Here's our summary of key economic events overnight that affect New Zealand with news equity markets are gripped by stagflation fears today, with substantial sell-offs underway worldwide, especially for tech firms.
An article by the Minneapolis Fed's Kashkari didn't help, suggesting a recession may be necessary to kill off inflation.
In the US, inflation expectations have fallen from record highs in data released overnight, but remain very elevated. For the year ahead they fell to 6.3% in April from a record high of 6.6% in March mainly because consumers see the price of fuel falling. They see house prices rising +6% and incomes up +3%. Three-year-ahead inflation expectations rose slightly to 3.9%.
Meanwhile, American wholesale inventory levels rose only a marginal +2.3% in price terms in March, confirming they remain very low in volume terms. More crucially, the inventory-to-sales ratio remains at cycle lows, showing there is no buildup usually associated with a looming recession.
In Canada overall building permit levels fell in March after a very strong February, mainly due to the non-residential sector and an absence of public projects in the month. But residential permit levels remained strong, rising almost +5%.
Exports from China rose by just +3.9% in April from a year earlier but beating market forecasts of +3.2% rise - and moderating sharply from an almost +15% rise in March. The latest data marked the slowest increase in shipments in nearly two years, as tighter COVID-19 curbs halted factory production and caused congestion at key ports. Sales increased to the US (+9.4%), the ASEAN countries (+7.6%), and the EU (+7.9%) but were worryingly weak elsewhere. China's imports didn't grow at all, emphasising the domestic stall underway there. Iron ore imports fell -7%, although oil imports were stable ('resilient'). It was a second consecutive month of zero import growth.
In contrast, Taiwanese exports rose +19% and imports rose +27% year-on-year in April, continuing their very healthy trade activity. April was only edged out as a record month by a couple of other recent months.
In the Philippines, the son of dictator Ferdinand Marcos is headed for a landslide win. He is from a family has been synonymous with kleptocracy for decades and is on the hunt to recover the wealth his family stole from the state in a prior period in power. The Philippines is about to become unstable again.
In Australia, early voting is now underway for their Saturday, May 21 federal election. Because of growing expectations the government will change, there is nervousness in the ruling party about how an incoming administration will define political corruption. And what a change could mean for Australian inflation going forward.
The UST 10yr yield starts today down -8 bps since this time yesterday at 3.06%. The UST 2-10 rate curve is steeper at +46 bps but their 1-5 curve is marginally flatter at +105 bps. Their 30 day-10yr curve is also slightly flatter at +259 bps. The Australian ten year bond is now at 3.53% and down -3 bps. The China Govt ten year bond is unchanged at 2.84%. But the New Zealand Govt ten year is up +3 bps at 3.82%.
As expected, Wall Street has started its week lower. The S&P500 is down -2.6% in Monday afternoon trade. Overnight, European markets all fell about -2.3%. Yesterday Tokyo shed -2.5%, Hong Kong was closed for a holiday, and Shanghai ended little-changed. The ASX200 ended its Monday session down -1.2% while the NZX50 ended down almost -2.0%.
The price of gold starts today down -US$25 since this time yesterday at US$1858/oz.
And oil prices are sharply lower today at just under US$102/bbl in the US with a -US$7.50 drop, while the international Brent price is now just over US$105/bbl.
The Kiwi dollar will open today -¾c weaker again at 63.3 USc and another near two-year low. The devaluation since the start of April is now up to -9.2%. Against the Australian dollar we are slightly firmer at 91 AUc. And against the euro we are also sharply lower at 60 euro cents. That all means our TWI-5 starts today at 70.8 and its lowest since mid February. On a TWI-5 basis the devaluation since the start of April is now up to -5.2%.
The bitcoin price is down another -8.2% from this time yesterday at US$31,260. At the beginning of April it was at US$47,294 so it is now down -34% since then and down -54% since its November 2021 peak. Volatility over the past 24 hours has been extreme at just over +/- 5.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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67 Comments
In the Herald this morning was this report about congestion charging:
https://www.nzherald.co.nz/nz/politics/government-likely-to-announce-co…
“The report backed the idea congestion pricing could be introduced in Auckland without significant impacts on people with low incomes, "based on the travel patterns of commuters".
It argued most commuters to central Auckland came from the isthmus or southern North Shore, while "very few" came from the south or southwest, and "relatively few" from the west.”
My immediate thought was: well what the hell is the rail tunnel project being done for then? If not many people from the south or west go to the central city, why spend all that money? Reinforces my view that this project is NZs biggest financial disaster to date.
Len Brown was the one responsible for starting it, going it alone on behalf of Ak ratepayers and then John Key eventually signing on behalf of NZ taxpayers for the other half.
