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China struggles to head off an economic unravelling; US Fed to go hard against inflation; war sets up global food & energy crisis; UST 10yr 2.93%; gold and oil flat; NZ$1 = 62.9 USc; TWI-5 = 70.6

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China struggles to head off an economic unravelling; US Fed to go hard against inflation; war sets up global food & energy crisis; UST 10yr 2.93%; gold and oil flat; NZ$1 = 62.9 USc; TWI-5 = 70.6

Here's our summary of key economic events over the weekend that affect New Zealand with news the Chinese economy might be at risk of unravelling, or at least in need of some emergency stimulus far above what has happened so far.

Also, trouble in global equity markets may not be over yet with investors looking for further clues on the course of Fed monetary policy and monitoring earnings result from big retailers. American retail sales, housing data and speeches by several Fed officials will take center stage there. Elsewhere, the inflation rates for UK, Canada, and Japan will be closely watched. And for us, the Government's Budget will be front and center on Thursday. In Australia, it is their last week of election campaigning.

But first in China, the extent of their stall has been revealed in their "new yuan loans" data. Chinese banks extended just ¥645 bln (NZ$152 bln) in new yuan loans in April, the lowest since December 2017 and well below market expectations of ¥1,515 bln. In March, this level was ¥3,130 bln (NZ$736 bln), so the -80% dive in just 30 days has been dramatic. Their lockdowns to contain the pandemic spread are having a stifling impact on their economy.

And warnings are growing that more aggressive measures will be required to 'save the economy'. Many families and small businesses are losing their ability to resist economic shocks.

China's slowdown is reversing almost all mineral commodity prices, perhaps none as fast as for tin or copper.

Shanghai chipmaker SMIC, listed and "partially state-owned", told investors late last week that demand for mobile phones, personal computers and home appliances has dropped "like a rock" and shows no signs of recovering. Its stock has dropped -23% in the past three months.

In an attempt to tempt more buyers back to their moribund property markets, over the weekend their central bank surprised with an order that first home buyers be given a -20 bps discount on their mortgage interest rate. Most mortgages are longer than five years and pegged to the five-year Loan Prime Rate - at 4.6% now - so the new floor is effectively 4.4%.

But perhaps there is some light at the end of the Chinese tunnel. Shanghai might be over the worst of their lockdown pressures, at least that is what global investors are betting on. But whether that will actually be enough to regain momentum is very uncertain.

In the US, at the end of last week the Fed boss has signaled that they will raise their policy rate by "50-basis point increases at the next two meetings" despite "some pain" as they find new resolve to battle inflation. And he has plenty of support among voting members.

Meanwhile, American consumers have similar concerns about inflation. The latest sentiment survey, this one from the wide-watched University of Michigan, fell to its lowest level since August 2011, and below market forecasts.

In Canada, the Q1 update to their senior loan officer survey revealed credit conditions got less tight in the period.

At the G7, countries have been huddling in Germany and warned that the war in Ukraine is stoking a global food and energy crisis which threatens poor countries, and urgent measures are needed to unblock stores of grain that Russia is preventing from leaving Ukraine.

India has banned wheat exports, as more countries prioritise fear over cooperation. India isn't a significant wheat exporter on a global scale, but some poor countries rely on it. It is the signal it is sending that worries some, a country behaving like shoppers who hoard toilet paper.

And speaking of commodity 'bans', keep an eye on cotton prices as climate issues and water availability affect the prices consumers may have to pay for clothing.

Russia is battling rampant inflation, up to +18% in the April data released overnight and its highest since 2002. But to be fair, this is mild compared to what is going on in Turkey, where that same rate reached +70% year-on-year in April. Both make our 6.9% seem tame which reinforces the value of generally sensible and bi-partisan economic policy making. Lose a hold on common sense and things can quickly spiral out of control.

The UST 10yr yield will start the week little-changed at 2.93%. The UST 2-10 rate curve is just a little steeper at +34 bps but their 1-5 curve is flat at +92 bps. Their 30 day-10yr curve is little-changed too at +225 bps. The Australian ten year bond is now at 3.38% and up +1 bps. The China Govt ten year bond is unchanged at 2.83%. And the New Zealand Govt ten year is also unchanged at 3.61%.

