Here's our summary of key economic events overnight that affect New Zealand with news of some caution ahead of the US Fed announcements.
All eyes are on the US Fed this morning, awaiting their expected tapering decision, and wanting to see their forward track data. This will be released at 8am NZT and we will update this item soon after that. It has the potential to move markets, especially on divergences from the expected signals that are priced in which is heading for a 2.50% official interest rate in about three years from 0.25% now, and with a sharp tapering of new bond purchases in early 2022. The end of QE makes interest rate rises possible.
Update: The US Fed signaled they were prepared to raise their short-term benchmark rate at least three times next year to cool their fast-rising inflation. And as expected, they will move quickly scale back its pandemic stimulus efforts in response, opening the door to rate increases starting in Q2-2022. It has been an aggressive policy pivot, more so than markets were expecting.
Meanwhile, US retail sales came in slightly weaker than expected, up +0.3% from a month earlier in November after surging +1.8% in October and well below market expectations of +0.8%. This is a sign of slowing domestic demand because it is not price-adjusted and does not reflect the fastest inflation in decades. The so-called core retail sales, which correspond most closely with the consumer spending component of GDP, edged down -0.1% in November. However, we should also note that the November retail sales were +18% higher than year-ago levels. Inflation may now be hurting retail sales volumes.
More than this, US business inventories jumped +1.2% in October from September and to be almost +8% higher than a year ago - their largest rise in a decade and clear evidence of the costs of the supply-chain changes. This sort of change embeds higher inflation.
The retreat in confidence expected from the NY Fed's regional factory survey didn't eventuate in their December survey however. Growth at good levels continues for these firms, who remain far more optimistic that the long run average, while price increases remain substantial.
Canadian housing starts rose more than expected, adding more than +300,000 dwelling units when +234,000 were expected in November.
And Canadian CPI rose to its highest since 1991 at just over 4.7% in November.
China's house prices slipped according to official Chinese statistics. They say in first-tier cities like Beijing and Shanghai, they fell -0.2% in November from October. In second-tier cities they were down -0.4% on the prior month, and in third-tier cities they were also -0.4% lower. Year-on-year all these prices are still sowing gains, but they are narrowing. (Prices for new housing were reported as being higher.)
China retail sales lost some momentum in November, ending up just +3.9% compared to a year ago, in officially released data and that was lower than analysts were expecting.
Chinese industrial production rose +3.8% from a year ago and that was marginally better than expected. Electricity production showed virtually no growth from year-ago levels (+0.2%) which may be a more telling indicator of the slowdown.
In the EU, tensions with Russia are rising, and they were already high. Germany has convicted a Russian assassin working in the country. And the EU is ending long term contracts for natural gas, at the expense of Russia, as they drive for less reliance on fossil fuels, quicker. Moscow is not impressed. China is paying 50% less for their natural gas as well, but at least they are still buying. Russia is all about fossil fuels and is feeling under pressure on all fronts.
The EU carbon price is off its all-time high of a week ago, but still up at €80.20/tonne or NZ$135/tonne of carbon equivalent and that is almost exactly double the New Zealand price which is currently NZ$68.15/tonne.
In Australia, the Murdoch family seem to have manoeuvred one of their key legal advisers into the top post at the ACCC.
In Australia, pandemic cases in Victoria were 1405 reported today. There are now 11,518 active cases in the state - and there were another 3 deaths today. In NSW there were 1360 new community cases reported today, another big jump, with 6,233 active locally acquired cases, and one death. Their Health Minister is warning this level could jump to 25,000 per day by the end of January. Queensland is reporting no new cases. The ACT has 7 new cases. Overall in Australia, just under 89.5% 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 unchanged from this time yesterday, awaiting the US Fed signals. The UST 2-10 rate curve starts today unchanged at +77 bps. Their 1-5 curve is also unchanged at +98 bps, while their 3m-10 year curve is still at +142 bps. The Australian Govt ten year benchmark rate is down -1 bp at 1.58%. The China Govt ten year bond is little-changed at 2.87%. The New Zealand Govt ten year is -4 bps lower at 2.31% and undermined by yesterday's sharp drop in indicated NZ Government bond demand.
Wall Street has opened its Wednesday session lower, with the S&P500 down -0.4% in afternoon trade and taking the drop since Monday to -2.0%. Overnight European markets mostly rose +0.3% but London was fell -0.6%. Yesterday, Tokyo closed up +0.1%, but Hong Kong closed down -0.9%, while Shanghai fell -0.4% on the day. The ASX200 ended down -0.7% while the NZX50 fell another -0.5%.
The price of gold will start today at US$1767/oz and down -US$7 from this time yesterday.
