Here's our summary of key economic events overnight with news Jerome Powell goes on the offensive to tackle inflation.
In a very direct speech, the boss of the US Fed clearly signaled that inflation is enemy #1. "Inflation is much too high. We have the necessary tools, and we will use them to restore price stability," he said. There is no equivocation here, not even for the war. In fact, war is aggravating inflation. Bond markets jumped. The USD rose. Equity markets waivered.
Markets now feel certain a +50 bps rise is coming from the Fed in six weeks on May 5 (NZT) and repricing for this is underway.
Meanwhile, the Chicago Fed's national activity index is settling in at a high level, showing the same good expansion it has for four of the past five months.
China has kept its prime loan rates unchanged in their March review. This was what markets were expecting.
Taiwanese export orders continued to impress in February, up +21% from the same month a year ago, which itself was up +43% on the same basis.
German producer prices were up +1.4% in February from January. But the startling data was the year-on-year result, up +26%. And this survey was carried out before the actual Russian attack on Ukraine, although it does reflect the rising tensions.
The invasion of Ukraine is severely straining EU:China relations, and a break is possible there. They weren't good in the first place after EU reactions to human rights abuses in Xinjiang.
And domestically in China, more evidence their demographics are changing "irreversibly". Their marriage rate fell in 2021 to its lowest level ever recorded, and the average age of marriage rose to its highest. Their birth rate will never rise on this basis. China's population is set to "go Japanese" and shrink, even quite quickly.
In Australia, independent media are going on "a news strike", protesting the cozy deals that Facebook and Google have negotiated with mainstream media outlets to keep them quiet - deals that exclude the smaller more independent sector of the media.
The UST 10yr yield opens today at 2.30% and up a very sharp +15 bps from this time yesterday and approaching a three year high. The UST 2-10 rate curve starts today steeper at +24 bps. Their 1-5 curve is also steeper at +102 bps. Their 30 day-10yr curve is steeper too at +206 bps. The Australian ten year bond is up sharply, up +14 bps at 2.68%. The China Govt ten year bond is little-changed at 2.83%. And the New Zealand Govt ten year is also little-changed at just on 3.18% but will undoubtedly shift higher when trading opens here soon.
On Wall Street, the S&P500 has opened lower, down -0.6% in Monday afternoon trade. Overnight, European markets fell about -0.5%, except London which was higher. Yesterday, Tokyo ended up +0.7%. Hong Kong fell -0.9%. Shanghai ended up a minor +0.1%. The ASX200 ended its Monday session down -0.2% while the NZX50 ended essentially unchanged.
The price of gold starts today at US$1932/oz and up +US$10/oz from this time yesterday.
And oil prices are up nearly +US$5/bbl. In the US they are now just on US$108/bbl. The international price is just on US$111.50/bbl. Russia is able to sell its output but at steep discounts. Meanwhile the EU is looking at ceasing all purchases from Russia.
The Kiwi dollar will open today lower, now at just on 68.8 USc as the greenback firms. Against the Australian dollar we are a little softer at 93 AUc. Against the euro we are still at 62.5 euro cents. That all means our TWI-5 starts today at just at 74 and now off a four month high.
The bitcoin price was down 1.2% from this time yesterday to US$40,937. Volatility over the past 24 hours has been modest at +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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82 Comments
“We have the necessary tools, and we will use them……..” Bold words indeed. Many commenters here seem to believe NZ carries on regardless, in the wake of the Fed. Are New Zealanders then about to receive the same message from Messrs Robertson & Orr and if so, would they at the same time explain what these tool are exactly?
The only way I can see raising interest rates affecting the price of fuel and food, is by causing a recession. It's crop planting time in the northern hemisphere and fertiliser prices are at record highs, no amount of increased interest rates are going to change the amounts planted or the amount of fertiliser used, at least not in a way that will increase supply.
