Here's our summary of key economic events overnight that affect New Zealand with news equity markets are nervous about the tapering decisions about to come from the US Fed - but the bond markets don't seem quite as worried.
The pressure is squarely on the US Fed FOMC members "to act" as inflation signals grow louder. Today the US producer price index (PPI) topped estimates, estimates that were already factoring in sharp rises. PPI rose +9.6%, its largest annual increase since this data series started ten years ago. Analysts had expected a +9.2% advance, itself a sharp rise from the October +8.6%. (And core PPI rose in November than October at a much faster rate than expected, so things are well embedded.)
Meanwhile, US retail sales are holding up in the end-of-year holiday selling season. But it is hard to know how much of the strong +16% year-on-year value gains are related to sharply inflated prices. Certainly it will be more this year. Inflation expectations now seem well embedded.
In the US Congress, and in contrast to the usual partisan bickering, later today they are expected to raise their formal debt ceiling government borrowing limit by +$2.5 tln to US$31 tln, or about 34% more than their annual GDP.
In China, there are growing reports of industry closures in a set of key industrial cities, closed to slow the spread of the pandemic. This will be just another problem for global supply chains. It will probably also be just another piece of evidence China is fading as an engine of global economic growth.
In Europe, industrial production rose +1.1% in October from September, up +3.3% from a year ago, rebounding from two consecutive months of contraction. Capital goods output jumped +3.0% and the production of durable consumer goods, such as televisions and washing machines, advanced +1.7% month-on-month. However, despite the apparent overall positive tone, these are not standout results, more like marking time.
EU natural gas prices have raced to new record highs overnight on a building cold snap in the region, and fears of supply disruptions from Russia as it tries to weaken the EU's ties to Ukraine.
In Australia, the widely-watched NAB business confidence survey fell away in November - and the October data was revised lower. But it remains above its long-run average. At least part of that is because businesses report some success in being able to pass on higher costs, and those include faster rising labour costs.
And staying in Australia, pandemic cases in Victoria were 1189 reported yesterday. There are now 11,051 active cases in the state - and there were another 6 deaths. In NSW there were 804 new community cases reported yesterday, another jump, with 5,079 active locally acquired cases, and one death. Queensland is reporting no new cases. The ACT has 4 new cases. Overall in Australia, just under 89.3% of eligible Aussies are fully vaccinated, plus 4% have now had one shot so far.
The UST 10yr yield opens today at 1.44% and up +3 bps from this time yesterday. The UST 2-10 rate curve starts today unchanged at +78 bps. Their 1-5 curve is steeper at +98 bps, while their 3m-10 year curve is also steeper at +142 bps. The Australian Govt ten year benchmark rate has bounced back +4 bps to 1.59%. The China Govt ten year bond is unchanged at 2.86%. The New Zealand Govt ten year is -4 bps lower at 2.35%.
Wall Street has opened its Tuesday session sharply lower, with the S&P500 down -2.2% in afternoon trade and falling. Overnight European markets fell -0.6% but London was flat. Yesterday, Tokyo closed down -0.7%, Hong Kong closed down -1.3%, while Shanghai fell -0.5% on the day, all with building retreats. The ASX200 ended flat while the NZX50 gave up some of its Monday gain, falling -0.5%.
The price of gold will start today at US$1774/oz and down -US$15 from this time yesterday.
And oil prices start today -US$1.50 lower at just over US$69.50/bbl in the US, while the international Brent price is now just over US$72.50/bbl.
The Kiwi dollar opens today marginally softer at 67.5 USc. Against the Australian dollar however we are marginally firmer at 95 AUc. Against the euro we are little-changed at 59.9 euro cents. That means our TWI-5 starts the today essentially unchanged at 72.2 and still its lowest in four months.
The bitcoin price is soft at US$46,758 but only down -0.5% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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Rumor doing the rounds that one of the big four is dropping some fixed mortgage rates today.
Edit: sounds like it not going to be a carded rate, just a promo for new (to BNZ) customers, OO lending only, and <80% LVR. 2.99% for 2yrs is being talked about. Looks like they want/need to get some low LVR loans on the books so they can start lending at high LVRs again.
Of course, doesn't make it true or right.
As you know I have been in the very small minority of people here (along with Avocado) or anywhere that has been bearish on interest rates.
I guess we will know in 6-9 months whether I was right or in fact the majority, including the bank economists, were right.
By the way, I am quite confident in my forecast but time will tell.
