Here's our summary of key economic events over the weekend with news financial markets are adjusting to the rising political threats.
But first in China, Beijing is focused on food security, promising more support, especially for their winter wheat plantings which are described as 'weak'.
The sluggish Chinese economy is pumping up household savings, and Chinese households turn risk-averse. It seems when it comes to their money, Chinese are sceptical of "Xi Jinping Thought' and have their doubts about the future. Their household sector is reluctant to spend and the corporate sector's demand for long-term loans remained weak.
Taiwanese inflation rose to 2.8% in January, and although it is rising, it remains well controlled there. Their PPI remains high, although it was flat in January from December, suggesting it is past its peak.
Meanwhile, Taiwanese exports remain very high, although they did slip in January from December. Recall, there is no base effect in these levels with the island nation a regional export powerhouse.
On Friday noted that a small +US$25 bln surplus was expected in the US Federal Budget in January. In the event it was a +US$119 bln surplus, a massive +US$282 bln turnaround from January 2021 and the best result since April 2019.
The latest closely-watched measure of American consumer sentiment shows rising angst. The University of Michigan survey fell sharply for a second straight month to 61.7 in February, the lowest in more than ten years and well below market forecasts of 67.5. The recent slide been driven by perceptions of weaker personal financial prospects, largely due to rising inflation, less confidence in the current economic policies, and the least favourable view of the long term economic outlook in a decade.
In Canada, their senior loan officer survey remained negative, only slightly less so.
The German inflation rate eased slightly to 4.9% in January, the expected level, after hitting a 30 year high in December of 5.3%. Base effects are easing now. But energy prices remain the core reason German inflation is high.
Ratings agency Fitch has downgraded Turkey to a deeper junk rating of 'B+' with a negative outlook, the same as S&P. Moody's rates them at 'B2'.
The Russian central bank raised its policy rate sharply over the weekend, by +100 bps to 9.5% and its highest in five years in a bid to tame persistently high inflation and as their currency was hit by the Ukraine crisis. They said more hikes will likely be necessary. Inflation there is running at almost +9%. A year ago it was under 5%. They say the will be on this tightening track until inflation is back under 4%.
The Ukraine crisis might seem a very European cold war era tussle, but it is likely to have global implications if it turns hot. Ukraine is a top global gain exporter, especially of wheat. Russia is a top oil exporter. A hot war, even a minor one that invokes sanctions retaliation by NATO will cause commodity prices to spike, especially food and oil, and both are currently at high levels to start with. It will certainly put the focus squarely back on food security, and global supply chain integration. Shipping will suddenly go from very bad now to much worse.
The latest container shipping rate levels have eased overall only marginally last week. But the overall picture masks the fact the rates out of China remain sky high, those to China very low. Rates to destinations other than China are also quite low. The backlog at US West Coast ports of ships waiting to be unloaded is easing. In Los Angeles, it is down to 78 ships from 110 at the end of last year. Bulk cargo rates have been on a downward track since October, but rose marginally last week.
In Australia, their competition regulator has had to make a very embarrassing backdown on a case it said was of cartel behaviour, a case that was brought at the height of the Hayne bank bashing saga, and what it turns out was just a regulator pile-on. The prosecuting agency withdrew the case when it became clear that there was no chance of any conviction based on the evidence the regulator wanted to present.
In NSW, there has been a further fall to 6,686 new community cases reported yesterday, now with 58,741 active locally-acquired cases, and another 22 daily deaths. There are now 1,614 in hospital there, off their high but staying stubbornly at this level. In Victoria they reported 7,723 more new infections yesterday. There are now 54,494 active cases in that state - and there were 18 more deaths there. Queensland is reporting 7,311 new cases and 4 more deaths. In South Australia, new cases have slipped to 1165 yesterday and 2 more deaths. The ACT has 458 new cases and no deaths, and Tasmania 371 new cases and no deaths. Overall in Australia, about 24,039 new cases were reported yesterday and 47 deaths taking their overall pandemic death toll to 4,593 (NZ = 53).
The UST 10yr yield opens today at 1.92% and -12 bps lower than this time on Saturday. At the end of Wall Street trade on Friday, markets retreated on fears the Ukraine situation was raising political risk. The UST 2-10 rate curve starts today flatter at +43 bps. Their 1-5 curve is also flatter at +80 bps, while their 3m-10 year curve is also flatter at +187 bps. The Australian Govt ten year benchmark rate is down -9 bps at 2.10%. The China Govt ten year bond is -1 bp lower at 2.80%. But the New Zealand Govt ten year is unchanged at 2.81%.
