Here's our summary of key economic events overnight that affect New Zealand with news that Germany has decided to suck up the cost consequences, and separate itself from its dependence on Russian oil. It is a move that will fast-track one of the world's largest economies away from fossil fuels. But it doesn't come without high risk.
But first in the US, residential resales fell -2.7% in March from February, a second straight decline and the sales rate is now its lowest since June 2020. Higher mortgage interest rates are weighing on this market. But median dwelling prices hit an all-time high of US$375,300 (NZ$552,000).
And mortgage applications fell -5% from the previous week, a 6th straight week of decline, as mortgage rates continue to march higher. The average contract rate on a 30-year fixed-rate mortgage increased to 5.2%, its highest since 2010.
The Fed's April Beige Book survey showed a resilient American economy despite high inflation and never-ending supply chain problems. They report their economy expanded at a moderate pace from February through early April even if there was little respite for businesses from high inflation and labour shortages.
There was a smallish US Treasury 20 year bond auction this morning. The US$18 bln on offer attracted US$47 bln in bids. The median yield achieved was 3.03% pa compared to 2.60% at the prior equivalent event a month ago.
Canada's CPI inflation came in much higher than expected. Analysts were looking for a 6.1% rate in March after a 5.7% rate in February. But it came in at 6.7% and that is a 31 year high. Actually, sharply rising dairy prices played a not-small part of this increase. The Bank of Canada has much work to do to tame inflation there. Join us for the New Zealand March CPI release at 10:45 am this morning, where our market is anticipating a 7.1% rise which for us would be a 32 year high.
China hasn't followed is reserve ratio cut with lower prime loan benchmarks. It kept its benchmark interest rates unchanged for corporate and household loans at its April fixing. The one-year loan prime rate (LPR) was left unchanged at 3.7% following cuts of 5 and 10 bps in December and January, respectively; while the five-year rate was kept at 4.6% after a 5-basis-point cut in January.
Taiwan export orders, which are a bellwether of global technology demand, rose faster than expected in March, setting a new high for the month. But their government warned of much slower growth for April as a consequence of the Ukraine war and ongoing supply bottlenecks.
German producer prices were expected to rise sharply in March, even faster than for February, and their highest in more than 70 years. But those forecasts proved to have under-stated that actual rise which exceeded a +30% rate, almost all driven by sharp increases for Russian fuel. This is steeling them for a complete break from that Russian stranglehold. Overnight their Foreign Minister declared Germany will halve oil imports by July, and take them to zero by the end of 2022. Germany currently buys a quarter of its oil and 40% of its gas from Russia. The dramatic policy shift won't be without some tough costs, but it looks like it is happening, and fast.
In Russia, panicked citizens withdrew foreign currency worth US$10 bln from their accounts in March and banks cut new corporate lending by around one third.
The UST 10yr yield starts today down -7 bps bps at 2.84% and giving up all of yesterday's jump. The UST 2-10 rate curve is noticeably flatter at +27 bps. Their 1-5 curve is also flatter at +93 bps. Their 30 day-10yr curve is flatter at +252 bps. A fully positive rate curve has been restored across all maturities. The Australian ten year bond is now at 3.06% and down -3 bps. The China Govt ten year bond is up +1 bp at 2.88%. And the New Zealand Govt ten year up +4 bps at 3.52%.
On Wall Street, the S&P500 has started its Wednesday session up +0.4%. Overnight, European markets were all up more than +1.5% on average except London whose gain was only +0.4%. Yesterday Tokyo ended its Wednesday session up another +0.9%. But Hong Kong was down -0.4%, and Shanghai ended down -1.4%. The ASX200 ended flat but the NZX50 closed up a strong +1.1%.
The price of gold starts today down -US$22 since this time yesterday at US$1956/oz.
And oil prices are unchanged at US$102.50/bbl in the US while the international Brent price is down -US$1 and now just on US$106.50/bbl.
