control, because they are afraid of pissing off the money who they are subsidising, and now they think they can flannel us as to what they are trying to do.
If they stopped the housing supplement, prevented all landlords from evicting any tenant for 12 months and limited rents for a whole house to a maximum of 30% of the median take home pay, they would save a hell of a lot more than this pay freeze would, as well as do a major step towards addressing poverty, especially child poverty in this country. Yes a few people will squeal. But guess what - they are a minority. the majority in this country would benefit, which is who the Government need to understand that's who they serve.
"The reason for the sudden move isn't clear, but a suspect is that central banks have been universally signaling that easy money will be here for some time. These sharp rises build on inflation fears."
Easy and cheap money was to support when market tanked but now when market is or has recovered, still reserve banks are following the easiest way out forgetting that even life saving medicines in extreme are harmful.
Whenever they announce pull back, will have a short reaction in market but this people are so shit scared of even a minor correction that still following the policy of least regret and not been dynamic...may be everyone just following Fed blindly.
Yeah let's follow the path of economic growth as in Venezuela :
Crisis-hit Venezuela has the highest hyperinflation out of any country in the world. It recorded a 65000% inflation in 2018, which cooled to 19,910% in 2019, and 15,000% in 2020. According to the IMF, the South American nation's hyperinflation will remain at around 15,000% in 2021.
Or may be we compete with these countries with the highest inflation in 2019 were and now may be much more :
Sudan. Liberia. Inflation rate of 23.30% (April 2019) ...
Haiti. Inflation rate of 18.60% (June 2019) ...
Sierra Leone. Inflation rate of 17.46% (March 2019) ...
Angola. Inflation rate of 17.24% (July 2019) ...
I'm not 100% sure but this round if inflation comes along it isn't the same fundamentals as the 70s/80's with massive wage increases + inflate your mortgage away?
It's stagflation? where we all get less and move back down a couple of notches?
Does the mortgage still get inflated away?
I'm not so sure you get the same wage increases with inflation compared to the 70s/80s. There was a national arbitration system in place between govt, unions and employers to set the awards (like Australia still has), plus a much higher rate of union membership to back up support for worker pay increases. These days you have much lower membership and less bargaining power among workers - I wouldn't assume wages will go up to match any inflation that's actually counted.
Did the (so-called) GFC not teach you anything? Add in my Keen link above, essentially graphing exponential growth since then.
Mild?
My bet has always been that the next will be the last. Mass disbelief in keystroke-issued sleight-of-hand, driving an unstoppable reconciliation. When the true floor is reached, so little is left that the sucker (in Bush the younger's immortal words) will have gone down.
Brock
Don't let facts get in the way of your posts.
You are incorrect. There is nothing "written into law" regarding keeping inflation within the 1 to 3%, and failure to do so is not "to break the law".
You refer to Policy Targets Agreement (PTA) - an agreement between the Minister of Finance/Treasurer and the Governor of the Reserve Bank specifying and providing a measurement of price stability.
That is not a "law" - a law is required to be passed by Parliament and needs Royal Ascent.
. . . . but there again despite the facts, to claim that it "breaks the law" just makes your post more outlandish.
Hi Printer7,
Sure, if you want to split hairs, correct it's written into law that the RBNZ must obey the PTA, which contains inflation settings that have remained unchanged for decades.
But don't let reading comprehension get in the way of your posts. I never conclusively said such a law exists, only that such narrative that was spun.
CPI hasn't exceeded 3% since September 2011. Conversely, CPI went under 1% for 12 quarters since then. No calls for RBNZ Governor's head when that happened. Too much vested interest creating drama e.g. OCR needs to be 20% to nail home/investor borrowers and ensure I cream it on my term deposits.
Good morning from Germany, where China is becoming more & important as trading partner w/exports to US & France have fallen. China has long since replaced France as 2nd most important export mkt & is on verge of overtaking US. German exports to China in past 12mths hit fresh ATH. Link
Article by Bernard Hickey :
https://thekaka.substack.com/p/dawn-chorus-striking-a-balance-in?token=…
If the interest rate to remain low to negative for a long period of time, is it not more important and urgent to remove Interest Only Loan to tame atleast some speculative demand ( Though could be substantial as speculative activity is possible and funded mostly through interest only loan).
