Here's our summary of key economic events overnight that affect New Zealand with news equity markets are still falling as investors worry that more Fed rate hikes will stunt economic activity everywhere.
But first, last week US jobless claims actually fell slightly to 191,000 (although most reports will focus on a seasonally adjusted rise). There are now 1.44 mln people on these benefits, a new modern low. As a proportion of their labour force, this is easily a new record low.
Meanwhile American producer prices came in +11% higher in April than a year ago, showing how embedded inflation is in their costs now. However, the month-on-month rise indicates a small tailing off of the pressure.
The May USDA World Agricultural Supply and Demand Estimates (WASDE) paint a picture of relentless food stress with lower production, holding demand, and higher prices. Wheat and corn stocks are falling. US beef production is expected to fall and prices rise. US dairy production is expected to be stable.
The US Treasury had another well-supported bond auction earlier today, this one for their 30 year bond. It resulted in a yield of 2.91%, up from 2.73% at the prior equivalent one a month ago.
South of their border, Mexico's central bank raised its benchmark policy rate by another +50 bps to 7% overnight as expected. It was their eighth consecutive hike, bringing borrowing costs to the highest since February 2020.
China has said that it is about to close it borders and strictly limit the ability of its citizens to travel overseas. See this. And there are rumours that Beijing may go into a Shanghai-style lockdown. It is all a consequence of its zero-Covid policies.
And China is also battling distorted harvest practices as grain prices shoot higher on supply concerns. And this.
Meanwhile, the property industry's bond payment woes just go on and on.
In India, they reported consumer inflation up +7.8% in April from a year ago, higher than expected and certainly higher than the March 6.95% level. But the rate seems to be increasing fast recently, with the April month-on-month rate rising at an annualised +17% rate, a level they will need to peg back quickly to prevent major social unrest.
Indian industrial production rose too, but at a only modest rate. This data is for March, and extends a very lackluster run since September 2021. India's inability to pick up the pace of economic activity is consigning it to laggard status in Asia.
In Europe, Finland said it would apply to join NATO "without delay", with Sweden expected to follow. That drew immediate Russian threats, but of course Russia is bogged down elsewhere.
Global container shipping freight rates fell again last week, another modest retreat but extending it to eleven straight weeks of declines and taking them down -26% since the September 2021 peak. Going the other way, freight rates for bulk cargoes rose again, and to their highest level of the year.
The UST 10yr yield starts today down another -8 bps since this time yesterday at 2.84%. The UST 2-10 rate curve is a little steeper at +32 bps but their 1-5 curve is flatter at +90 bps. Their 30 day-10yr curve is flatter too at +225 bps. The Australian ten year bond is now at 3.32% and down -11 bps. The China Govt ten year bond is little-changed at 2.83%. But the New Zealand Govt ten year is down another -6 bps at 3.71%.
Wall Street is lower again and is now down another -0.9% in late Thursday trade on the S&P500. Overnight European markets all fell about -1% except London which was down -1.6%. Yesterday, Tokyo ended down -1.8%, Hong Kong was down -2.2% and Shanghai ended down -0.1%. The ASX200 finished its Thursday session also down -1.8% but the NZX50 ended down 'only' -0.5% on the day.
The price of gold starts today down -US$28 since this time yesterday at US$1824/oz. Silver fell harder.
And oil prices have changed little and are still just over US$104/bbl in the US, while the international Brent price is still just on US$106.50/bbl.
The Kiwi dollar will open today sharply lower on a surging US dollar, now at 62.3 USc and down more than -¾c. That is its lowest since early June 2020 and represents a -10.8% devaluation since the start of April. But against the Australian dollar we are slightly firmer at just over 91 AUc. And against the euro we are also slightly higher at 60.1 euro cents. That all means our TWI-5 starts today at 70.1 and a -6.2% devaluation since the start of April.
The bitcoin price has fallen another -3.8% from this time yesterday and is now at US$28,656. At one point it got down to US$25,402. Volatility over the past 24 hours has been a massive +/- 9.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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107 Comments
Exactly:
Market "volatility" is simply those markets having figured out there was never inflation. Consumer prices were last year's supply shock, and now the downside of that shock is coming more and more into view. Even crypto and #BTC We just did this in 2018. https://alhambrapartners.com/2022/05/11/pea
I'd suggest it is more about his sources of information. We know he is not an economist. We also know that the Government surrounds itself with 'Xspurts' to provide advice. and we also know that 'Xspurts' like those from Treasury and the RBNZ have a vested interest in only telling what they want them to hear, thus they are biased filters. The information is simply not complete. You could perhaps suggest that they lie by omission. They leave out information that would provide a basis for challenging the conventional wisdom.
