Here's our summary of key economic events overnight that affect New Zealand with news the road is getting very rocky as we transition to inflation-fighting mode.
The financial markets are re-rating equity prices following the clear signals that the Fed efforts to lean heavier against inflationary forces is gathering steam. Not only will equity p/e ratios fall, but there is likely to be considerable collateral damage in less developed nations as the inflationary fight builds. The US dollar is rising quickly, and the Chinese yuan has dived to a one-year low overnight, and its been a painful week for Chinese stocks (see below).
But the US factory sector is expanding faster, even as concerns about the future build. Their manufacturing PMIs came in at their strongest in 7 months due to faster rises in output, new orders and employment. A rise in export orders is coming too. Inflationary pressures remained high but firms are managing to pass on all of that effect to customers. But all this isn't really improving sentiment as inflation and geopolitical uncertainty make it hard to be optimistic even if the present situation is improving. Those sentiment concerns weigh heavier on their services sector, but that too is expanding well still.
Canadian retail sales were expected to slip in February, but they rose in data released overnight, even if only marginally. They would have risen much more except vehicle sales were weak there.
Canadian producer prices rose very sharply in March, now running higher than +18% pa. In fact that is their fastest pace in almost 50 years.
Japan finally seems to be getting some [minor] inflation. Consumer prices rose by +1.2% in March, the most since October 2018, after a +0.9% gain a month earlier. The latest figure marked the 7th straight month of annual inflation, with food prices rising at the fastest pace in over 5 years at +3.4%.
And the flash April PMI for Japan brought signs their economy is expanding this month. The latest data showed that Japanese private sector activity improved at a sharper rate. Services companies recorded an expansion in activity for the first time since last December, while manufacturers saw output levels rise for the second successive month. April data signaled the sharpest expansion in four months, though the pace of growth was only marginal, to be fair, mainly because new order levels weren't growing. But it is better than a contraction.
However, EU growth is accelerating in April as reviving services demand offsets a near stalling in their manufacturing sector. But prices are rising at record rates. In Germany, a drop in manufacturing production contrasts with continued service sector growth. But in France, business activity is rising at its fastest pace in more than three years. The UK however is still recording an expansion, but at lower levels. British retail sales were particularly weak in March, recording a decline.
In Australia, Westpac's respected economist Bill Evans has noted that 'underlying' inflation will rise to 3.4% when the March data is released next week, and their jobless rate will fall below 4% in April, and "on the basis of those forecasts we expect the RBA will decide to lift the cash rate by 40 basis points at its Board meeting on June 7" to 0.5%.
Australia's businesses are still expanding at healthy levels. Their private sector recorded a third straight month of growth, according to flash PMI data. Both output and demand expanded at strong rates in April, leading to the continued expansion of workforce capacity. Supply constraints persisted, however, contributing to record input cost inflation while backlogged work also rose solidly.
And we should note that prices for corn have hit their highest price in a decade, and could easily surge to a new all-time record soon. This will exacerbate the world food crisis.
The UST 10yr yield starts today lower by -2 bps bps at 2.90% and taking the weekly rise to +7 bps. The UST 2-10 rate curve is flatter at +19 bps. Their 1-5 curve is flatter too at +89 bps. Their 30 day-10yr curve is also flatter at +244 bps. The Australian ten year bond is now at 3.11% and up +5 bps. The China Govt ten year bond is up +1 bp at 2.89%. And the New Zealand Govt ten year up +8 bps at 3.60% and that is a +17 bps rise in a week.
On Wall Street, the S&P500 ending its Friday session down -2.3% as prospects of an aggressive monetary policy tightening seems to have spooked investors. For the week they are heading for a -2.3% loss. Overnight, it was similar red ink in all European markets, But both Paris and Frankfurt ended with small +0.4% weekly gains, London with a weekly -0.8% retreat. Yesterday Tokyo ended its Friday session down -1.6% but that locked in a net +1.0% gain for the week. Hong Kong was down -0.2% capping a week where they lost a massive -3.8%. Shanghai eked out a small +0.2% gain on Friday, but that still left them with a -3.1% loss for the week. The ASX200 ended down -1.6% to end the week flat. The NZX50 closed down -0.4% on the day but closed out the week up a net +0.3%.
The price of gold starts today down -US$14 since this time yesterday at US$1933/oz. That is a -US$44 fall for the week however.
And oil prices are -US$1.50 lower at just under US$101.50/bbl in the US while the international Brent price is now just over US$105.50/bbl.
The Kiwi dollar will open today down more than -1c at 66.3 USc taking it to its lowest since mid-February. Against the Australian dollar we are marginally firmer at 91.6 AUc. But against the euro we are more than -¾c weaker at 61.4 euro cents. That all means our TWI-5 starts today at 72.8 and another -70 bps lower. The devaluation so far this month has been -2.6%, but in the longer scheme of things it is only back to its ten year average.
The bitcoin price has dropped -5.4% from this time yesterday to US$39,415. Volatility over the past 24 hours has been high at just under +/- 3.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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And oil prices are -US$1.50 lower at just under US$101.50/bbl in the US while the international Brent price is now just over US$105.50/bbl.
Indeed. West agrees to pay for Russian energy in rubles after Yellen declaration:
US Treasury Secretary Janet Yellen said on Thursday that a complete European ban on Russian oil and gas imports would “clearly” raise global oil prices and may inflict harm on Europe and other parts of the world. Speaking to reporters following a meeting with Ukrainian Prime Minister Denys Shmyhal and Finance Minister Sergiy Marchenko in Washington, Yellen said that such a ban could ultimately cause more harm than good. “It could actually have very little negative impact on Russia, because although Russia might export less, the price it gets for its exports would go up,” she said, as quoted by AFP.