The price of gold starts today up +US$2 since this time Saturday at US$1812/oz. A week ago it was at US$1881/oz, so it has declined by -3.8% over that time.

And oil prices are still just under US$109/bbl in the US, while the international Brent price is now just over US$110/bbl. The momentum to bring new oil rigs into production in North America seems to be rising.

The Kiwi dollar will open today firmer against the US dollar, now at 62.9 USc. Against the Australian dollar we are also firmer at 90.7 AUc. Against the euro we are up at 60.4 euro cents. That all means our TWI-5 starts today at 70.6 which is marginally firmer in a week.

The bitcoin price has risen +2.1% from this time Saturday and is now at US$30,050. Volatility over the past 24 hours has been moderate at +/- 2.1%. The dive in the past week or so is threatening El Salvador's solvency which went all-in on the crypto - at the peak.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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60 Comments

Russia. Inflation upwards and onwards. Tis trouble at t’mill alright. The wheels of the international community by large, may turn slowly, but they surely are starting to grind now?

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She'll be right, The Economist says so.

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Given that refining and reimporting wood products out of and then back into New Zealand, I'd be surprised if there's even still a hypothetical mill for there to be trouble at. Even our colloquialisms are under threat. 

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'and warned that the war in Ukraine is stoking a global food and energy crisis which threatens poor countries'

They would. Anything but blame ultimate scarcity and an overshot global population. This is the G7 - 'Its members are the world's largest IMF advanced economies and wealthiest liberal democracies' - they're not going to address anything suggesting they're displacing others.

Re rig counts:

https://www.eia.gov/dnav/ng/hist/e_ertrr0_xr0_nus_cm.htm

http://resourceinsights.blogspot.com/2022/05/just-hint-from-mainstream-…

 

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There may be a little good come from it though PDK. Cutting off Russia will force Europe to re-think its energy policies. Admitting scarcity may be unpalatable, but developing alternatives would be politically acceptable. Germany may revisit it nuclear policies and build new, modern power plants. Certainly the pressure on fossil fuelled vehicles continues to increase. 

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Not in the US - 6 Years Late And 250% Over Budget: Georgia's Newest Nuclear Plant

Saudi Aramco overtakes Apple as the world’s most valuable company, stoked by a surge in oil prices https://trib.al/IITSILp

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Just the title makes the validity of your statement Audaxes. The new modular designs for nuclear reactors have only really emerged in the last five or so years. And considering how long it takes to build a reactor, some reports indicate 10 years, the "six years late..." bit suggests that the design and technology is getting towards 20 years out of date, so are they new designs or just the old ones dusted off and tweaked? 

The new designs take the lessons form all the previous accidents and disasters and strives to make them safe, reliable and scalable and thus more useful in power generation.

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I once went to a lecture by a fellow from the Heinholtz Institute - re getting Germany onto renewables. It required re-aligning their grid from east-west (gas/coal) to north-south (wind/solar), and was co-ordinated between 4 lines-companies.

Sounded good - but the takeaways were that it was being timed for 2050 completion, and would result in their grid being 35% renewable. And that's just their grid; not the displacing of direct-use fossil energy.

The truth is that they are between a rock and a hard place; down-energising is inevitable, the question is how they adapt their trading system? Can it be done?

I suspect the growth-imperative will see the West do to Russia, what it did to Iraq (invade on a pretext, grab the oil - there's not enough to go around now). Cynically, the US/UK weren't above using others as cannon-fodder, before they moved themselves (read: The Great War for Civilisation - Fisk). Are the Ukranians being thus used? The hope that there will be 'regime change' is a replay of Iraq, as is the ogre-ising of Putin a la Hussein (who was our friend while he gassed Iranians).

Fisk lamented the capitulation of his profession then - they're orders-of-magnitude worse now. Fisk deplored the repetitive use of the word 'terrorism' (listen to Morning Report this am? Another resentful, displaced young man, having identified 'others' as the cause... but no, he's another terrorist - unquestioningly) away back then. We have yet to challenge it, journalistically-speaking.