Who would have thought that preventing the housing market from crashing would be their number one priority?????? Sarc
Regardless of official mandates, it should be obvious to everyone by now that governments and central banks will pull out all stops to try to avoid housing market crashes.
Chinese factories closing is also added weight to the lessons from COVID re resilience. Logistics experts should now be acknowledging the vulnerability of long supply chains to disruption. Risk managers should be looking at other solutions, more local. Governments should be looking at supporting local manufacturing initiatives to build resilience and employment,. And in the end and this will be the kicker, business's should become less profit focused and more prepared to invest in capability.
True, we are trapped by the 'conventional' thinking from the late 60's and that covers two generations at least. It would take considerable courage for someone to stand up and say that model is wrong, and then withstand all the barbs and arrows from those who profit from the current model.
But then the world as we have known it came to a crashing halt with COVID. Climate change, increasingly evident has only reinforced the flaws COVID has exposed. The powers-that-be are looking increasingly desperate as they cling to a slowly sinking raft of old economic models that ruled the world, and many reporters point out the obvious to them that they have failed miserably, their lack of clothes and corruption being increasingly evident, and ultimately the very threat their mismanagement has posed to the stability of not only their own societies, but the whole world. It may seem dramatic, but once the collapse starts (and it may do militarily) I don't see the leadership or vision available to arrest it. Indeed I doubt there is the vision to avoid it even now, as almost all the leadership, everywhere is still to some degree in denial.
Murray - comment of the day.
Never have we been more exposed, less capacitied, less resilient. Or more ignorantly led, by any Party.
Some of us tried to start the conversation, a long time ago. Note that the media still ignore, and that academia still fails the silo test.
Sigh.
Not all academia is failing...
Exactly.
And when we think of housing, we think of the failures of Ardern and her cabinet in not building the prefabrication plants that a true Labour man, David Shearer, advocated for as a central element of the Kiwibuild Plan ( before it changed to a flimsy scheme of underwriting private development under Ardern).
Just think, by now we could have had several prefab plants operating, delivering housing en masse from predominantly NZ timber, including low rise apartments from cross laminated timber.
We would have been less vulnerable to supply chain issues, we would have driven down costs, and we would be heading in a more environmentally sustainable direction.
Oh well, this is what happens when you have neoliberal governments.
I put a question mark next to the cost of pre-fab houses in a factory unless they are close to being identical or US trailer park type. There is a pre-fab house crowd in NP and my initial investigations put them at least 10% higher than a franchise builder for the same floor area. Finishes can make a large cost difference but the pre-fab was not much different from your run of the mill franchise builder.
I priced a prefab house compared to a popular nationwide builder a couple of years ago for a lifestyle block. Prefab was no quicker and a hell of a lot more expensive and we were only 15 minutes from their base. I have seen tiny homes on wheels and been nothing short of disgusted both with the price and that a country with so much land has this as it's answer to housing the next generation.
If it's done en masse by government then that is where you can really get efficiencies, I am not talking about those small time private entities. They have nowhere enough scale to gain the cost efficiencies.
Not even Fletcher builds enough to really get big gains out of prefab.
If the government was building upwards of 7000 homes per year based on prefab method then we could really see gains.
It's is 100% possible to pre-fab high-quality houses. I build a passive house in NZ 4.5 years ago where all the panels were pre-built in a factory for a similar price to build in place. The factory panels were much more dimensionally accurate - perfect lengths and right angles. The build was also much quicker - went from bare slab to weathertight in 2.5 days. Even the triple glazed windows were in the walls in the factory.
This was using a small factory that could do 10s of houses per year. With economies of scale and some vertical integration, the prices could be brought down.
Or more to the point, use the existing series of prefab builders (e.g. Concision) and give them Gubmint contracts with guaranteed prices and a multi year time frame.
The issue is not that these facilities do not exist, it's rather that they do but are dependent on a intermittent orders pipeline so won't expand or scale up without pipeline certainty.
But there are no jobs for public service drones in this setup, so fuggedaboudit....
EU natural gas prices have raced to new record highs overnight on a building cold snap in the region, and fears of supply disruptions from Russia as it tries to weaken the EU's ties to Ukraine.