LONDON, 21 April. /TASS/. The UK Treasury has granted a general license valid until May 31, allowing it to conduct transactions with Gazprombank, which fell under the sanctions. This is stated in a statement released on Thursday by the Financial Sanctions Administration of the United Kingdom. "The license comes into force on April 21, 2022 and expires on May 31, 2022," it says. The agency clarified that the permit was issued taking into account the interests of companies from EU member states that make payments for Russian gas through Gazprombank.
European Commission says EU companies can pay for gas in rubles
If the grand strategy was always to obtain and occupy a land corridor to firstly connect the Crimean peninsular, Sebastopol and secondly extend to include the Transnistria enclave in Moldova, then that may now have progressed somewhat by now. The campaigns further north can thus be regarded as diversions, to prevent a greater defence by the Ukranians in the south east. However if that is the objective Odessa will still need to be overcome and time has been available to provide & set much greater defences there. At the same the Russian image of an omnipotent military force has been severely diminished. Odessa was a critical juncture to the Nazi evacuation of Crimea in 1944. Looks like it may well be re-entering the world stage on this basis again.
Roberts saw it fit to write that “If Russia had hit Ukraine with a devastating conventional all-inclusive attack, the war would have ended before it started,” and, after some additional musings, that “the failure of Russia to impress the West with an overwhelming exercise of military force in Ukraine means another step has been taken toward nuclear armageddon.” And then he rambles along to “The Kremlin’s inability to be proactive and unwillingness to clear Washington’s fifth column out of Russia’s ruling circles will be the hallmarks of Russian defeat.”
Really? No, not really. - Link
https://www.ft.com/content/58427935-5d13-45f1-b8ed-91d793c68bec
Inflation must be laughing all this while when central bank chiefs were saying that it is Transitory despite inflation throwing data to suggest otherwise evertime since the manipulation started by central bank supported by government and clapped by economist / media to pump more and more.
Inflation must be thinking that you screwed me - now see how I screw you to teach a lesson - never play with fundamentals and like life cycle where death in unavoidable ( despite throwing money) even in economy cycle down trend is unavoidable - economy cycle that is taught in basic school.
Stop blaming everyone but yourself ( Jacinda and Orr) as just like life, economy throws challenges and it is how you react will determine the outcome. You decided under the excuse and shadow of Fed to print and distribute - money never ever seen ever before and worse continuing when could clearly see as early as in December 2020 that economy is recovering well and was time to withdraw - even oxygen in excess is harmfull.
Happy realization and please let the economy takes its own course as the more so called experts like........ decide to intervene ( not to save but to save your backside n power) - more F$#@ed it will be.
Inflation hyperpole is greater than the expectations.
British retail sales were particularly weak in March, recording a decline.
UK fuel sales fell 3.8% in March implying people increasingly only going on essential journeys. Food sales fell 1.1%, also in March, extending falls to 5 consecutive months.
UK retail sales fell 1.4%, versus expected 0.3% fall, as the cost of living bites. Online sales fell 7.9% compared with the previous month.
...inflation will rise to 3.4%...
RBA seems to be managing inflation far better than RBNZ. Casting an eye over the ditch I'm a little envious. If RBNZ crashes the economy we might have to move.
The financial markets are re-rating equity prices...
Very much needed in many markets:
If the current S&P 500 were sitting squarely on the regression, it would be at the 1718 level.
It's currently bid up to 4271 which is "very slightly" above trend.
In the annual predictions thread my prediction for this year was that the S&P500 would end the year at a low level than it started the year.
Agree, but not by much. See a full blown recession from mid next year as when inflation starts rising it usually takes a couple of years to settle further more there were many things in short supply since 2021 with labour market tight allover, i see more of a 2003 kind of situation. Commodities will surely be in short supply.
Commodities might get some temporary reprieve for a few months because of the Covid-19 situation in China. This won't likely help inflation as unfortunately it's likely to impact manufactured imports.
Labour is likely to just get tighter and tighter as the working age population of major OECD economies contract. Given the demographic situation in China we will also have to take out a substantial part of the labour market in the developing world as well.
Love the picture of Maitai Bay taken from the DOC campsite there, has been previously in NZ's top beach lists, truely a NZ national treasure. Grew up just 5km down the road. Shame the only way to see it now is in a picture as the local iwi's control of DOC there still has it all closed 'due to covid', even the carpark to Karikari beach opposite. DOC seem to have also removed it completely from their campsite booking system, no transparency, no explanation. Co-governance in action, reserving public assets for the select few.
Stumbled upon this interesting 2003 TVNZ documentary on YouTube. It shows the road to 2050 with regard to Maori co-governance.
Doom and gloom on the property investors page....
https://www.facebook.com/groups/nzpropertychat/permalink/21877274013870…
Even if the government is loath to cut services / handouts to fight inflation, surely they could cut red tape that is adding costs to businesses at the minute? The new trust disclosure rules, beneficial ownership reporting rules, obligation to participate in collective bargaining, payday instead of quarterly / annual filing with the IRD, number of sick days available, just to name a few.
The endless numbers of committees, raising of min wage well ahead of general wage inflation also seem like candidates for removal.
P.S. am I the only one who finds it cynical of Jacinda top switch the dole to being wage indexed to being inflation indexed just so that she could then announce special dole increases?
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