I have always thought that Ministers would be wise to build a panel of two or three staff whose job would be to independently review publicly available and other information to provide the contraview so to speak. These staffers should not be 'Xspurts' but rather have analyst skills and be encouraged to be blunt on what the information is telling them. Dissonance can be a good thing.
It's the problem with all issues it seems. The powers that be live in denial that anything must change, right up to the point where if they don't change, we are in serious trouble. At which point the problem is already devastating, so changing at that point is near pointless. This cycle is repeated constantly on a variety of subjects. For reference, see recent inflation, our tax system, our immigration settings, climate change... you name it. It's a problem with democratic governance and a conservative mindset that is embedded in Western democracies that simply sees us lurching from crisis to crisis without planning to deal with known issues before they blow up.
Real GDP growth for the last quarter was 3%
https://www.stats.govt.nz/indicators/gross-domestic-product-gdp
https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-real-gdp
For those wondering what we are on about,
The May USDA World Agricultural Supply and Demand Estimates (WASDE) paint a picture of relentless food stress with lower production, holding demand, and higher prices. Wheat and corn stocks are falling.
Russia is expecting a bumper crop this year, including a record wheat harvest, Russian President Vladimir Putin said on Thursday, citing preliminary data.
“A good harvest is expected this year. According to experts – of course, these are preliminary estimates – grain harvest can reach 130 million tons, including 87 million tons of wheat,” Putin said, noting that “this can become a record [wheat harvest] in the entire history of Russia.”
According to the Russian president, such a result “will allow not only to meet domestic needs with a margin, but also to increase supplies to the global market for our partners, which is very important for the world food Link
This is Vladymir 'Putin' the boot in when the soon-to-be-starving world is looking very hard at their food source security.
It's Vlad-speak for: "We have plenty of grain and fertilizer to not starve - so watch what you do or you will"
The Russians have always been good at chess, but this is beyond insiduous tactics!
EN
Necessity is not just the mother of all invention.
By consequence it can become desperation - thus becoming also the mother of all destruction.
We need not look far to see what lies ahead when the food /fuel crises become embedded.
Sri Lanka is a foreboding - if this war becomes protracted and/or escalates the world is in deep shit!
The economics that affect us now personally in the developed world may appear trivial in comparison to what may be unfolding - the sooner Putin is put to bed the sooner we can all rest.
EN
Also, get the Labour cronies to take with them the tens of thousands of paper-pushers and PR workers that have landed cushy, high-paid jobs in Wellington on account of the spin doctors in Parliament.
56 new PR roles created in Waka Kotahi since Labour took office in 2017, wow. The agency is on-track to receive billions in new funding from the NZ Upgrade programme announced in 2019. Out of this pool of taxpayer funds, WK spent $200M on road construction, maintenance, etc and another $145M on various consultants.
Edit: Number of new PR roles created in WK is 56 taking the total to 88; 65 of whom earn over $100K
Newshub found that through an OIA: https://www.newshub.co.nz/home/politics/2022/05/david-parker-can-t-say-…
In defense of Waka Kotahi, I would say the main challenge with transport in this country is educating the masses who think that spending more money on pointless roads is the way to solve congestion when the solution is to cut back on private car travel, make better use of what we've already built (road space reallocation) and invest in public transport, walking and cycling. In that sense, more engineers is not going to help you one bit whereas PR people might be able to get the message through. If you ask an engineer, normally the solution will always be build more, build over, build under, build, build, build. We're reaching limits to growth, even if we could afford to build we're not going to be able to pay for the ongoing maintenance.
Exactly.
Another lane on the motorway only encourages use of the motorway. If towns/cities are already congested then the entire network would need an overhaul to support one or two extra roads here or there.
Avoid the car unless it's necessary. Trouble is that infrastructure is built upon the convenience of the car. We live in a time where if you live in a city, the "convenience store" a few of blocks away is less convenient than a trip to the supermarket.
Who said anything about banning cars?
Not widening motorways does not imply we ban cars. It just implies we can't beat congestion by encouraging people to drive more.
Like the new harbour crossing, if you make it a vehicle crossing, where are the cars going to go? The central city is congested, the northern, western and sourthern are a carpark at peaks times. Building another crossing actually makes travel times worse.
a very perceptive comment KH -- its certainly viable that NZ will continue to have very low levels of unemployment yet still have a significant recession --- there is way more work opportunities than there are people - but in reality the recession will be more about a lack of affordability for working people -- as incomes are already well below what is needed to meet basic living costs for many -- and the coming rises and inflation pressures will make that particular aspect a reality for a million more working Kiwis -- who currently can make the ends meet -- but are unlikely to in 6-12 months time
Spending on non-essentials will crater while people concentrate on trying to pay for the essentials. Firstly their much more expensive to service mortgage then fuel then food ect. Firms have been tolerant of the 30% less productive work from home culture and endured the Covid sick out. When the worm turns on profitability for the firms that supply non-essential goods and services. They will quickly shed workers. Unemployment will be +6% by this time next year.