Russia's interests lie beyond Ukraine - Putin's Coup In India Will Shock The US
Not quite but close. Traditionally they primarily used British, but Russia offered a more affordable alternative for the numbers they wanted. Plus they have a strong drive to build their own industry around the manufacture and assembly, and the Russians were open to that more probably than any others. These days they tend to operate a mix of European and Russian equipment, and cost means offsets are increasingly important, as well as the Indians not being constrained by manufacturers restrictions on what can be fitted or done with their aircraft (this is what pretty much cuts them out of US aircraft and equipment). Their SU30MKIs are very impressive, and stories indicate they embarrassed the Americans a few years ago with their capabilities. And the belief is that the Yanks never saw the full capability of the aircraft even then! A very potent military indeed.
Indeed: I Can Name A Few Fields...
In the event of a military clash between Russia and Ukraine, most of the Ukrainian troops will be destroyed in 30-40 minutes. This was stated by Robert Lee, professor at King’s College London and veteran of the United States Marine Corps, in an interview with The New York Times on Thursday, December 9. “If Russia does indeed use its weapons, they can cause enormous damage in a very short period of time. They can destroy Ukrainian troops in the east very quickly, within the first 30-40 minutes, ”the expert emphasized.
I think Iran is exercising influence in this region - The Iran-Azerbaijan gas swap deal: Has Tehran’s tough posturing paid off?
Nothing positive in news, universal income is the way to go forward as reserve Bank have printed and pumped so much money to inflate the asset class than now any attempt to control will be a disaster and next universal income is the only option left with reserve bank and government to avoid the inevitable.
FED committed the biggest economy blunder and other like RBNZ imitated....It may seem far fetched when ponzi be it in stock market or housing market touching new height every week but one has to remember that nothing is one way and fundamentals have to catch up sooner or later - by pumping money can delay the inevitable but cannot avoid. Market tumbles when one is least expecting and just need a catalyst...fed meeting tomorrow is known and factored,so will not be that catalyst though may have short term reaction.
Future generation will have to pay price of recklessness caused by likes of Orr and Jacinda and they have the audacity to say that democracy is in danger.
And oil prices start today -US$1.50 lower at just over US$69.50/bbl in the US, while the international Brent price is now just over US$72.50/bbl.
Oil Tumbles, Brent Prompt Spread Flips To Contango After IEA Says Global Market Returned To Surplus
Another key one, JGB's have moved in tandem w/WTI curve (no surprise). Both slightly more optimistic Aug 20 to Oct 26, and since, like Euro$ futures & UST curves, wrong way. If WTI does contango, that'd be big one esp. if JGB 10s do reach zero again. https://alhambrapartners.com/2021/12/13/a-few-more-for-potential-days-of-deflation/
Note Orr is presenting to the Finance and Expenditure Committee right now. Facing questions from Bridges
RAT covid tests available in some pharmacy's from today.
I rang up and enquired about them yesterday, the lady told me they're only available if you AREN'T vaccinated.
So we're in a global pandemic, but you can't get a test done if you're vaccinated and say heading to Northland, where they don't want you to go because of the risk of spreading.
I'd have thought if this thing is so deadly then the govt would be encouraging everyone heading to a low vax area to get the test regardless of your vax status.
What logic do you expect from a PM who confirms it's ok for 25 punter tinder hookups - but won't let a 12 year old play cricket in a park. Maybe the two cricket teams should meet on tinder to arrange the game?
"Many decision makers assume that the vaccinated can be excluded as a source of transmission. It appears to be grossly negligent to ignore the vaccinated population as a possible and relevant source of transmission when deciding about public health control measures."
https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(21)0224…
Go watch/listen to the latest Joe Rogan podcast with Dr Peter A. McCullough - very interesting, going into detail on how every opportunity to minimise the impact of Covid that wasn't mass vaccination was ignored or deliberately hamstrung (i.e. potential early treatments, effective methods for reducing spread etc).
Have a read of Hill-Lawrie transcript at bottom of this article. Treatments had to be downplayed so the FDA EUA could be granted for the vaccine goldmine - and then the FDA commissioners skipped to the boards of Pfizer and Moderna. Nicely played.
https://www.conservativewoman.co.uk/the-vaccine-gold-rush-and-the-damni…
https://dossier.substack.com/p/the-revolving-door-all-3-fda-authorized
The amazing thing about this is that Hill still claims to be trying to do good when he's fully admitted having altered the conclusions of his report to fit a political narrative driven from somewhere else, that is out of line with the data. Perhaps he should be charged with corruption?
The thing is I suggest and believe that this happens every day, report conclusions are driven by political interests rather than empirical data. The is supposed to be the role of the media to delve into this and do the validation required. In this case it happens, but where are the rest of them?