Though this was interesting too, considering their recent move:

https://en.wikipedia.org/wiki/List_of_Finnish_treaties

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I suspect the growth-imperative will see the West do to Russia, what it did to Iraq (invade on a pretext, grab the oil -

US Takes Wheat Out Of Ukraine. War-Torn Country Doomed To Famine

ROBBING SYRIA BLIND: US troops smuggle 70 more oil tankers out of Syria into Iraq.

The Yanks have tried to relieve Iran of its oil for decades without success.

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It is obvious the Ukranians are being used to weaken Russia. Great ploy by US to supply the weapons and the Ukrainians can supply the bodies.

The long game is for the US to plunder Russian resources. 

I heard the words "weapons of mass destruction" being used again recently.... Dejavu anybody

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So did the US ploy originate with their cunning leadership - Trump & Biden? And now did they brainwash Putin into mass invading Ukraine instead of just chewing away near the Black Sea?  This is a clear example of armed conflict - if you believe Ukraine is part of Russia it is a civil war or if you believe the Ukraine is an independent country with UN membership then it is a war between countries.

In any conflict if the bystanders do not get involved then in the long run the biggest wins. Do we really want Putin to win?

 

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I think it is giving USA far to much credit to suggest they orchestrated the war in Ukraine. They have been bumbling along for sometime now.

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Search: Nuland. Check out hubby. Trace connections backwards.

Be unsurprised.

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The US has some pretty toxic politicians and state servants, but that didn't make Ukraine a threat to Russia, any more than Belarus is a threat to Europe. If however, you choose to look on the world from the perspective of "you're either my friend, or your're an enemy" which seems to be Putin's perspective then the whole world is a threat. Putin's view is that he is in charge, people (countries) must dance to his tune. He is to all intents nothing more than a bully waving around his nukes to get his way. If nothing had changed Ukraine would have been 10 years away from any form of firm, corruption free stability, if and this is a big one, Zelensky had one the next election and the one after. But if he, like most politicians, screwed it up, the next one might have been pro Russia (again). Russia on the other hand has proven the rhetoric right - they cannot be trusted ever on anything. There were security guarantees between Russia and Ukraine (I have heard the number five). Russia breached every single one repeatedly.

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Ever since WW2 the CIA have been installing and removing regimes all over the world. That part of the US foreign policy has been unchanged since 1945. They are, and have been up to their necks in the Ukraine for many years. The same with all the other previously Warsaw Pact countries. How could anyone be surprised with what is going on?

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Certainly agreed on the overpopulation PDK, Humans are the biggest pest on this planet

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I'd say the most virulent cancer.

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This is a horrible line of thinking that leads to accepting the worst of atrocities.

Pests and cancers are things that we cut out, poison, kill, and eradicate.

Is that what you want for humanity?

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Are you saying a better world starts with(out) yourself?

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It's weird how offended people are by this. Yvil's correct and most of our most dire problems would be solved with a lot less humans in the world.

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Indeed, no more than 2 children per couple, and all the world's "scarcity" problems disappear

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I would suggest it's worse than that, no more than 1 child per couple at least for 2 generations.  World holding capacity for humans is probably around the 1 billion mark, if we are lucky.

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I agree people get very offended when you discuss reducing the worlds population. This doesn't mean going about killing people it just means we have to stop breeding. Nothing makes me more sick than seeing people with 6 kids that are staving to death on TV and we are supposed to all rush in with aide, well how about not having any kids to start with and maybe the problem is solved. Its pretty obvious that the world is already over populated, get rid of 75% of the people and all the current problems would be gone. Its a simple choice we either do it the smart humane way or we let nature step in and do it for us in the most brutal ways possible.

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Canada’s foreign minister, Melanie Joly, said her country, another major agricultural exporter, "stands ready to send ships to European ports so Ukrainian grain can be brought to those in need".

The only problem with this is Russia has a blockade on Ukrainian ports. Don't think that they will be letting Ukraine ship any grain any time soon. Why? Because this will cause in famine in African countries, which will in turn cause destitute African's to flee to Europe, triggering another immigration crisis like in 2015, causing Center left parties in Europe to lose even more votes to the far right parties.... Causing the center & center left parties of Europe to look for some sort of resolution to the Russia-Ukraine war.