It's almost impossible to find IT professionals (developers and testers) now even at offers 30% higher than just a year ago! We've been trying to hire a senior dev for up to 160k, and intermediate-to-senior level testers for up to 130k. Almost all applications are from overseas (mainly India). We interviewed an intermediate level tester and gave her a job offer of 100k two weeks later (wasn't my decision to wait!), she already got a much better offer.
I got a raise that I wouldn't even have dreamed of just 12 months ago. The IT job market is absolutely crazy.
I recall a story some years back...finance employee in the Sates was subbing all his work to a guy in India - unbeknown to his boss.
That's funny.
The world's leading architectural and engineering service supplier Altas provides 2D, 3D and BIM solutions. They're doing a lot of work for public infrastructure projects in NZ and Aussie.
https://www.facebook.com/atlasindustriesvietnam/
Many Scandanavian countries are outsourcing software dev to Vietnaemse.
Grab it while you can. I had a happily well-paid job in IT for forty years (it does tend to wear you out as you get older - rather like being a drain-layer). However in 1990 I returned to London from 6 years coding in a 3rd world country but there was a recession for IT - spent 3 months searching for a job and obtained 6 interviews and no job offer; I thought it can only get better where upon I had another 3 months with no interview! I was forty-two and considered too old. Just as I was about to give up I got an interview and job as a programmer analyst. My career resumed until retirement. I enjoyed the work but most people fail either because they cannot think logically or the just dislike it. Waking up in the middle of the night thinking about better solutions suited me but would be torture for most people.
Well when our universities are training so many foreign students is it no surprise.
We could train our own people but they won’t all stay because housing is so expensive.
We are going around in circles as a country and the design of our economy is now causing greater and greater social problems…and the s**t hasn’t hit the fan yet.
in regards to the record low numbers in the US on benefits -- dont most states have strict limits on the amount of time you can be on a benefit -- both in any one instance and cumulatively ?
after two years of covid -- would this not mean many people have lost all eligibility ?
The numbers have been flashing 'recession coming' for a couple of months now. Everything is topping out or coming down the other side - house prices, weekly earnings, debit card spending, etc. The things that are heading north are fuel prices, rents, mortgage payments etc - i.e. the things that suck money away from spenders and give it to savers / banks / offshore companies.
It is all a recipe for a major slowdown - and we still have what, $200bn of mortgages to transition to higher rates? The extra interest payments could easily pull $10m of spending out of the economy per day!
What is often over-looked is that US Fed increases in interest rates attempt to slow down the economy through the business sector by increasing the cost of credit for companies, thus reducing business expansion, slowing jobs growth, reducing earnings and finally... reducing spending. The typical thirty-year fixed rate mortgage in the US protects mortgagees from interest rate rises. In NZ, increases in interest rates slow the economy down by increasing the cost of credit for businesses AND reducing the disposable income of mortgagees who are typically on short-term deals. This makes higher interest rates far more potent at slowing the economy down in NZ.
In short, the drunken $100bn increase in low rates mortgage borrowing over the last five years is about to give the whole country a serious hangover.
One of the outcomes of the combination of issues facing humankind right now is something equivalent to the great depression of 1929.
I am not wishing for this or saying it will happen but it is way more a possibility than it remotely was before the pandemic.
So a serious correction is considered in my plans but it doesnt seem to figure in that of our leaders - certainly in NZ.
And Murray86 is correct - ministers need more independent, challenging advice to consider the what if's that are real possibilities
My reading of the tea leaves is that at the very least it is going to be a very very rocky ride for the majority of Kiwi's
Yes I agree - and it is what we were facing in early 2020, but the monetary and fiscal policy managed to save us.....but for only 2 years! Now reality is coming searching again and with the amount of debt and speculation we have witnessed the last 2 years, as you say, there are many similarities to 1929.
With Finland and maybe Sweden wanting to go all in on NATO, it seems we are heading even closer to nuclear war. If only leaders acted sensibly... if only Trump hadn't torn up the missile treaty and NATO had actually listened to Russia's concern about it's eastward expansion. If only Russia had demanded diplomatic talks instead of going full on invasion...