The price of gold starts today at US$1859/oz and up another +US$5 from this time yesterday and up more than +US$50 in a week and a 12 week high.
And oil prices are up +US$1.50 at just over US$92/bbl in the US, while the international Brent price is still just on US$94/bbl. These prices have motivated a sharp rise in the number of US oil rigs brought back into production.
The Kiwi dollar will open this week at 66.4 USc. Against the Australian dollar however we have risen marginally to 93.2 AUc. Against the euro we are holding at 58.6 euro cents. That means our TWI-5 starts today just on 71.1 but that is up almost +30 bps in a week.
The bitcoin price is -0.9% lower since this time on Saturday and now at US$42,303. Volatility over the past 24 hours has been modest at +/- 1.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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80 Comments
At the end of Wall Street trade on Friday, markets retreated on fears the Ukraine situation was raising political risk.
Why is it so hard to accept that speculative bubbles can burst? Interest rates were driven to zero for a decade. Yield-starved investors chased stocks to valuations beyond the 1929 and 2000 extremes. That speculation front-loaded more than a decade of future market gains into the present. Those gains are now behind us, embedded in breathtaking multiples. If history is any guide, a collapse in valuations is likely to return those gains to the future.
The process of losing speculative gains and recovering them over time is what I’ve often called a “long, interesting trip to nowhere.” It bears repeating that the S&P 500 lagged Treasury bills from 1929-1947, 1966-1985, and 2000-2013. 50 years out of an 84-year period. When the investment horizon begins at extreme valuations, and doesn’t end at the same extremes, the retreat in valuations acts as a headwind that consumes the return that would otherwise be provided by dividends and growth in fundamentals.
There is no birthright to ever-rising valuations, particularly given that market internals, fiscal subsidies, and the Federal Reserve’s latitude for recklessness have all turned against this speculative bubble. The record stock prices that investors observe here are the product of a) record valuation multiples that have been inflated by a decade of zero interest rate policy and resulting speculation by yield-starved investors, times; b) record earnings that embed distorted profit margins inflated by trillions of dollars of temporary deficit spending.
Investors are paying top dollar for top dollar. Link
In the coming years, and perhaps the coming quarters, the Federal Reserve will have to navigate the collapse of a yield-seeking speculative bubble created by its own policies. The greatest difficulty will be during periods when investors are inclined toward risk-aversion.
I’m well aware that some investors are relying on the Fed to buy equities if the stock market declines substantially. On that note, it may be useful to understand that buying corporate equities without collateral “sufficient to protect taxpayers from losses” would be a violation of Section 13(3) of the Federal Reserve Act, and would amount to bailing out individual private investors with public money. Recall that the only reason the Fed was able to buy even $14 billion (billion, not trillion) of corporate debt during the pandemic is because Congress specifically allocated funds in the CARES Act for that purpose. Even then, the Fed was quickly reminded of the 4003(c)(3)(b) requirement that collateral must be “sufficient to protect taxpayers from losses,” which may be why the Fed immediately terminated its junk bond purchases.
It’s also worth noting that Congress wrote the Federal Reserve Act in a way that clearly intended 13(3) collateral to be tangible, and is quite hostile to the idea of using securities as collateral – see 13(2) and 13(8) for example. During the pandemic, the Fed essentially got a pass on treating $14 billion of unsecured corporate debt as if it somehow stood as its own collateral, but I do think that the sentiment of both Congress and the general public has moved to a less tolerant view of Fed actions. Link
Just finished reading a book called "The delusions of crowds". It specifically cites the tendency of people during bubbles to ignore the facts and focus on the narrative. We are clearly at a macroeconomic tipping point and the cycle has changed. Still, people deny this and think the central banks will rescue them. The reality is that this time they cant because inflation is here and needs taming before we all lose faith in the currencies we transact in.
Chinese food security? To use DC’s terminology, their Achilles heel. Further down, outright open conflict in Ukraine? Right in the bread basket. Russian output,not unaffected either. Grain for Chinese consumption, already under pressure domestically, thus a big question might arise, disruption to both the global food change and balance. Hungry people are not happy people, especially a billion or so of them. If Putin does actually poke the fire, then a heck of lot more is going to get hot, beyond those particular borders. Once you set dominoes a toppling, hard to stop ‘em, especially from the starting position.
Further down, outright open conflict in Ukraine?
Who says so? - not Russia.