The rest of them? Owned by the some institutional investors who own big pharma and whose biggest advertisers are governments. A baptist-bootleggers case study. It's a great business model - summed up by Lawrie in the last exchange - "‘Yeah. Well, I don’t know how you sleep at night, honestly.".
Profile,
I thought you might like this; https://e360.yale.edu/features/how-melting-permafrost-is-beginning-to-t…
Ah fear porn. Inter glacial warming post the Little Ice Age. Need warmer weather to accumulate the peat post ice age - then the Little Ice Age cooling to form permafrost. It's almost like the climate changes without SUV's and dairy cows.
"Peatland initiation took place around 10 000 to 9600 cal. a BP, soon after retreat of the Fennoscandian Ice Sheet, and the peatlands have remained permafrost-free fens throughout most of the Holocene.
...During peatland initiation(c. 10 000–9600 cal. a BP) the climatic conditions in the region were favourable for plant productivity with around 3 °C warmer summer temperatures compared to today (Kullman & €Oberg 2015), resulting in relatively rapid peat and net carbon accumulation rates during the early Holocene."
https://onlinelibrary.wiley.com/doi/abs/10.1111/bor.12276
Plenty of snow about at the moment so don't fret too much about heading back to early Holocene temps in the permafrost zone..
https://globalcryospherewatch.org/state_of_cryo/snow/fmi_swe_tracker.jpg
I don't necessarily agree with everything from the podcast, but when you step back and look at the bigger picture it does seem clear (with hindsight) that very early on - for some yet-to-be-determined reason, but presumably the massive amounts of money at stake - global leaders in politics and medicine/science decided the only acceptable outcome was mass vaccination, irrespective of what benefits other forms of management/mitigation might bring.
In particular, I enjoyed the segment about 'mass psychosis' which culminates in there being one - and one only - solution to the crisis at hand, and everything else must be overlooked, ignored or denigrated (in the case of Covid-19 this ultimate solution being mass vaccination).
That isn't to say the vaccines don't work - even Dr McCullough is clear on that - they have clearly had a beneficial impact . I would rather have the protection the vaccine offers than not (although let's be brutally honest, they have not worked as well as was originally touted. A quick Google brings up plenty of direct quotes from the likes of Fauci earlier in this year proclaiming that 2 jabs were almost 100% effective at stopping the spread of Covid ... that aged like milk) ... but why have they been pushed as the only solution to Covid-19, in face of clear evidence that they are not as effective as was claimed.
All in all, watching/listening is a very valuable spend of 3 hours.
"Some of the largest U.S. hospital systems have dropped Covid-19 vaccine mandates for staff after a federal judge temporarily halted a Biden administration mandate that healthcare workers get the shots.
...More recently, thousands of nurses have left the industry or lost their jobs rather than get vaccinated. As of September, 30% of workers at more than 2,000 hospitals across the country surveyed by the Centers for Disease Control and Prevention were unvaccinated."
https://www.wsj.com/articles/some-hospitals-drop-covid-19-vaccine-manda…
BoE warns Bitcoin could become worthless...
Government fiat is underwritten by the fact you have to pay your taxes with it. That doesn't mean it can't be greatly devalued, but there will always be some demand for it if people are forced to use it. If hyperinflation happens, people try to borrow and spend their money on durable goods like bricks etc, which I guess is as close as possible to not believing in the currency. Kinda like property investors now I guess, however they are also helping to create the inflation at the same time.
It takes energy to create, ergo it obeys the first law of thermodynamics that energy can not be created or destroyed, just changed form.
I suggest reading this nice article:
The Bullish Case for Bitcoin. UPDATE: The Bullish Case for Bitcoin… | by Vijay Boyapati | Medium
Bitcoin Does Not Waste Energy - Unchained Capital
Money is a game theoretical belief system. And people store their value in a good that they think people will 1) value in the future and 2) not be able to produce for no cost, ie it is scarce.
The hardest money always wins.
Lol, anybody with half a brain and a rudimentary understanding of basic science knows that yes, Bitcoin does indeed "waste" energy. It converts it from a high quality useful form in electricity, (and ultimately whatever source was used to generate that electricity) and spits it out as low grade waste heat. That's it, oh and a bunch of bits that you cannot recover useful energy from.
That unchained capital link is the biggest bunch of BS I've seen in a while.
Ok so energy is only valuable when it can be transported to an addressable market. Hence all the natural gas that is a byproduct of oil production just gets flared into the atmosphere.