The Kiwi dollar will open today up +¾c at 68 USc. Against the Australian dollar we are very marginally firmer at 91.3 AUc. Against the euro we are nearly +½c firmer at 62.7 euro cents. That all means our TWI-5 starts today at 74.1 and +50 bps firmer. We should also note that the Chinese yuan slipped to a six month low against the US dollar yesterday.
The bitcoin price is up just +0.2% from this time yesterday at US$41,440. Volatility over the past 24 hours has been modest at just under +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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48 Comments
But first in the US, residential resales fell -2.7% in March from February, a second straight decline and the sales rate is now its lowest since June 2020.
This is also beginning to happen to our comrades in Straya'. Only Sydney and Melbourne so far, maybe the lucky country will keep it's crown!
https://i.stuff.co.nz/business/128396590/world-watching-nz-housing-mark…
Can Orr and Jacinda be so stupid that were unable to see what was happening with their action, were they so ignorant that did not knew what will happen if they remove LVR in zero interest environment.
When it was evident as early as in December of 2020 - just after 9 months of emergency measures, what took Mr Orr 15 months to realize.
Can understand that politicians may not be qualified but the same cannot be said about people in rbnz.
Will NZ be Ireland of today in terms of housing crash !
Answer is yes they are that Stupid, and Grant is still just as ignorant blaming the world picking out countries with worse inflation, noting he won't use how closest partner Oz as an example who are only running at 3.5%. Can't wait till later today when the 7 fiqure comes out, oh the excuses.
I think the really stupid people are the ones who thought we would have near zero or negative interest rates for ever. Obviously they have never heard of history.
Investing in real estate is a no-brainer. No assuming that interest rates will never rise proves you have no brains.
According to the "journalists" at stuff, the world is loading up on popcorn to watch what happens when a Minsky mega-bubble bursts.
https://i.stuff.co.nz/business/128396590/world-watching-nz-housing-mark…
Housing market preparing for a long winter, which could run in years.
Can witness so much panic in housing market and this is when the fall has not even begun in true meaning. Wonder what will happen when the house price actually tumbles as everyone is panicking with just price rise stop as fall is yet to begun.
In years to come NZ may be used as example, replacing Ireland.
FHB should seriously hold as speculators have and not try to catch a falling Sword (as by size will not be that of knife).
I think the lack of panic you may be seeing is based on your location. I’m in Wellington and people are freaking out, my mate has been trying to sell his ‘popular’ location house that he thought was worth $1.3m for nearly a month now. Priced at just under $1m now and still not one offer…
Some of those graphs are quite astounding. The massive jump in high LVR lending to investors during covid is incredibly concerning with prices now falling. But the house prices vs Capacity to Pay shows just how far asking prices will need to fall to come back in line with what people have the capacity to pay.
So Germany seeking to withdraw its dependency on Russian energy. Still to the East, Russia has great markets for same, Pakistan coming on board for instance. Perhaps the world is reverting in shape and form to them and us or long ago, as per Kipling, East is East and West is West and never the twain shall meet. If that is so, then globalisation courtesy of Reagan, Thatcher & Co, has been something of a rather large own goal hasn’t it.
According to Churchill, a riddle wrapped in a mystery, inside an enigma. He should know, he had three goes at it. A staunch opponent of the Bolsheviks in the 1920s, that thawed out of necessity in the 30s and eventuated allied with Stalin against the Nazis, then the cold war and the famous Iron Curtain speech.
As a result, on April 20, 2022, the G20, which was created in December of 1999 in order to overcome the split between the West and East and engage in global crisis management, found itself for the first time in its history in a situation where its own members were engaged in generating risks, instead of containing them. Link
Is enabling one any better?