But why were we dropping NZ OCR the last 30 years because we could put cheap foreign goods in the CPI basket? All that did was blow asset bubbles by giving domestic consumers cheap money when they already had cheap imported goods. The logic is crazy.
If we dropped the OCR because we could import cheap foreign stuff on the way down, then the logic has to apply on the way back up....you then have to increase the price of money when the reverse occurs. And if the Fed raise and the world follows, we have to keep the NZD competitive.
Those things are all happening, but it's not going to grow more crops or produce more oil, it's going to cause a recession. Once business go bust and people lose their jobs or hours are cut back, prices will fall. If your in business and getting squeezed by rising input costs and rising interest rates, you can't expand your business, you have to make cuts.
In 1980, I cleared $1.10 an hour. $4.50 for Slayed by Slade. Exile on Main St, $7.99. The Magician's Birthday, $4.50. $10 a week board to my Mum. No cheaper than today. Free downloads of all music these days. Full board at your Mum's is not 9 hours work, I suspect.
The logic isn't that crazy considering we gradually replaced those well-paying goods-producing industries with bulk commodity exports, and low-wage tourism and hospitality. Meanwhile, the basket of goods and services an average consumer buys in a year has grown substantially over the 30 years, and apart from some fresh produce and low-value services, nothing is sourced from within our borders.
As a result, we have relied on debt, housing inflation and people imports to keep our economy chugging.
Lol - how isn't this crazy?
1. 'we want cheap imported goods'
2. Look the CPI is down.
3. Lets drop the OCR to zero.
4. Oh look we have a massive debt bubble/housing bubble.
5. There might be a global war and supply chain disruptions causing inflation.
6. Oh why did we put the OCR to zero and rely on foreign cheap goods?
We should not have allowed foreign cheap goods to dictate the price of money (OCR) which then flowed into the residential mortgage market and created a giant debt bubble. That isn't logically to me....its completely bonkers.
It's not crazy if you and all your friends bought houses for cheap thanks to the efforts of preceding generations and their governments. Then it's all gravy. One mustn't think too much of what's then passed on to the next generations...those are problems for another day.
I read today that The Sheraton in New York sold for half what the owners paid for it a few years ago. Today's high priced houses will be similar. If they have to be sold, and only poor people are available to buy them, then they will be sold for poor people's prices.
In a very direct speech, the boss of the US Fed clearly signaled that inflation is enemy #1. "Inflation is much too high. We have the necessary tools, and we will use them to restore price stability," he said.
UST 3yr, 5yr and 7yr invert against 10yr. 3yr inverts against the 5yr.
Nomura's Chalir McElligott again notes in his morning note today, with all this front-loaded hawkishness being projected from Fed speakers, "the Market is already saying that the Fed will have to cut in late ’23 / early ’24 as the hiking will cause market trouble and / or Recession after being pushed into “restrictive policy” territory."
Looks like the Fed will yet again raise rates into a recession....bond markets indicating recession/deflation and when Fed should have been raising rates the last 12+ months and haven't, they now start raising rates when the economy looks like its in trouble.
2022 could get very bumpy indeed.....then again at least if they raise rates to 2-3% they will have something to drop from when the economy implodes. Then again some market commentators in the US are saying that the Fed may need to raise the cash rate to 5% to control inflation! Doubt they will get close to that.....however if stagflation is what we see, and global food and energy prices continue to go higher and higher....the Fed may have no option but to keep raising far above what would now appear sensible.
And if rates go high enough, deflating asset bubbles they also created via insanely loose monetary policy. When you look at central bank mandates to promote financial stability...you then realise they are guilty for a significant part of the instability we see in markets through crazy monetary policy and market intervention.
I do wonder if there is a better way of doing business...i.e. a world without central bankers.
Do central bankers suffer from the same condition as arsonist firefighters? You know, the guys/girls that light fires so that they have something to do? (for admiration or out of curiosity?) Do central banks purposefully create scenarios of deflation and inflation so that they can prove their own importance? Left alone, the markets would naturally find the price of money and assets would be price based upon what people can afford to pay with a natural price of money....not 0% OCR that has been artificially created by crazy central bankers.