Now tell me that utilising that flare gas and using it to mine Bitcoin, which is a win for the environment, the Bitcoin network and the oil and gas producer, is not beneficial.
The bits can be exchanged for other goods and service, just like how your bits of paper can be.
The point is, you can not create something that has value (money) without putting in effort, or energy. Which is why fiat currencies are mathematically certain to tend towards their production cost, which is 0.
It is not beneficial, in the end its the same result as just flaring it off. The gas gets burnt and released into the atmosphere and doesn't produce any useful output.
Capturing the gas is good, IF you do something useful with it, like use it to do work, or make a product with real value. Bitcoin does not do that.
So this is your totally subjective decision on what is a worth while use of energy then? You don't like Bitcoin, then absolutely 0 energy use is acceptable, you understand how it works and the current amount is no where near enough. Thats the great thing about the free market, people will pay for what they value and you have no right to tell them what they can or cant do with the energy once they have purchased at fair market value.
And yes, flaring is only about 70% effective, leaving the remaining 30% of methane to float free. Capturing it to put through a generator to mine bitcoin is 100% effective at burning the methane. But yes, it still releases GHG, just the less damaging one.
No, if you do something useful with the gas you end up with something that has properties that has objective value. You could use it to produce steel that has useful physical properties, you could use it to move cargo somewhere. It's financial value is subjective, its real value is not, its entirely measurable. Buttcoins value is entirely subjective, it has no measurable properties, its just a bloody set of numbers that represent a massive waste of useful energy.
Thats the whole point of Bitcoin being decentralised. Governments can not kill it. So whether they allow it or not is besides the point. People will use what ever is in their best interests. Eg Nigeria, Turkey, Belarus, Venezuela. First world countries will be last as we have working systems.
Stagflation, this probably would be the worse scenario for us today. If we follow how US dealt with its stagflation in 1970s. I think sharply raising interest rate is the way to go. But it'll all end up in tears in that way. So we don't know. I truly hope that won't happen.
All experts, economist are now raising question on Transitory Inflation used by Powell but where were they when this theory was circulated by fed as even at that time knew that it is lie thrown to distract.
FED is being mocked all over social media but they are still able to maintain straight face not realising that times have changed and maybe this was last biggest blunder or may be we do not realise and Powell tomorrow will be able to pull another fib to distract and give sue to other governor of reserve bank to start parroting the same.
Yesterday, I expressed some unease at the RBNZ staff resignations/shufflings. Today, that unease has dissipated with an answer to what's going on, both at the RBNZ; in the economy and politics, and why all the banks expect property price falls. My suggestion?
JOHN KEY.
Key was PM during Orr's Superfund adventures; his RBNZ captaincy and now as head of our largest bank, the biggest influencer of what can happen in the commercial debt markets. They know each other well.
He became PM with a clear set of priorities, and was frustrated by the GFC, The Earthquakes, SCF, Political stuff of all kinds, and gave the whole formal politics thing away when out in front. Let's face it, if he had run again, he would have most likely seen off Labour - Labour knew that, which is why Ardern was given her run.
But today, Key can direct our largest lender - and by extension, all the rest; advise the Government (Ardern) as a non-threatening executive, and Luxon is under his shadow as the anointed one; he can nudge Orr in a new direction and so can fulfil his original manifesto.
He knew what was right in 2007. We all did. That's why he was elected. Labour and National; two sides of the same coin, substantially agree on 'what needs to be done' and with an advisor free of formal politics, Key can 'suggest' a bipartisan course of action.
Of course, that's could be absolutely wrong. If it was right, we should have been leaked such. But it makes sense, and for today, at least, peace reigns in my brain.
Horror, is probably baked in. It's now a matter of 'who gets terrorised the least.'
We can't hide under the bedsheets any longer. We know something nasty is out there, and failing to confront it isn't going to make it any better. Someone has to step forwards. No politician will - we've seen that over an extended period from all sides. So someone else has to.
"Cometh the Hour, cometh the Man' and all of that.
It seems corporate collusion to suppress wages is not illegal in New Zealand. No wonder local wages and productivity lag the rest if the world. [Link]
Bus driver shortages recently forced the scaling back of some Christchurch bus services, and Environment Canterbury warned Go Bus that actively recruiting for drivers within the public transport network would just shift the problem.
Go Bus operations director Nigel Piper says it agreed not to target drivers from rival bus operator Ritchies...
Sounds very illegal:
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