It's starting to rhyme with the start of WWII, security alliances being drawn up left right and centre in some vain attempt at preventing war, while it is likely to cause war instead. Is the main function of the UN collapsing? How long until a pact decides to withdraw (a-laa Japan from the league of nations pre WWI)?
Russia is a rogue state and international pariah that would fail immediately in conflict with the rest of the world.
Their only friends are Belarus and Carlos67.
Finland and Sweden are joining NATO because it's the wise move with a genocidal terrorist state on your doorstep.
NATO may think it has strong conventional forces and economic power. But Russia retains thousands of nuclear warheads. This is its ace in the hole. That being said, a further provocation from NATO against Russia will jeopardize not only Europe, but also the world. Link
I rate much of the stuff you say Audaxes.
But seriously, it's not revelation that Russia has a lot of nukes, nor are NATO members "provoking" Russia by assisting Ukraine in defending themselves from genocide.
Linking to the Global Times (mouthpiece of the CCP) is like intentionally spreading brain disease.
Straws in wind? There's discernible shift in US media narrative last couple of days after $40 bn budget allocation for "weakening Russia." Maybe, last waltz for military-industrial complex? Per Lukashenko, who is a sharp cookie & usually well-informed, US "knows" it's lost war.
Quote Tweet First Squawk @FirstSquawk· May 12
RUSSIAN DEPUTY FOREIGN MINISTER RYABKOV AND U.S. AMBASSADOR SULLIVAN DISCUSSED BILATERAL ISSUES – RUSSIAN MINISTRY
Hmm I think you might find they get more friends as the US prints money to save its economy to fund its global dominance.....and causes hyperinflation in other countries that can't print at the same rate while the USD is the global reserve currency.
If pushed, you might find the likes of India, China, Iran all side with Russia, not the west.
As the PM of Finland said, their decision to NOT belong to NATO was theirs to make alone and was one that they were happy with.
BUT as soon as Russia said they couldn't, then that meant that freedom was taken away from them, and Russia was now dictating Finnish policy, ie in effect was a type of invasion by proxy.
And that is why they are now seeking support from NATO.
As he said, it is Russian that has made them do this.
Come on Brock, most of the stuff you say is sensible, but not in this case.
Would we get upset about say having Chinese missiles deployed to Solomons? How about if they were deployed to the Chathams? We are turning apoplectic at having them possibly deployed to the Solomons, the mere suggest of which has sent us into a tail spin. But its fine if NATO missiles line the Russian border?
Russia really does have a point, having missiles from a known adversary being repositioned or threatened to be reposition on your doorstep is not "spreading peace". To deny this is to simply eat up propaganda from our allies that NATO "does not threaten anyone". And considering the US's disposition to going to war (without justification, even if it's morally wrong), they have every right to feel threatened. They don't have the right to react as they have, but that's what happens when you try and corner an angry dog...
Russia just needs to look at itself. If its foreign policy wasn't based on a former KGB operative's fever dream and Russia decided to work with the West instead of adopting a persecution complex, Finland and Sweden would have remained content with the status quo.
The reason NATO exists post-cold war is because Russia has been a threat. The obvious solution is not to be a threat and your issues disappear, not threaten everybody, thus proving their distrust well-founded
Agree regarding Russia's poor foreign policy, hell even it's terrible internal policies leave a lot to be desired.
But Russia is not the only country with poor foreign policy. The US has proved it will happily invade any country it deems necessary, for any reason it deems necessary and will make up "intelligence" to justify its actions. When you are the stated adversary of such a country, it's unsurprising that you have to adopt an aggressive stance to counter them.
100% in favour of all nukes being banned around the world, as well as all other WMDs, cluster munitions etc. If NATO and Russia were to work together to remove arms (nuclear or not) from their borders in a mutual drawdown and de-escalation, I am all for it.
But that's not happening and that's my point. Increasing large security alliances until they are at each others throats does not make a peaceful world. It's exactly what leads to world wars as each alliance signs up to pacts of "if anyone attacks you, it's WAR!". They each then participate in games of brinkmanship until one steps over the line enough for the other to be enraged. It's virtually identical to the beginning of any type of group warfare, seen best on the play ground when one group of kids decides to pick on another, it simply escalates into an eventual brawl with no winners.
Problem here is the states are nuclear armed. There not only won't be "no winners" everyone in the world would be losers if we got to that point.
You conviniently ignore that Finland is being explicitly threatened by Russia. Sure i'd like all nukes, in fact all guns gone. But if I lived next door to Putin i'm not going to be the first to lay down my weapons. Ukraine has already tried that, given up it's nukes in exchange for security guarantess from Russia,Uk and USA, look how well that has worked out for them.