If RBNZ is concerned about side effect of low interest, What is stopping them to control IO loan atleast to investors - no rocket science unless they actually wants the ponzi to continue, which seems to be the case.
Given that 90% of Government leadership is more concerned with ass-covering than delivering, inflation and the follow-on interest rate hikes that lead to a property market correction is much easier to explain away than a policy change that could elicit blame. The NZ MSM are so thick they'll lap up whatever line they get fed by the government. Another 55m will sort it out - "nothing to see here, carry on".
Vaccine costs should drop - China on the horizon as ‘world’s pharmacy’
3 month Libor hitting record lows - hardly inflationary.
Check out the volume at the bottom of this link.
https://www.cmegroup.com/trading/interest-rates/stir/eurodollar.html
Open interest - https://futures.tradingcharts.com/futures/quotes/ED.html
"Eurodollar Whale" Bet On J-Hole Policy-Pivot Builds Ahead Of Payrolls
The problem with the USD as an indicator is that 80% of the total supply has been created in the last 15 years so IMO its no longer a good gauge of macro-economics - https://tradingeconomics.com/united-states/money-supply-m0. As a thought experiment, how would the EuroDollar futures and options chart behave in an environment where the current economic school of theory (and USD as global reserve asset) is collapsing IYO Audaxes? From what I can tell bankers are so deep in the theory they can't even imagine the scenario, and as Michael Burry proved shorting the US property market, few have their finger on the actual pulse of what's going on.
Eurodollar money supply in the form of bank ledger entries beyond the borders of the US are many magnitudes greater than US domestic money supply estimates.
Long-dated dollar assets are “funded” by short dollar liabilities, largely in eurodollars augmented by currency swaps and derivatives positions. Stress in dollar funding, including volatility in funding expectations, feeds outward into margin calls, collateral adjustments and in general rising liquidity costs. Link
Demand for dollars via FX swaps
Aggregate data on the use FX swaps and FX forwards can be obtained from the BIS derivatives statistics.
The BIS OTC derivatives data (OTC data) show that the total amount outstanding at end-June 2019 neared $86 trillion (Graph 2, first panel), with FX swaps accounting for an estimated three quarters of this total.
Not surprisingly, the US dollar is almost always one of the two currencies exchanged (89%). Roughly three quarters of outstanding positions had a maturity of less than one year, but turnover data show that the modal swap matures in a week or less. Link
So the logical conclusion is that no one has the faintest idea about what's actually going on and where the markets are headed. Check out the leverage that collapsed Archegos - https://wolfstreet.com/2021/04/17/stock-market-leverage-in-la-la-land-r…. Wolfstreet are reporting no one knows the extent of existing market leverage. But it seems options gamblers are everywhere from the most prestigious investment banks right down to Tiktok Robinhood "influencers". They're all playing with funny money that's next to worthless, and the canaries are well and truly dead.
Billions flooding into something called 'Dogecoin'. It's a POS in digital form. All that 'stimmy' will be vaporised in due course, and the US debt will have expanded for no conceivable purpose. But billions pouring into Dogecoin, and US equity markets rising on bad economic news - that should indicate to all just how haywire its all going.
It's funny to me that, after many years of low commodity prices, now people are talking about infrastructure just as commodity prices go crazy and major projects will get least value for money. The time to "do" commodity intensive project was over the last decade.
Inflation exceeding wages = lower growth and less income for debt to be paid out of:
https://wolfstreet.com/2021/05/10/consumers-expect-surging-inflation-to…
Inflation exceeding wages = lower growth and less income for debt to be paid out of:
https://wolfstreet.com/2021/05/10/consumers-expect-surging-inflation-to…
To continue debt fuelled expansion you need either continually lower cost of debt, or rising incomes to finance extra debt. So, unless interest rates continue to fall, you need more income.
At present we are headed for less income relative to rising living costs AND interest rates falling at paltry increments cf to 6 months ago. So, the gravy train is going off the rails.
Labour is choosing hyperinflation over an asset reset. This is the worst outcome for savers and poor people, and only really looks after the interest of bank shareholders and asset speculators. Labour is the new National, what a sellout of its core values and supporters.
Wow.
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