Here's our summary of key economic events overnight with news US benchmark interest rates have risen sharply today with the UST 10yr reaching a 10 month high. The USD rose sharply too. And tech stocks took fright. The re-rating ahead of Thursday's US Fed meeting is getting a sharper focus as global inflationary impacts do not seem to be easing.
American inflation expectations rose to 6.0% in February from 5.8% in January, back to its November 2021 record high. The increase was widespread across age, education, and income groups. The same survey revealed that year-ahead household spending growth expectations increased sharply to +6.4% from +5.5% in January, reaching a new series high (a data series that started in June 2013). This increase was also broad-based across age, income, and education groups.
Foreign direct investment into China is up a lot in February from a year ago, but the base was unusually low in 2021.
But trouble is brewing in China as new hard pandemic lockdowns seem likely to trigger ‘shock waves’ across global supply chains, both worse and broader than last time. Observers are saying that another major port lockdown there could have a ‘phenomenal’ impact on global supply chains still recovering from two years of pandemic-related setbacks. Strict virus-containment efforts by local governments will weigh on cargo movement inside and out of China, and raise shipping prices and delays. It will trigger a faster exit by firms who once relied on Chinese supply, even if it is a hard thing to do. All of this will accelerate global price inflation. Your new phone is going to cost a lot more.
Inside China, their housing market is retreating. Central bank data shows that outstanding medium- and long-term loans to the household sector, mostly mortgage loans, declined in February for the first time since records started. And this is happening despite a series of support measures from the government. Copper and iron ore prices are easing again on the expectations China's home building industry is going to stay depressed for some time.
India may have low growth rates (for them), but they certainly do have high inflation. Both their PPI and CPI were expected to ease a little in February from the very high January levels, but in fact they rose again. The changes were marginal, but the levels are high. Producer prices are now +13.1% higher than a year ago. Consumer prices are +6.1% higher on the same basis.
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The UST 10yr yield opens today at 2.11% and up +11 bps from this time yesterday. The UST 2-10 rate curve starts today steeper at +29 bps. Their 1-5 curve is steeper too at +84 bps and their 30 day-10yr curve is steeper as well at +189 bps. The Australian ten year bond is up +12 bps at 2.48%. The China Govt ten year bond is -4 bps lower at 2.79%. And the New Zealand Govt ten year is up +4 bps at just on 3.04% but clearly the UST impact is yet to be felt here.
Wall Street has greeted these bond market signals and re-rating relatively calmly, down just -0.6% on the S&P500 in Monday afternoon trade. Actually the Dow is up +0.2%, but the tech-heavy Nasdaq is down a sharpish -1.9%. Overnight, European bourses staged a sharpish recovery, up an average of about +2.0% although London only gained +0.6%. Yesterday, Tokyo led the way with a +0.6% rise, but Hong Kong crashed by -5.0% on concerns over Beijing’s close relationship with Russia and renewed regulatory risks that sparked panic selling. And Shanghai also had a bad day, down -2.6%. The ASX200 gained +1.2% while the NZX50 lost -0.1%.
We should also note that market sentiment was being moved somewhat by 'peace hopes' in Eastern Europe. But that may just be wishful thinking.
The price of gold starts today at US$1961/oz and down a sharp -US$30/oz from this time yesterday.
And oil prices are also very much lower today, down a sharp -US$7/bbl. In the US they are now just on US$100.50/bbl. The international price is just over US$104/bbl.
The Kiwi dollar will open today marginally softer at just over 67.9 USc. But against the Australian dollar we are now at 93.8 AUc which is almost a +½c firming since this time yesterday and our highest in two months. Against the euro we are soft at 61.8 euro cents. But against the Japanese yen we are are at a four month high. That all means our TWI-5 starts today at just on 73.4 and marginally lower.
The bitcoin price is little-changed today, down just -0.1% from this time yesterday to US$38,927. Volatility over the past 24 hours has been moderate at +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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China, new hard pandemic lockdowns. Hong Kong virtually closed up. Question. What exactly have Sinovac & Sinopharm achieved towards protecting the Chinese population from Covid. No wish to appear malevolent but perhaps the usually loquacious Comrade X on here, could explain given his or her previous incessant touting of these vaccines’ brilliance?
"Man who stands to make lots of money from telling people they need more of his product tells people they need more of his product".
If I bought a new TV, and then within the space of 12 months I had to buy the same TV again twice more because it stopped working (and potentially every six months thereafter), I wouldn't exactly be calling it a good, reliable product.
Ok, viruses and vaccines are very much different to consumer goods ... but surely a fourth booster is taking the proverbial now?
No, because I wouldn't have been told that I just need two (no wait three, no wait X+1) doses?
I can't recall any medication I've had to take in the past where the goalposts have moved so consistently - after being told each time that the goalposts won't be moving.