If you are over leveraged then common sense should tell you that you are very exposed and therefore cannot complain if things don't end well. Many have got away with being extremely 'over leveraged' for years and lead to believe that this position is relatively risk free.
Because nobody with any idea how much that would kill our economy is stupid enough to do that, and that includes Orr, Robertson and Co. If every homeowner with a mortgage is looking at interest rates on their next refix being 8% there is no discretionary spending happening. If you think the current rate of closures of hospo and retail is bad imagine what it'd be like at 8% mortgage rates.
When inflation is high rates go up 7% 8% is not high over the years I remember in the 1990s rates were like 12% in uk the problem is that people have just taken on to much debt and at some time you have to pay the piper. Not much RBNZ or government can do about it as if we don’t keep up with FED hiking rates up NZD will just tank making inflation even higher. Yes a lot of my mates just gave keys into bank as could not keep up with payments now with million dollar mortgages it going to be a huge problem.
I think everyone here is missing the possibility that RBNZ could be FORCED to raise rates whether it likes it or not. Banks could shift rates regardless if the RBNZ starts dragging its heals. Its very clear that the RBNZ doesn't want to raise rates and is trying to ride out the storm but that cannot go on forever.
...oil prices are up nearly +US$5/bbl. In the US they are now just on US$108/bbl. The international price is just on US$111.50/bbl.
I was at dinner with a friend the other night and they where talking about $200/bbl oil scenarios. I almost had a bloody heart attack!
Oil price may rocket to $300 per barrel if Russian supplies rejected, Novak predicts
"A complete rejection? In the event of a rejection, the oil price would be $300 [per barrel], I’m telling you, some even say $500 [per barrel]," he said.
News article? Regurgitated puff-piece perhaps?
Squishy - many years ago, I thought oil could go to x hundred dollars a barrel. As did Goldman Sachs, at the time. I've since learned; it can't
Very simply, energy underwrites money. You've seen me write this here, a hundred times. Think it through; how can a reducing-quality, peaked-output essential underwrite, be 'worth more' of something backed by itself?
Since 2008, the split has tripled (we call it debt). It can't go 'x hundred a barrel', we can't even 'afford' it now.
The covid conspiracy theorists must be having a field day: "We told you it was a hoax to prepare you for food shortages, we told you it was a hoax to prepare you not being able to travel/ forced to stay at home". Indeed, we're all now very well prepared for the coming drop in living standards and won't even wince as the bodybags pile high from famine in the third world. Hell yeah, let's escalate this war, what do we have to lose!!!
https://www.stuff.co.nz/editors-picks/8410960/Ambition-dated-thinking-d…
I can still remember sitting in some conference when he was going on about their analysts picking oil to go to $200/bbl and how this was going to increase the value of alternative energy sources enough to make Solid Energy a valuable business. I thought at the time that it was nonsense. Once oil got anywhere near that the demand would hit a brick wall.
Saw a news article yesterday that indicated the Saudis were ramping up production.
All oil producers had to cut back during the pandemic anyway, so they are all relishing ramping up production and beating out the Russians for oil supply. Even Venezuela is now approached by the US with promises of lifting or cutting sanctions!
Human rights abuses is mild but accurate. Genocide is clearly derived from killing people, an equivalent of insecticide. What is happening in Xinjiang is probably the CCP aiming for the minimum number of deaths and the total destruction of a culture.
The UN definition is:
- Killing members of the group;
- Causing serious bodily or mental harm to members of the group;
- Deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part;
- Imposing measures intended to prevent births within the group;
- Forcibly transferring children of the group to another group.
Of these 2) applies and to some extent 4) and 5). It is 3) that is ambiguous because their group is destroyed but not its individuals. Destruction of mosques, graveyards, physical historic items and the million in 'reeducation camps' is aimed at destroying their unique Uighur Muslim culture but not actually directly killing them.