The West and Kiev have recently been spreading allegations about Russia’s potential ‘invasion’ of Ukraine. Kremlin Spokesman Dmitry Peskov castigated these claims as "empty and unfounded", serving as a ploy to escalate tensions, pointing out that Russia did not pose any threat whatsoever to anyone. However, Peskov did not rule out the possibility of provocations aimed at justifying such allegations and warned that attempts to use military force to resolve the crisis in southeastern Ukraine would have serious consequences.
Tend to follow the sentiment too. Hence the question mark. Your post a while back, all those previous “wolf howls” paints a picture. Weighing up all the long term gain as opposed to risk and strife, Putin is neither naive nor non strategic, not at all. Nothing like a few military manoeuvres to sharpen up the forces, keep them occupied, and enjoy watching the west, governments & media, work themselves into a lather.”
Cuts both ways Foxy. The west gets to practice rapid deployment and preparation for defensive type conflict against a near peer adversary. For both sides there are costs and wear on equipment and personnel, but Putin is to all extents facing down most of Europe and the US. His posturing may bring political favour at home (there remains a question of his control over the military - will they be happy if he pulls back?) but Russia does not have the capacity to sustain a prolonged war.
While it has been called unhelpful, a reference to 'Munich' and Chamberlain's appeasement to Hitler is very relevant. Putin, with some justification (Crimea) may well believe that the west will not step in to help Ukraine if he moves. But the gamble is that if he moves and the west does act, then he may well lose Crimea too. He should remember that Hitler ultimately lost.
Or is he just a diversionary tactic for Xi?
The west gets to practice rapid deployment and preparation for defensive type conflict against a near peer adversary.
I am on record, Russia is not afraid of "sanctions" and there could be no any military response by NATO because the only response the US can offer militarily is a nuclear one, but even the most ludicrous hawks in D.C. want to live, with the exception of a dozen or two of total fanatics in US Admin and Congress. Link
US in denial mode on nuclear submarine incident, Moscow releases details of interdiction! This comes as huge embarrassment for Pentagon that Virginia's aura of invincibility has been punctured with such ease. Next time, Virginia may lose her chastity? Link
The first one is just Russian posturing justifying their preparation to use nukes. The US has no need to employ nukes at any level, but the message is clear - Russia will if backed into a corner. Putin seems to be preparing - reports last week are that he is no where near Moscow. all his meeting are video.
The second one - a Virginia Class sub Skipper may well have some tough questions to answer if this is accurate. And we may never know if it is unless the sub surfaced. Equally the USN may be overconfident as to the subs capabilities, even if it is their latest and greatest, but it is well under stood that nuke subs are not completely silent as the cooling systems for the power plant must run at all times, even if just convection.
I'm assuming you're referring to the Cold War? In that case they placed an alternative vector for the Soviets to consider, as well as China. Within the technology of the time, I would also suggest that this enabled them to deploy smaller nukes if needed. Part of the MAD doctrine.
Russia's threat today is a different one. while overtly building up conventional forces on the border of a country they clearly want to control, they have also stated that if they do not get their way they are prepared to use nukes.
A BBC reporter on Radio 4 this morning stated that the USA was sending troops to the Baltic States and elsewhere in Eastern Europe “to deter Russian aggression”. What a stupid thing to say. The “aggressive” Russian forces are inside Russia. The American troops are 5,000 miles from home. Link
Putin's exact words to Macron:
Do you realise that if Ukraine joins NATO and decides to take Crimea back through military means, the European countries will automatically get drawn into a military conflict with Russia? Of course, NATO’s united potential and that of Russia are incomparable. We understand that, but we also understand that Russia is one of the world’s leading nuclear powers, and is superior to many of those countries in terms of the number of modern nuclear force components. But there will be no winners, and you will find yourself drawn into this conflict against your will. You will be fulfilling Paragraph 5 of the Treaty of Rome in a heartbeat, even before you know it.
You can't keep motivation and moral up forever while troops suffer the cold and discomfort of 'exercises'. The discontent will be growing daily (one story has covid spreading rapidly amongst them) and Putin will know full well the clock is ticking. Decision time for him looms - he's under the gun.
Are the troops actually "massing".
I remember the USA proudly demonstrating the chemical weapons factory they found in Iraq. And the Kiwi guy who then popped up and said it was a dairy factory. He knew bwcause he built it.
Saying "massing" a lot does not mean anything at all is happening.