If the vaccine is really just a "recurring" injectable medication that you need to take every 3-6 months, then be honest about that. Don't give us all this "pinky promise it's the last booster" messaging if that is knowingly BS.
I guess I should say that it isn't the product per se that is the problem (and I've had my doses so far) but the messaging around it.
If you don't understand how viruses work (i.e. they mutate constantly), then maybe you shouldn't post your ignorance online?
We have flu vaccinations every year which are loaded up with the most popular current variants (though it's arguable how up-to-date they are once you get it).
This is just how some vaccines work. There isn't a vaccine that will protect you from a virus or bacterial infection forever, your vaccination efficacy wanes over time. That's why we need to get tetanus/MMR boosters (you are supposed to have 7 tetanus boosters over your lifetime, MMR 2-3 at least) if we want to be fully protected. Because those viruses aren't circulating widely, they aren't mutating enough that we need constant updates to our immune system. Get over it, vaccines are a modern medical marvel, you should be getting as many as possible if you aren't susceptible to side effects.
I can't think of a single vaccine I haven't had apart from rabies as I've never been to a country that requires it (although I did miss out on a hepatitis one when I was younger if I recall correctly, but had to have it for a previous job so got that sorted).
I agree that vaccines are modern medical marvels, and they have been positive for humanity and society. I spent not inconsiderable time and effort convincing a few family members to get their Covid vaccines, to the point where I was excluded from some family events last year due to the disagreement it caused.
However, I do think it's disingenuous to compare something like the flu vaccine to the Covid vaccine, because with the flu vaccine we seem to be accepting as a society that it isn't perfect and that there aren't such severe social consequences for opting out (apart from the obvious one that you might be more likely to get sick).
Once again, the problem is not the product. It does what it says on the tin (albeit for a clearly shorter-than-anticipated timeframe). It's the messaging around it that grates ... I understand there was a need to encourage uptake, but surely it's not hard to see why people might feel a little short-changed at this point?
In development, the vaccine was intended to be a single dose. This was for Alpha. However during testing it was found that a second shot was required. By the time we got to Delta, three shots were required, and timings were reducting. Omicron appears to require a fourth.
But this is misleading. Delta didn't need three, and Omicron doesn't need four. The issue isn't so much the vaccine's efficacy rather it is the duration. As more material becomes available about the vaccine, it appears that what was initially good for 12 weeks, dropped to 8, and now appears to be around 4-6. The pediatric vaccine also appears to have the same issues.
So it's not the number of boosters, it is the timing of them. If you had your first 6 weeks ago, and your second yesterday, you are probably fine against omicron. But if you had your first in September, then your second in December, then you probably need a third. If you had your third in Late Jan, then yes, you probably need a fourth in the next week or so.
So yes, the vaccine works, it just doesn't last.
The name escapes me now, but at high school I remember reading in English class some short story about a dystopian society in where you had to watch the TV (for government propaganda purposes) every evening. The protagonist chooses not to watch TV, and is captured by the government goons trying to go for a walk around the empty streets at night, daring to do something against the instruction of his superiors.
Thanks for giving me flashbacks to English class ... I just wish I could remember the name of the story as it was really quite good.
Turns out that big Phama may have had more than a little to do with the orgins of Covid 19. Turns out Moderna had a patent. .https://media.mercola.com/ImageServer/Public/2022/March/PDF/moderna-pat…
Mercola has a very successful business operation with an extremely selective focus on being a victim of the mainstream (pharmaceutical, media, public health agencies, etc, etc). There are very occasional small elements of truth in some of his selectivity, but in my opinion there is no truth that Moderna was involved in the origins of Covid 19.
Story at a Glance --Frontiers in Virology published a study dated 21 February 2021 that claims to have discovered that a sequence of a spike protein is a 100% match to a modified messenger RNA patented by Moderna in 2016. According to researchers the chances of Sars/covid having acquired this through natural evolution are 1 in 3 Trillion.
If you read this thread you will see the extraordinary difference between Hong Kong and New Zealand with respect to Omicron and you will realise the significance of the impact of the Pfizer vaccine.
https://twitter.com/jburnmurdoch/status/1503420660869214213?s=21
hardly:
Having lived in N.E. Asia (Hong Kong and Tokyo) for 36 years and been hospitalised in both, might I humbly suggest that there is a massive difference in the difficulty fighting a pandemic in NZ and the incredibly densely populated Asian cities. Jus sayin is all.
Very successful if we ignore all the excess death rate of the past 18 months. Blown $100 odd billion we didn't have, haven't saved any lives nor built any hospitals sorta success..