I don't recall Ukraine having or threatening to have nuclear missles deployed in it's territory.
I do recall Ukraine giving up its own nuclear weapons in exchange for security assurances from Russia. This didn't work out so well for them.
https://en.wikipedia.org/wiki/Budapest_Memorandum_on_Security_Assurances
Russian security assurances (and talking points) are not worth the paper they are written on.
You are only looking at how Russia isn't trustworthy. The major backer of NATO - the US, also has a history of not being trustworthy to the documents they sign, be it climate accords, nuclear deals or NPTs. That's the problem, people seem to have myopia that "Hey Russia broke some treaty's, they are evil!" but ignore all the other ones the US has torn up.
Neither are good actors, but provoking each other into war is bad for us all. As is supporting either side in its ambitions to expand their sphere of influence.
As for NATO expansion, I did not refer to nuclear missiles, though even having those based in a NATO country is a very real threat (Germany/Turkey being current homes of US nukes). But it would be naive to assume that membership would not mean expanding a members arsenal to include NATO weaponry.
I always find it interesting when I answer peoples questions, but they show how narrow minded they are by refusing to answer mine or even consider them.
I didn't answer your questions becuase they were stupid and I can't be bothered playing the whataboutism game. The Chinese are capable of placing a warhead anywhere on the planet within about 45 minutes. It does not matter if they are launched from Beijing or the Chathams. What are we going to do with the extra warning time that distance provides? Launch a strike of Arohas?
The strategic problem with the Solomon's is that it gives the enemy the ability to threaten the shipping routes into Australia and New Zealand.
Ahhh OK, everyone's stupid but you. Glad we cleared that up, thanks.
And that enemy you are talking about is the one who has been responsible for a large percentage of the wealth of NZ and Australia for the past decade or two. But of course, they are enemies... wait... why are they enemies? Oh yeah something about communism or something. Maybe they aren't enemies Brock?
It's not a "whataboutism" game and if you don't know the difference between analysis of a situation and reflecting that on our own circumstance vs pointedly ignoring the situation and pointing to something else, then there isn't much point in having a brain. Just keep regurgitating what you have been told about a situation and ONLY that situation and don't think about context or history or anything like that. I suppose it's a great way to live, ignorance is bliss.
"China is to the Pacific what Russia is to Europe."
I love it how you call everyone elses arguments stupid, then claim intellectual superiority with a simple but completely wrong comparison. We are commenting on a situation, that's not ranting.
Hilarious, you know where the Solomons are right? The only shipping lanes of ours they are really "protecting" are those to... CHINA! If we were to go to war with China as they are apparently "the enemy", then we can't have the Solomons with a Chinese base because the Chinese would bomb their own ships. Brilliant analysis.
Blobbles do you need to prove you are worthy of ongoing Communist Party membership? That's just pure unadulterated BS. Russia has hundreds of nukes on the border of Europe. Russia's history is one of aggression against it's neighbours. Europe's history is virtually the opposite. Yes there are US nukes in Europe, but their locations are known, and their control is strictly limited. But the French and Brits also have their own, and the French are not NATO. But Russia is and has always been the aggressor in Europe. All the history since WW2 proves that
Ahh yes, resort instantly to ad-hominem attacks, brilliant, a very convincing argument.
My god man, read a history book if you believe Europe has no history of aggression against it's neighbours. That's the most crazy assertion I have ever heard. You do realise WWII was Germany invading pretty much everyone right? Unsurprising that you don't know this considering you were adamant that NATO wasn't nuclear.
So you ignore the bit where I said "since WW2"? Russia has been the aggressor in Europe since WW2 not Europe, not NATO, not the US. Nato was formed specifically to counter the Russian and Soviet aggression. WW2 was 80 years ago. The worlds politics have changed significantly since then. Today Russia is the aggressor and you are arguing that people do not have the right to defend themselves against such actions.
Terra, which ranked among the top 10 most valuable cryptocurrencies, dropped below $1 on Wednesday, having peaked close to $120 last month.
‘I lost my life savings’: Terra Luna cryptocurrency collapses 98% overnight
Users of popular crypto forum fear they will become homeless after wipeout
“I lost all my life savings,” one member of the r/TerraLuna sub-Reddit wrote. “Had bought Luna at $85, not sure what to do.”
https://www.independent.co.uk/tech/terra-luna-ust-crypto-price-crash-b2…?
Bought all the dips last two years, doubled my kiwisaver balance, switched to conservative fund early April,as it was obvious that Fed was really serious going from jaw boning to bone sawing on inflation. Get back in in 24 months (if nzd/usd is back around 70) plus 5 years steady saving, the old gardener gets to retire at 65. Ahah!
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