If he wanted to raise oil prices he could just cut Russian production by 1-2mmbl and avoid all of this. The Russian narrative is that NATO is creeping east and want to seize control of Russia's energy resources. This narrative sounds potentially plausible given the issues with energy that the EU have had this year thanks to their dependence on fossil fuels.
Unfortunately we're not going to know the truth of the matter as media on both sides (US and RU) are likely releasing propaganda.
Jacinda Ardern has dubbed the protest on Parliament's grounds as "imported". My attitude to the protestors is changing from scorn to admiration. This matters; their three issues are vaccination, masks and compulsory requirement for vaccine certificate; two of those three I'm wavering from supporting to mild skepticism. Our journalists and politicians should stop concentrating on the clear nutters at the fringes and start arguing the case for vaccinations, wearing masks and carrying vaccine certificates.
Jacinda Ardern has dubbed the protest on Parliament's grounds as "imported".
LOL - from Australia? - Australia rises up, MASSIVE protests in Canberra
"The science has changed." @DrLeanaWen explains why she supports lifting some pandemic restrictions and thinks the decision to wear a mask should shift from a government mandate to an individual choice. Link
I think the science has hardly changed at all, but rather the facts and evidence are becoming just too overwhelming to be put under the carpet any more. For instance, masks were never shown in RCT or meta analysis to provide any real protection against respiratory virus infection like flu or covid. Masks were never part of the WHO / UK pandemic response plan prior 2020. They are virtue signaling political artifacts to maintain fear and division and confusion.
You know when left wing commentators bang their heads in frustration it's bad...
https://thedailyblog.co.nz/2022/02/14/wow-hasnt-middle-class-nz-left-gl…
I never thought I’d ever get to the stage in NZ politics where I was holding back the Left from calling on the the State to smash their fellow citizen – I always thought that was a threat from the Right!
If you are on the Left and see no issues with what Trev’s actions are creating, you are part of the problem!
I heard a good explanation of how masks work, I may have shared it before. Read it with humour, it is not some kind of Trumpian Russian hotel fetish!
Think of a mask as a pair of trousers/pants:
If I am naked from the waist down and you are, you will get wet if I pee on you.
If I am naked and you are wearing trousers/pants when I pee on you, you will be dry initially but in the end it will soak through and you will get a wet leg.
If I am wearing trousers/pants and try to pee on you, the pee will not reach you at all, it will run down my leg.
The mask you are wearing protects the other person.
Your analogy makes perfect sense if the virus was waterborne and/or particle born. But it is not, it is confirmed as airborne. Therefore protection is minimal from masks, unless the mask is rated accordingly and fitted perfectly.
Walking around town, 90% are still wearing cotton/Fashion masks, and of the few with N25 masks. I would say 90% are fitted poorly (i.e. above chin, below nose, gaps on the sides, etc...)
I would also imagine very few people are changing their mask the multiple times a day that is recommended. Further are the masks even being worn the entire time (i.e. teacher wears one all day, yet takes it off every 30min to have a drink of water.)
Wait, masks have to be changed multiple times per day? What waste! Where's the Precautionary Principle when you need it?
My masks sit, crumpled up, in the door pocket of the ute. They are very handy for wiping foggy mirrors, dusty touch screens and of course performing the Mask Kabuki. They have never been washed, changed, although some new ones do get handed out by hospitals and the like, and make their way into the general inventory.
I'm saving lotsa landfill.....waste not, want not.
Some important mandate dates approaching.
- Teachers, Defence, and Police must have had booster by 1 March
- Health, Fire, and Correction staff by 15 March.
Raises some interesting questions:
- Will we see a growth in resignations/terminations and a subsequent increase in protesters?
- Can our health sector afford to lose even a single staff member as Covid is clearly now taking hold?
- Will teachers raise the logical point that they have to be vaccinated but the students don't?
- Are the defence force sick of playing Hotelsies.
Huh? That's literally all I see the journalists and pollies talking about when I see them. Sure they cover the protests too, particularly as they are blocking roads, damaging stuff, have kids involved, have escalated and have the potential to turn into something more violent - that's their job, to report current events. Imagine if the journo's just started ignoring the protestors, there would be an even bigger uproar from them that the media is being biased.