Reduce all urban to 30kph & all rural 70 - 80 kph, therefore roads don’t have to be maintained to be safe seeing as how impacts will be at slower speeds. QED. Except of course accidents will escalate as that no. 1 killer, impatience flourishes and transport freight costs and delays zoom up too. Oh dear not quite so QED but we’ll do it anyway, started already in fact.
The Govt is becoming reactionary, or is it panic, either way hardly a steady approach. Taking taxes away is folly as the margin is soon gobbled up to increase profits over time and no one notices. Thats why taking GST of some food items is a waste of time as it leads to creative accounting and once again more profit to retailers less Govt revenue.
If this was 1980 you might be able to argue taking GST off of certain foods purchased at the retail level would fall into the too hard basket, but in 2022 when every item is scanned at the check out counter off a UPC label its is pretty easy to take GST off meat and not off Beef Jerky, or Soda drinks, etc. Not taxing basic foods has been done that way in many American States for decades since the introduction of Sales Tax at the retail level. It means the poorest of society don't pay tax when they cook a meal at home, but others who eat at take aways or restaurants do pay GST.
Believe there is quite some perception that the price at retail would simply creep up & revert to where it was simply because it can. In other words if Joe Public could pay say $3. 50 for a loaf of bread than they can continue to do so. It’s a bit like in the days of the Kirk Labour government the ill fated MRP stickers. Maximum Retail Price. That simply became the price on the day everywhere.
Roger Douglas said that everyone pays GST on everything and we help the poor people pay for their GST. Therefore only the rich pay. What is wrong with that? The same applies to other taxes. keep the fuel taxes on, and lower low income taxes by the average amount a week they want people to have extra to pay extra for their fuel. Therefore only the more well off pay the extra! Too simple for the Wellington crowd, I am thinking. But the people who use heaps of fuel in their lives will be thinking it's great.
Tended to accept GST myself, as such at the time. But later on Jim Anderton unrelentingly claimed GST disadvantaged the poorer segments in society. So much so that the incoming Clark & Cullen Labour lot readily agreed with him and out of forthcoming “coalition necessity” to ramp up income tax levels. Would have thought lowering GST would have been the mechanism to align with their argument. Instead just helped themselves to a tax grab because they could.
It's pretty simple:
- Poor person gets 50k in income per year. They spend it all, so effective GST tax rate is 15% of their income.
- Richer person gets 100k in income per year. They spend only 50k and save the rest, effective GST tax rate is only 7.5% (50*0.15) from their total income.
Taking into account income tax and GST:
- Poorer person pays $8715 in income tax plus $7500 GST - total tax rate = 32.43%
- Richer person pays $25310 in income tax plus $7500 GST - total tax rate = 32.81%
Basically poorer person pays the same total tax rate as richer person, thanks to GST.
I see you're pleading for reader's support again, Interest is a great platform so I hope more will contribute.
A few weeks back you wrote an article about financial survival of Interest, some readers offered some suggestions which you said you would consider.
What happened to these suggestions David?
Hi Yvil,
David's considered them and thought they were great ideas. As you may know, we're in the midst of finding a tech guru to bring our website to the next level. These suggestions and others will be discussed with the new web programmer and we'll work out what can be implemented and when.
..oil prices are also very much lower today, down a sharp -US$7/bbl.
Oil Drops On Report Chevron Set To Start Trading Venezuelan Oil Once US Relaxes Sanctions
India 'Happy' To Take Offer to Buy Discounted Russian Crude On Rupee-Ruble Exchange - Reports
Japanese firms have no plans to abandon Russian energy project — media
Tech markets are way down aren't they? I have some small investments across the tech sectors across countries and they are all down at least 6% today. Actually quite a few good deals going now, more than 8% divvies on quite a few, but you even get that on some NZ electricity stocks. That's a lot less deflationary for your bank account than money in a "savings" account at the moment...
Tech shares did go crazy in 2020/2021 - highly speculative...bubbly. Quite a few people comparing it to the dotcom bubble. Friends who have never had an interest in share investing asked for advice in 2020 out of the blue...a big red flag for me. I recommended diversification and good dividend paying stocks with good revenue..but they generally all piled into various tech stocks...many of which have now tanked and my friends have told me they've lost money....and now gone quiet again on share investing.
Yeah, I started buying a few when they were 60-70% down, started becoming quite good value, given a decent amount of time. There's some quite good tech coming out from them, a lot around automation and robotics plus battery tech etc. Was a total bubble though right up until about mid/late last year, I know what you mean.
But when tech/automation companies are paying 5-10% divvies with tonnes of growth potential still, I consider them a screaming buy! Some Chinese ones are even beyond that now, I think we are getting way into oversold territory. There's definitely geo political risks being priced in, so not for everyone.