And oil prices start today +50 USc firmer at just over US$70/bbl in the US, while the international Brent price is now just under US$73.50/bbl.
The Kiwi dollar opens today softer yet again at 67.3 USc and now a 13 month low. Against the Australian dollar we are -40 bps weaker at 94.6 AUc. Against the euro we are little-changed at 59.8 euro cents. That means our TWI-5 starts the today essentially down -20 bps at 72 and its lowest in four months.
The bitcoin price is little-changed at US$46,933 and up a mere +0.4% 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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58 Comments
Interplay between Russia & EU is, to say the least, complex. EU needs Russian fuel as much as Russia needs EU money for it. Increasing tensions are unsettling the balance of that and vice versa. Starting to look a bit like the plot layout for a Tom Clancy thriller isn’t it. Have to consider this is now a reflection of behind the scenes pressure on the EU commenced during Trump’s administration, if you expect us to power NATO & invest in your defence, then you can’t at the same time be reliant on our enemy?
I note stuff this morning is reporting on the China slowdown. Notably they are reporting on how heavily reliant we are on China as our major export market and how a China slowdown will damage the NZ economy
There is a certain irony given stuff has been a critic of Australia and it’s recent relationship with China - in a number of articles it has suggested that NZ could not afford to diversify its export market away from China.
Now Australia looks like the genius in the room - having diversified trade in recent years away from China- the fallout of a China economic collapse whilst not pretty for Australia will at least be manageable. Pity NZ kept it’s eggs all in the one basket.
There is now a small window for NZ to find new export partners - will it take it ???
Sorry wasn't talking about the comment, but rather referring to the Stuff reporters. I really do think that the media have a very important role in making critical analysis of what is going on around us all at all levels. As so many say so often, this analysis is so often sadly lacking. As we are in a democracy and the aspiration is for that to be 'highly functioning' then it is up to the media to challenge the political narrative at every opportunity. Just reporting the 'facts' doesn't cut it unless you can be certain you have ALL the facts, so WHY becomes the most important question.
[W]e've gotten to a point where so many people feel comfortable getting cavalier about war with Russia. Yes, of course the Commentary crowd is raring to jump into a war that generations grew up dreading. But there's a remarkable amount of mainstream fervor for being "strong" and "assertive" with Russia right now, and I can only guess that it largely stems from the fact that we've been insulated from the horrors of war really since Vietnam, thanks to the unipolarity of the post-Cold War world, the remarkable advances in emergency medicine made in the past 50 years, and our increasing focus on a "nimble" army. These things have made conflict easier to bear for a citizenry that, in turn, doesn't fear conflict the way it should. Link
Diversified away from China? Pretty sure they make up an even higher share than ever, around 37% of their total trade. Australia has been a major source of iron ore and coal for China for the last decade, this doesn't look like changing. As long as China is the worlds manufacturing hub, they need power and metals, the ingredients of which are plentiful in Aus and easily extracted.
"...the parasitic nature of ....Queenstown."
Ah. So you've lived there as well...
And the 'city' is governed by such inscrutable operators. A location sustained by Tourism and Property Speculation. New Zealand society at its finest.
Mr Boult was a director of Stonewood Homes before it was placed in receivership on February 22, 2016, owing large sums of money to unsecured creditors.
https://www.odt.co.nz/regions/queenstown/boults-stay-proceedings-stonew…
And then there was the debacle with Dunedin Council's energy company, Delta.
At Luggate,...Delta a slightly smaller interest than Boult so that the company would not be a council-controlled organisation, although in practice they agreed the partnership would be equal. The A-G commented: "We do not consider that Delta's use of artificial structures to avoid accountability arrangements is appropriate for a public entity." Just so, particularly when the public entity is going to the Dunedin City Treasury to borrow $14m for a property venture in another council's area of jurisdiction. Delta has since quit its ill-fated Central Otago ventures....Losses are estimated by the A-G at $5.9m for Luggate and $2m for Jack's Point.
https://www.stuff.co.nz/business/9867401/Report-finds-nothing-wrong-wit…
I visited it in 2000 and then again in 2016 and the difference in the town was night and day. Tourists and people everywhere, way more sprawl horrible congestion in comparison to 2000. I shudder to think what it would look like in 2030 assuming 'business as usual' was able to continue.
It is quite amazing to see so many negative people comment in a row. I don't think it has changed much at all in 20 years. Sometimes it is full of people but I think I prefer that to what it has been the last 18 months. I like people. The scenery is the same. I like a beer and meal out with people. Still plenty of places you can go that have neither. Try lake Coleridge next time.