In Australia, independent media are going on "a news strike", protesting the cozy deals that Facebook and Google have negotiated with mainstream media outlets to keep them quiet - deals that exclude the smaller more independent sector of the media.
Google and Facebook have deals with NZ MSM too, I'm sure. Google is offering journalists free "training" and helping MSM get advertising.
This in addition to the tens of millions of taxpayers dollars spent on a "Public Interest" Journalism fund for the MSM? Sounds like a nice slush fund for the NZ MSM...
Ukraine crisis could spell a drawn-out war that will hit financial speculators hard
Former Morgan Stanley economist Andy Xie
www.scmp.com/comment/opinion/article/3169676/ukraine-crisis-could-spell…
www.scmp.com/comment/opinion/article/3164651/coming-era-stagflation-and…
Well despite modern technology & such Putin & his military are a mere shadow of the last great European invader. By 1 September 1939 Adolf had reclaimed the Ruhr Valley, annexed Austria & invaded Czechoslovakia without firing a shot. By 26 September 1939, ie just 26 days, Germany had defeated Poland. Back at in May 1940 Germany, took six weeks to defeat & carry Belgium,Holland,Luxembourg and France. Oh and in between times Norway & Denmark had been mopped up. The doomed Operation Barbarossa achieved greater conquest of Ukraine in three weeks than what Russia has achieved now.
murray86,
Sadly, very sadly, pdk believes that war(and pandemics) are essential to achieve global depopulation. We wrote precisely that only a few days ago. He also believes in contraception, though he did not specify whether that should be purely voluntary or compulsory
When you consider that the global population is far in excess of what we can support with renewable resources, one way or another it's going to reduce at some point in the near-future. The options for reducing the population boil down to the four following options:
- War.
- Famine.
- Disease.
- Contraception.
Which would you consider the most humane option?
It is bad. It does not relieve any stress on the over-populated places people leave from. It destroys social cohesion in the countries where immigrants are living in 'multi-cultural' colonies. It prevents developed countries finding their own balanced population. Immigrants have more children than the native population.
DC's paragraph above; "And domestically in China, more evidence their demographics are changing "irreversibly". Their marriage rate fell in 2021 to its lowest level ever recorded, and the average age of marriage rose to its highest. Their birth rate will never rise on this basis. China's population is set to "go Japanese" and shrink, even quite quickly." is pertinent.
Through 'natural' processes like this, how slow can a sustained fall in population be but still save the planet and species? China may ultimately face an existential crisis if the CCP persist in it's plans but doesn't have the population to back them up. The possible ramifications can be dire when one considers human psychology and the lust for power and influence.
Slaves and serfs were replaced by steam and then petrol engines. Office workers are being replaced by AI. So China can and will grow ever more economically powerful with an ever wealthier populace if it is not dragging several hundred million peasants along with it.
Birth rates are falling everywhere except for Africa and perhaps the middle east. Earth's population will be reversing soon, without help from war, famine, disease, etc.
China (most populous) and Russia (largest country by land size), for example, both have considerable declines in birth rates.
Here are the two main reasons for Putin's invasion of Ukraine:
1. National security. Since the fall of the USSR, the former Soviet states have steadily joined NATO. All border Russia.
2. Monopoly on oil and gas supply to EU - Ukraine's oil and gas deposits discovered in 2012 would put it as a serious rival to Russia for supply of oil and gas to the EU. Ukraine joining NATO would provide protection from Russia who would lose their dominant position as supplier of oil and gas to Europe.
These added to the declining birth rates, poorly educated population, poor military tech development, rampant corruption and a much too large a territory to defend means that in a decade or two, Russia won't be able to defend itself, much less project power.
Now (at least in Putin's mind) is the time to take any kind of action, even if it ends in failure. In a decade or two (and assuming Putin is gone or retired by then), Russia won't have the manpower to do anything.
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