Meanwhile back in Christchurch the vainglorious sports stadium blows out yet again, $50 mil at the least, still counting and plainly not for the last time. Like the cathedral restoration a disastrous and punitive burden on rate payers on an already cash strapped city already charging rate payers pro rata higher than anywhere else in NZ. Perhaps now sell some assets. For instance that $60 mil of bare land in Central Otago for a pie in the sky airport for a start. What a bunch of feckless dreamers and wastrels, lifting and splurging other peoples money.
Those making the spending decisions at councils couldn't care less. If they could set rates at 100% of ratepayers' incomes they'd still be whinging it isn't enough for whatever bound-to-blowout projects they've got in the pipeline that are so desperately needed to create a "world class city" (no doubt with well-connected parties making out like bandits in the process).
Once you're in at that level of a council, why would you speak out against it? It's not like you're going to want the rort to stop as you benefit from it.
CIAL is a company, with CCC as a majority shareholder via its holding company CCHL. Cash positive, pays a divvy to CCC. Helps to read annual reports before blithering about 'ratepayers paying'. They are several layers removed from any notion of 'control'.
And a Wanaka airfield is much, much less constrained than Qtown. Helps to know an aeronautic type or two.....
Fair point. Albeit they are not slated to pay a dividend for several years, have been running at a loss, and have no plan yet for how they will find the $600 million to build the airport. https://www.stuff.co.nz/national/300190390/tarras-international-airport…
As CCC are the majority shareholders they therefore are liable for losses and therefore ratepayers wear that as well. The new airport will not proceed if even on greenhouse etc etc, let alone the relevant local body resistance. What is the carbon footprint, concrete, steel, diesel, plastic to etc, etc, etc, to firstly construct it and then run it. How much of that will be dumped onto the average New Zealander to compensate. And when it does fail to proceed, The CIAL, owns a whole lot of overpriced bare land, which means the CCC & ratepayers owns it too, like it or lump it.
I use the bike lanes most days (mainly because it's so much faster than putting up with traffic in and around the four aves) and they are a lot nicer to ride on versus the road, but you'll never convince me that they couldn't have been built for less.
Clearly the aim is to encourage everyone to walk/bike/bus to the CBD by making it miserable and expensive to drive, but not enough people live within walking/biking distance - as everyone's shoved off to the Selwyn/Waimakariri DC areas to get a bigger, better house for less money (and less ruinous rates), and even if you live in the CCC area it's often easier to go to one of the out-of-CBD hubs like Riccarton/Tower Junction or Northlands to find what you need ... with convenient and free parking, and a safer feeling; even prime Mike Tyson would feel uneasy walking through the CBD at night these days.
Christchurch is never going to be Copenhagen or Amsterdam. We should get over pretending otherwise, and accept that there needs to be a good balance between encouraging cycling/walking where feasible but also that the average lifestyle here is car dependent due to many having to live further out of town than they might otherwise like, often because of housing affordability (in other words, have fun biking home to Rolleston with the 2.4 kids and the week's shopping in tow) and if it is made too difficult to drive into town, people just won't bother and will go elsewhere.
I actually wish it wasn't that way. I enjoy biking into town, or walking down Lincoln Road to Hagley Park on a warm Saturday morning, and the "European model" is a nicer way to live in many respects ... but is it really workable here with the way Christchurch has sprawled out?
Schiphol Airport is freaking awesome ... not that I'd wanna live in Amsterdam ... all those damned cyclists everywhere ... but , great food , museums , Van Gogh , canal ... ... if Christchurch can form itself into something like the combination of an Amsterdam old world city , and a state of the art new Singapore , I'd be rapt ...
Used to submit to CCC LTP and Annual Plans. Waste of energy. Staff fads rule.
Used to live in CBD in the glory days, moved out in 1996. Best move at the time.
Used to work in the CBD until the WuHuFlu hit. Post earthquake, it was and remains a sad shadow of its former self despite the pom-pom shaking of the CCC.
Sold up at the peak of the market in early '21, bought bare land on the Kaikoura Peninsula, best move ever.
Private enterprise has all the answers. https://www.businessinsider.com/global-sand-shortage-2017-9
Because the CRL allows for throughput that the current network doesn't, so you get more network services. Easy.
What's not 'easy' is the fact that stat is rapidly becoming out of date. There's more and more housing and there's more and more people going in out West. More and more people will be commuting to the CBD from West.
The real reason you don't hear that is that the Government has no realistic plan, capability or otherwise, to actually put in rapid transit, despite SH16 already being congested from 4pm each day at this low level of post-Covid traffic. If they talk about it, people might ask on what the plan is to fix it.
There's a list in the final pages of the initial liquidator report:
https://app.companiesoffice.govt.nz/companies/app/service/services/docu…
Great fun riding these waves when you dont have any leverage in the market! Allows me to stack so many more sats.