I would have thought a trip to Queenstown would be to enjoy the amazing scenery. Something unique in NZ and the world in general. Something Darfield doesn't quite match. All the add ons to the experience, like Warehouse parking lots, seriously detract from that experience. In fact, they turn one of the most beautiful spots on the planet, into just another urban sh.t hole!
... nowhere is 100 % perfect .. . But , Queenstown ticks alot of boxes for me , from scenery , things to do & see , some wineries & craft breweries ... not sure why its " kick the snot out of Qtn Day " at interest.co.nz ..
Go to Huntly instead , you negative Nellie's ... I dont wanna hang out with a bunch of whingy whiners ... ... I'll be propped up at the Searchlight brewery soon ... enjoying a pint or 3 with excellent happy folk : boooo-yah ....
There's nothing wrong with the environmentally sympathetic attractions like along the Gibbston valley, although even that is being intensified. It's the urbanisation, sprawl, pump and fleece, blatant growthist greed that's the problem. The plan is to double up, then double again, ad infinitum. The environmental outlook for the town is truly awful.
https://finance.yahoo.com/video/yahoo-finance-live-dec-15-200658350.html
Just watching how FED overdid last year and have screwed, now possibility of getting more entangled in trying to undo the damage done.
Good analysis by a youtuber....sometimes average person can do better than so called experts.
I'm not sure how meaningful some retail data is at the moment, from what I can see numerous products from video games consoles and hybrid cars to building materials there are industry wide shortages of goods available for purchase. If you've followed the GPU market shortages date back years now, long before Covid-19.
There's probably huge unrealised pent-up demand that can't easily be measured.
Yes, this is called inflation and the best thing to do is raise interest rates, so that business and consumers are less able to afford things that are rapidly increasing in price due to shortages.
In NZ we are lucky enough to have a floating dollar and in theory raising interest rates will increase the value of the dollar, making imported goods cheaper. So we have a good response to shortages.
The current cost of petroleum products warrants immediate action. But there are other impediments - U.S. Dollar Index Cash (DXY00)
The quantity of money applied to alleviate a shortage of eurodoillar credit.
..it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. - Link - section II-3
How do you explain all the speculation today, with zero interest rates. It is more profitable to speculate, than take on a productive enterprise. Bank's loan portfolios are full of speculation. Housing! More consumption and speculation, created by the Keynesian policies. Paul Volcker sure put an end to speculation and built an economy on real money, so the theory is wrong. Greenspan and Helicopter Ben accelerated their experiment with Keynesian policies that are coming to fruition, for the 1%.
Banks are very risk averse, which may seem contra-indicative to their behaviour, but take a look at any mortgage document. Every mortgage is secured against some asset, in some case not just the property they are held against but across several. In the event of a total collapse, the bank will likely be the owner of the properties and in that case they can if they want just sit on them until their value improves, but if they sell them to recoup their costs and what is owed, if the price doesn't match what is owed the mortgagor is still on the hook, so the bank doesn't lose no matter what. But if they lend to a business, the business is likely limited liability, and unless the loan is secured somehow the bank could easily lose. Easy to understand, hard to regulate.
...the EU is ending long term contracts for natural gas, at the expense of Russia, as they drive for less reliance on fossil fuels, quicker.
So it's pay up today, or freeze for EU citizens. Either way Russia is selling gas. It's estimated Russia's costs associated with NS2 have been covered by recent spot sales of natural gas. And India has signed up for LNG shipments.
It'll be interesting to see how this plays out. If the EU and specifically Germany end any long term contracts in the next month or so their citizens will have to put a few more layers of clothing or the gas buyers pay spot market prices. Either way Joe Citizen suffers. Maybe Germany is running around now to see if it can get any coal/lignite fired power stations up and running.
Maybe Germany is running around now to see if it can get any coal/lignite fired power stations up and running.
Indeed - Europe requests more coal from Russia, producers ready — sources
NSW looks terrible, for sure. Omicron + pubs/clubs seems to be a bad combination.
I tend to think you're right about a delay to the border reopening, but I also think they'll use the available time to wait for the data to come in. We'll know a lot more about it in a few weeks.
It looks like the 'hawkish' Fed report was milder than expected. Financial press still looks at words rather than actions; market participants are a little more canny now. Thus the big bounce in equities. Risk-on environment now, the $NZ will get a little bounce.
And fair enough, because the Fed is still all talk. Thus we can expect price inflation to continue, crypto to recover, and even local house prices will get a lifeline. The mountain of debt must continue to grow to maintain the value of the existing debt. In the long run, the NZ economy in particular is going to be utterly suffocated. Mass emigration of working-age NZers once that's a more practical option. Might take a couple of years to fully play out.
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