Germany has no weapons that can be quickly delivered to Ukraine, top diplomat says
According to Annalena Baerbock, Berlin agreed to support those partners who are ready to supply to Kiev Soviet-made weapons
Kipling didn't coin Great Game, but he made it famous. It was all about resource-sucks; Cape-to-Cairo railways, the Boston tea-party, they were all about who gets what. Latterly, it has been about fossil energy supplies/access. There are two facets to that; one, it's a set of finite sources, so all games are time-limited. Two, there is not enough to go around, anymore. If we look at political power as needing the backing of real power - wars are about who throws the most weight the furthest/fastest, or most efficiently, which is all energy-physics - then there is no chance of a Power getting as big as the US got. The question is whether the US declines quietly, or goes with a fight; Nuland and Biden Jnr were in Ukraine for good reason. Russia seems to have aging weaponry and an aged outlook; China will hold back until the last minute, and there isn't enough planet left by then.
We are probably looking at the permanent retreat of globalism - high-water-mark say 1995? - and not many commentators have their heads around the ramifications. Reagan and Thatcher were actually reactions to the beginnings of ultimate scarcity; a need for a lesser cohort to have access. The problem is that when that cohort are envied by too big a percentage of the disenfranchised populace, they lose legitimacy. And you get psychopaths being voted-for.
Interesting times
Correct! It's not a 'shift to electrification', it's a shift to whatever generates the electricity.
So many wide-eyed GND-types think we can electrify our way out of the global predicament. The reality is that we will end up on renewable energy, but doing maybe 1/5th of the work we currently do.
Yet our PM is touring - I think I heard? - with someone touting the export of hydro-electricity as hydrogen. Ignorance at all levels...
My interpretation of the push for hydrogen from Manapouri is they are scared to death of that 15% of electricity crashing the market and also losing the export dollars from Aluminum. The last being utterly rediculous thinking because the net return to NZ is 3/5 of SFA. But that's not how economists think.
Which makes things worse in future due to the lowered tax take from this source. eg Ak council/ NZ govt Eastern busway debacle.
So the effects are hidden from site........ at the moment.
Personally I think that petrol/ diesel should be even more expensive so that it culls out wastage.
A reminder: Inflation is looking backwards. It won't tell you what inflation is now, it will tell you what damage has already been done to your purchasing power. We're now almost 1/3rd through the following quarter, so keep that in mind if anyone suggests that today's number is what inflation is; it is merely what it was.
Talking about hard landing in end of 2023 or early 2024, so what is happening now.
https://www.marketwatch.com/story/fed-may-need-to-be-even-more-aggressi…
We are living in a fracturing world. Supply chains are going to lengthen permanently, countries are going to move quickly away from fossil fuels, commodities and security of supply are going to be king (copper!), and China will thank the West for their technology, continue to secure and grow their raw material supply chain with partners (e.g. Solomon Islands) but turn their focus to improving the quality of life of their whole population (reducing western access to sweatshop labour).
The hard reality therefore is that the things we import and consume day-to-day are going to cost us more - simply because the energy and labour cost of making and delivering those things will be higher. We can sit here blaming Grant Robertson, obsessing about the housing market and the RMA, and chuntering about the need to hike interest rates to double figures (like this will do anything about any of the above). But, maybe we should do something unfashionable - like have an actual plan for how our little island succeeds in the new world?
As a former NZ manufacturer-started in business 50 years ago- back then NZ did have a plan on how to be self reliant--it was to limit the importation of manufactured goods, and thereby accomplish two goals: Employment for all, and conserving hard currency won for the country by the Agricultural sector. In the past 30 years Tourism sector has grown and sucked up all that labour surplus left behind when the country turned away from Manufacturing by liberalizing imports of anything and everything. If Tourism will likely not endure into the future because people's "social credit score" will be adversely affected by too many overseas airplane jaunts, then likely a return to government enforced mandates to spur local manufacturing will be the needed solution... I could talk about the number one asset every manufacturer valued most--their Import License, but that would be another story.
German producer prices were expected to rise sharply in March, even faster than for February, and their highest in more than 70 years. But those forecasts proved to have under-stated that actual rise which exceeded a +30% rate, almost all driven by sharp increases for Russian fuel. This is steeling them for a complete break from that Russian stranglehold.
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