UST has got down to 0.92 cents on the $. It has unpegged previously, but at those times they didnt have 1.5b + in BTC to dump on the market.
It is def not a systematic risk to Bitcoin, Bitcoin will just keep on doing what it does. The price on the other hand might take a hammering, but again if it can get back to 20K it will make a lot more whole coiners for those who stick around.
Interesting comment, I had dinner with a friend in Bali last week, he's extremely well off and I was querying how he made so much money (I know he doesn't have a financial background). He said he has been playing online poker for years and got paid in bitcoin for his winnings… I was gobsmacked!
A good piece of journalism:
https://thetyee.ca/Analysis/2022/05/09/Ukraine-Challenge-Each-Of-Us/
Unlike most people, who don’t understand Russia imperialism let alone the history of Ukraine, eastern Europeans know more is at stake than meets the eye or fills the ear. Previous aggressions haunt our blood and bones, even as Putin’s take the form of nuclear war blackmail that threatens all.
Hmmmm...
...former U.S. President, Barack Obama, phrased the matter to America's graduating cadets at the U.S. Military Academy at West Point, on 28 May 2014:
The United States is and remains the one indispensable nation. That has been true for the century passed and it will be true for the century to come. ... Russia's aggression toward former Soviet states unnerves capitals in Europe, while China's economic rise and military reach worries its neighbors. From Brazil to India, rising middle classes compete with us, and governments seek a greater say in global forums. ... It will be your generation's task to respond to this new world.
It could as well have been said by England's royals and other aristocrats during their imperialistic heyday.
eastern Europeans know more is at stake than meets the eye
If only. Russian propaganda and disinformation is so rampant in Eastern Europe, that millions of people are happy to forget the lessons taught by history. When the PM-dictator of my country (Hungary) and his party got re-elected with a 2/3 majority for the 4th time in a row this year, they were openly laughing at Zelensky in their victory speech. And millions of their followers were laughing with them... They actually blame Ukrainians for forcing Russia to attack them. Disgusting.
I'm so glad I left that beautiful but cursed country...
it is interesting though isn't it. The US see itself as the defender of freedom, on the basis that it is a 'democracy', but despite the fact that it is for many countries a threat to their freedom if they choose a path the politicians don't like. That view is also in denial of the fact that the US is a [very] flawed democracy and corruption is evident at all the upper levels.
Indeed the story of Eliot Spitzer is a very salient lesson about US corruption in that the media will happily lynch a crusader digging out real corruption, over some minor questionable morals.
But i guess that the military strength means that all us other, smaller democracies can to an extent shelter under their umbrella. Would China respect us if the US wasn't there to guard our back?
That's an opinion column not journalism. It's a wall of propaganda: bad things have happened before in history and this is as bad or worse and padding it with repetition of pervious MSM "truths" about Putin and the war.
If you go looking for actual journalism you will start to find contradictions between this piece and what's happening. Pretending to summarise the situation without even trying to deal with Donbas, can't be serious.
Of course they are. it used to be a part of the Soviet Union until that got dissolved to Russian would have been the first language, as well as the resettlement of ethnic Russians to the region by the Soviets. Natural outcome, but still doesn't justify Russia's actions.
There have been people from ethnicities that might consider themselves more Russian than Eastern European living in areas of current Ukraine since the 9th century. Stop guessing and go learn. Nether of us have the knowledge to comment further on this. European boarders move and there is not one singular Russian ethnicity.
Long read - Address by the President of the Russian Federation - February 21, 2022
With regard to the state of affairs in Donbass, we see that the ruling Kiev elites never stop publicly making clear their unwillingness to comply with the Minsk Package of Measures to settle the conflict and are not interested in a peaceful settlement. On the contrary, they are trying to orchestrate a blitzkrieg in Donbass as was the case in 2014 and 2015. We all know how these reckless schemes ended.
Not a single day goes by without Donbass communities coming under shelling attacks. The recently formed large military force makes use of attack drones, heavy equipment, missiles, artillery and multiple rocket launchers. The killing of civilians, the blockade, the abuse of people, including children, women and the elderly, continues unabated. As we say, there is no end in sight to this.
Meanwhile, the so-called civilised world, which our Western colleagues proclaimed themselves the only representatives of, prefers not to see this, as if this horror and genocide, which almost 4 million people are facing, do not exist. But they do exist and only because these people did not agree with the West-supported coup in Ukraine in 2014 and opposed the transition towards the Neanderthal and aggressive nationalism and neo-Nazism which have been elevated in Ukraine to the rank of national policy. They are fighting for their elementary right to live on their own land, to speak their own language, and to preserve their culture and traditions.
An article by the Minneapolis Fed's Kashkari didn't help, suggesting a recession may be necessary to kill off inflation.