I went and walked through the protests on and around Parliament grounds on Saturday during the wild weather. Was pretty intense! A small minority of them are just super angry massive 4WD driving misogynists who clearly don't like being told what to do by a woman and have angry Jacinda posters. There's a lot of quite young kids down there, I would call their parents completely irresponsible, given that violence can be used and responded to, so escalate. Most of the protestors are anti-vaccine mandate, I would say about 70% of them, but probably about 50% of them are anti vaxxers as well (knowing there's a crossover). About 5% are masked so is very likely to turn (or already be) a super spreader event, there are congregation areas around food points and only about 5 porta loos shared by hundreds, remember they are all touching the same handles/doors etc. The food areas are just constantly pumping out food that sometimes sits around for quite some time, so I would suggest there is definitely some food hygiene issues going on. And it's quickly becoming a muddy cesspool with human waste in the bushes and potential for an outbreak of even more nasty viruses (giardia/cholera etc), so I can understand the police frustration.
Ihumatao and Moutoa Gardens would suggest they could sit in for weeks/months.... yet it could all end if even a single current MP or even Ardern herself, came out and acknowledged the concerns.
But what we get instead is infantile sprinklers, music, and an order (sorry "request") to the media to not interview them.
The last point in particular should be sending fear into the heart of even the most staunch pro-mandate people out there. The attempts to control the media by this government are unprecedented in NZ.
Why do experienced politicians expect a diverse group of protestors to be absolutely cohesive and rational. Rather than negotiate they cynically select the most extreme views as representative for the entire group. Seems the only strategy here is to ignore and further marginalise...it may not work for them over time. Given the above comment about hygiene risk etc I do believe the protest should now conclude.
While I am not anti-vax nor a supporter of the protestors, I do think there are areas that the Government could significantly do better on, such as offering an alternative to the Pfizer vaccine like the NovaVax one. Some of the protest about the vaccines is not necessarily Anti-vax, but anti mRNA. I don't really understand why the government has not made this an option?
This Government in so many areas, not just COVID is very much looking like they are past their use-by date.
Actually, the PM is 100% correct. All out trouble are global - covid included - and by definition, imported.
Mallard made a mistake getting down into the gutter with these people; the Speaker of the House should be above such pathetic stuff.
But Mallard is not the PM.
Bigger picture, both you and she are on the wrong page, but I doubt that either of you will ever acknowledge it.
The CIA used Barney the purple dinosaurs' "I love you" song on 24 hr repeat to torture detainees. Isn't it nice to know that the first tactic deployed by Mallard on peaceful protestors was developed for use in the War on Terror. The protestors wave Trump flags and the government adopt US torture methods, are we still living in New Zealand?
https://www.theguardian.com/world/2008/jun/19/usa.guantanamo
I have added a link so that you can see I haven't made up the Barney story.
I hope that the reason for the music is to stop Facebook videos and not a more sinister move on Mallards' part.
I am pro-vaccination but I think that there is some discussion to be had around continued mandates. It is not right that kids are not allowed to play sport or attend scouts without a jab. Too many people have lost their jobs in areas where a vaccine isn't strictly required.
I count 12-15 year olds as kids. They have vaccine passes. The local soccer teams and the local scout troop both require proof of vaccination. My kids are vaccinated, however I respect the right of other parents to make their own choice, but is not fair that a child should miss out on sport and social activities through their parents choices. It may not be mandated by the government but there is coercion.
I disagree that they are trespassers.
It's of my opinion that the grounds of parliament are exactly for protesting and that you cannot trespass citizens from them, unless they are an extreme security risk (i.e. bombs/guns/knives etc and threatening to use them). Those people "trespassing" as citizens/members of the public therefore have a stake in the ownership of those grounds. Sure that doesn't apply inside (security of people/documents etc obviously). And it doesn't apply to government buildings either (like people going into the RBNZ building or similar).
Can't see how you can have a right to protest in those grounds, yet then be allowed to trespass people from those grounds. Sounds way too much like needing a license for protest, issued by police, which is what other more corrupt countries require.
Frankly some of the commentary coming from our pollies (esp GR and Mallard) are pretty disgusting.
Are the Chinese now, and have they been, already cutting back on imports? Some data suggests as much.
China's economy is already substantially weaker than is appreciated outside of it (in the West, China is always said to be "booming" or "strong").
Yes. Anyone who has cared to dig a bit deeper would know China has been on somewhat of a downward economic trajectory for a number of years, pre-dating covid by several years.
And demographics is a big part of their destiny, as well as an economic direction from Xi counter to optimising their economic potential.
I have been a China skeptic for many years, no surprises for me.
"The German inflation rate eased slightly..."
Yes inflation is beginning to ease as predicted by many including JPow when he says it's transitory. It's better to have some preliminary observations on the rate of easing before making rash interest rate decisions.
Orderly unwinding is always preferred.
On personal basis however, $100/bbl would be excellent!
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