LOL
Market capitalization isn’t “wealth.” It’s the latest price, times shares outstanding. Blotches of ink on paper. Flashing pixels on a screen. If a dentist in Poughkeepsie buys a single share of Apple at a price that’s 10 cents higher than the previous trade, $1.6 billion in market capitalization emerges from thin air. If a single share trades 10 cents lower, $1.6 billion evaporates just as quickly. Whatever happens, every security in existence has to be held by someone until it is retired. Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time. Price fluctuations don’t change those underlying cash flows. They just provide opportunities for the transfer of savings between investors. High valuations favor the sellers. Low valuations favor the buyers. Investors have never paid higher prices for those future cash flows, or accepted prospective returns so low.
Put simply, the bubble hasn’t changed the wealth, and a collapse won’t change the wealth. What will change is the market cap. I suspect that the erasure of market cap in the coming years, and possibly the coming quarters, may be brutal. Still, no forecasts are required, and our own attention will remain on observable valuations, market internals, and other factors. Meanwhile, even if an investor sells at these extremes, the only thing that will change is who holds the bag. Link
Nasdaq 100 closes in bear market for 1st time since Mar2020. Index, which is home to Big Tech like Apple, Amazon & Microsoft, has dropped 21% from its Nov19 closing record, enough to count as an official bear market. Russia invasion stokes fears of inflation shocks, higher rates. Link
This Is Important - And again about dedollarization.
"Investors" have persistently over capitalised the rising discounted present value of cash flows associated with assets, financed by bank credit as interest rates fell.
Policy makers sometimes flatter themselves with the idea that holding interest rates at untenably low levels makes it cheaper for borrowers to obtain funds. Unfortunately, it does so only by transferring income from people who are trying to save for the future. Replacing Treasury securities with base money may make savings more “liquid,” but it doesn’t suddenly make people abandon their retirement plans in favor of consuming today. Low rates also don’t magically create productive investment opportunities.
What economic activities suddenly become viable at zero interest rates that were somehow not viable before? Only projects so unproductive that any positive hurdle rate would sink them. The main activities that are encouraged by zero interest rates are activities where interest is the primary cost of doing business: leveraged real estate transactions; “carry trades” that employ enormous amounts of leverage to profit from small yield differences; and speculation on margin. Presently, margin debt as a percentage of GDP is at a historic extreme.
https://www.hussmanfunds.com/comment/mc210614/
The idea that “low interest rates justify high stock valuations” is really a statement that “low interest rates justify low expected stock returns as well.” Those high stock valuations are still associated with low prospective future stock market returns.
Worse, the notion that “low interest rates justify high stock valuations” assumes that the growth rate of future cash flows is held constant, at historically normal levels. If, as we presently observe, interest rates are low because growth rates are low, no valuation premium is “justified” by low interest rates at all.
Presently, the combination of record low interest rates and record high stock market valuations does nothing but add insult to injury.
...the iron law of investing is that a security is nothing but a claim on a future stream of cash flows. Valuation is a crucial determinant of long-term returns. The higher the price an investor pays for those cash flows today, the lower the long-term rate of return earned on the investment..
The corollary is also true. The lower the long-term rate of return demanded by investors, the higher the price moves today. So clearly, changes in investors' attitudes toward risk will strongly affect short-term returns. If investors become more willing to take market risk, it is equivalent to saying that they are demanding a smaller risk premium on stocks (that is, a lower long-term rate of return). Prices rise as a result. Now, the fact that current stock prices are higher also implies that future long-term returns will be lower, but that's part of the deal. Courtesy of Hussman Funds
Yesterday it was reported we had 7K net departures for the year. Spare a thought for Russia, 400K departures in a couple weeks.
200K troops sent into battle
and 200K emigrating in a hurry https://www.bbc.com/news/world-europe-60697763
And those are the lucky ones! Russia's MO for most conflicts is to flatten their opponents - reduce infrastructure, facilities and housing into rubble. That's why their "surgical strikes" have been hitting a nail with a brecking ball.
Right now, Putin is looking like he'll lose, in conquering Ukraine, internationally and at home. His thinking will be "If I can't have it, neither will you" and he'll destroy the government, population and industries before he leaves Ukraine and/or office.
He's likely sane enough to not use the nuclear option if NATO takes any action, but he's unstable and paranoid enough now to resort to monstrous actions, i.e. flattening Ukraine. He's almost done making a land bridge between Crimea and Moldova which will make Ukraine landlocked and 3/4 surrounded (north, south and east). He'll hold on to the coast where there's plenty of oil and gas, and east Ukraine where there's a large deposit of shale gas in the separatist Donbas region.
NATO's stuck because they don't want a war with Russia but if the west doesn't take sufficient action, Ukraine will be lost and China may be emboldened to do something about Taiwan.
How many have read Shane Jones latest article on Herald today?
Good article highlighting the machiavellian Labour
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