Ex RBNZ economist agrees.:
When inflation becomes established and pervasive – not just direct price effects of this or that supply shock or tax increase (or combination of them) – it generally doesn’t come down all by itself.
Expressed in terms of conventional monetary policy, it usually takes a period in which policy interest rates are raised to, and maintained at, a level above the (not directly observable) then-neutral rate. Of course, sometimes an adverse external demand shock – eg an external recession – comes along, which can do a big part of the job. But that isn’t usually much more pleasant. Either way, domestic demand growth typically needs to be held below growth in the economy’s productive capacity for long enough to lower inflation. And, among other things, that will typically mean a rise in the unemployment rate, to (for a time) levels beyond (not directly observable) then-neutral (sustainable, non-inflationary) rate. Link
In 2013 the RBNZ warned that when real interest rates rise the property market will return to the long term mean of three times income.
Just think what that means for Auckland prices…. a fall of 60-70% could be on the cards.
I hope the current political class get thrown out and a new generation come through to pick up the pieces.
Maybe time to get the trust deeds and articles of association out for organisations like the EMA, the Chamber, the property council and the council. The have sat on the sidelines and have been corrupted by the banks…. and all got very cosy….you join my org and I’ll join yours . The amount of capital directed into housing and away from the real economy should never have happened
It may well take a royal commission to let the public know what went on.New Zealanders are too trusting of their institutions.
Indeed:
Don't be the fool.
We've spent the last nearly forty years, as you can see here, in a generally declining-rate environment.
Let me explain what this means for corporate America.
I borrow $1 million at 13% interest. This costs me $130,000 a year to keep "outstanding." I produce nothing for the next five years and pay the coupon with the $130,000 each year. I've now got $350,000 in cash left (the rest I paid in interest) and I'm very bankrupt since I can't pay the million back -- right?
Wrong.
I roll it over. I don't have to pay the million dollars. It's five years later and the rate is 9%. Now it costs me $90,000 to keep it out, not $130,000. Note that I just bought myself more time, but since the market is "looser" I can borrow a second million. This costs me $180,000 a year to keep out, but, in five more years.... I refinance it again at 5%.
Now I've only got $450,000 in cash left -- remember, I've produced nothing -- but now my "nut" annually is $100 large. Can I get another $2 million? Probably. With which I sit for another five years or so and do it again, and again, and now I am eventually down to a 2% rate on the money.
I'm not out of money. I should have been out of money seven years into this game but I got away with it for close to 40 years. If I produce anything whatsoever with the funds I'm even better off in terms of my credit posture, and I've probably borrowed even more. Not $4 million, probably $20 million.
My stock price, which was $5/share back then, is now $3,000 split-adjusted -- and it has split several times.
All I have to do is convince Wall Street -- or some venture hack -- that he's got something here and since the market keeps running and the cost of borrowing keeps getting cheaper they finance folks will keep letting me do it!
Here's the problem: None of that was ever paid back. None of it can be, because I have no assets that are worth anything and I certainly don't have any money in the bank. If I had assets originally they're 40 years old and likely out of date and worthless. How much is an old open-hearth style blast furnace worth these days? Zero. In fact it probably has negative value because you would have to pay someone to wreck it out and haul it away, likely more than the iron and steel in the unit is worth.
But now those days, my friends, are over. Link
Here is a speech from the RBNZ in 2013, when houses were 4.6x incomes and they are warning about stability risks and saying that houses are 25% above long range averages.
https://www.rbnz.govt.nz/research-and-publications/speeches/2013/speech…
My how they changed their tune. The RBNZ really jumped the shark under old "Wealth Effect" Orr's leadership.
More of a canary in the coalmine indicator - Dow falls more than 600 points, S&P 500 tumbles below 4,000 to the lowest level in a year
Sure. Doesn't change what we were talking about though. In the zero rate world of the last few years, the effective yield on USD (or anything else) was all but zero. So you might as well hold something else with zero yield and speculate on the capital gains -- or at least that's how many people responded. But now (nominal) yields are on the way back up, that calculation is likely to change.
Well, here we are at last. Stockmarkets are in full retreat with the NZX50, S&P500 and the DJIA all well into correction territory and the NASDAQ well into bear market territory.
I see no reason to think that all these markets do not have further to go. I have been waiting for this to happen for some years. As I age-now 77- I have become more risk-averse, so have been happy to very slowly to sell into rising markets and build a large cash buffer. Of course I was too cautious too soon, but even now have over 40% of my long-held portfolio in dividend orientated shares. Over nearly 50 years i have seen this happen several times and knew it would come eventually-I just didn't know when or what the trigger would be.
For all those new to the market, this will be a very testing time. I will admit to some surprise that the crypto-currencies are falling in line with the stockmarkets. I would have thought that they might be more resilient, but they have never interested me.
At some point I will start buying, cautiously and very selectively, but not yet.
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