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There are though all the great North Sea & Baltic ports. If the West can ship armaments eastwards from there, then transportation networks & abilities still exist in return.

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Good point Foxglove, nothing like a backload.

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Good theory here, the geo-political environment is very interesting at the moment.

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Nobody said anything about using Ukrainian ports. Why would you say such an obvious untruth?

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Here we go today: We'll finally get an idea of what sort of hit our living standards are going to take to meet climate goals. Without making any aspersions on whether we have a choice about doing anything about, it's time people stopped shying away from this part of the conversation. Yes, you can't put a price on your children's futures, but if I can't afford to feed my children in the here and now then their futures are academic anyway.

Let's hear the actual $ cost per household. Plainly and without appeal to vague pathos. Dollar terms, in the here and now. 

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Plant some veges, lower your food costs and absorb some carbon. Win-win.

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Outdoor space for such things is going to be relegated to history. Their vision is sardine living.

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the problem with sardine living is the crime that it brings with it.

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I lived in Japan for years and there is a lot more to crime rates than housing density 

 

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Why does meeting climate goals have to impact living standards? If we prioritise the right things it can raise living standards.

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Ask people to walk or cycle to work and get out of the car - que outrage, my SUV is my God

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Supply affordable housing within walking/cycling distance of workplaces, shops, and schools.

SUV are gods because the planners wanted it that way.

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You can get your family around town in a sedan. Since when did the soccer wagon need to be a mini truck...

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"Since when did the soccer wagon need to be a mini truck..."

Probably since they were exempted from FBT.

Try and find a Ford Ranger without some form of signage on it.

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Since when did the soccer wagon need to be a car?

My kids go to their soccer match on the back of my bicycle, just like most kids do in cities like Amsterdam and Copenhagen.

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When I lived in London I would ride my bike everywhere, it was easy, pleasant and safe.

Wouldn't dare in Auckland. It's unpleasant and quite dangerous.

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Auckland is pure suicide to try and cycle to and from work. I lasted 3 months with a near miss almost daily and finally got bowled by a Mercedes in less than 3 months. You get zero respect from motorists and Bus drivers think your some sort of game to see how little space between them and the kerb you take up while still trying to remaining upright.

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So it seems like investing in a safe cycle network should be a priority.

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Ah yes, the two genders: People who are able to commute to work within a reasonable timeframe using active/PT modes, and militant Hummer owners. It's a good thing there's nothing in-between or else this may come across as a gross misrepresentation of why people feel they need to drive. 

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Hardly - wrong.

You can have the best 'standards' (I note you don't quantify those...) possible in the circumstances.

That is dependent on resource availability, and on per-capita (or inequality).

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Quick plant some more productive farm land in pines. We need to show more leadership.

"China forecast to produce a record amount of coal this year.

CCTD forecasts that China will produce 4.35 billion tons of coal in 2022, about 7% more than last year."

https://www.bloomberg.com/news/articles/2022-05-12/china-pushes-utiliti…

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Thanks profile, maybe put a disclaimer that you're a paid lobbyist for fossil fuels so people can read your comments in context

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Profile, we MUST do our best to remove our .02% contribution despite the world's largest producers, China and the US, still very much going in the other direction.  Our economic suffering will lead the way...

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The new religion? The most ardent religious people I have met seem to think that suffering is fundamental to belief and piety.

My view is it is just about people justifying what they or those they favour do to others.

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Don't forget India - it is following Cindy's lead on coal imports. "On Friday, the coal ministry's top bureaucrat said the world's second-largest producer, importer and consumer of coal after China expected to increase output by up to 100 million tonnes in the next three years by reopening closed mines. "Earlier we were hailed as bad boys because we were promoting fossil fuel and now we are in the news that we are not supplying enough of it," Coal Secretary Anil Kumar Jain told a conference aimed at attracting more private players into coal mining."

 

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And this is why its a total waste of time us trying to reduce emissions if we have to start paying what is effectively a tax to do so. Bottom line is you cannot help the human race, its doomed to failure because it refuses to tackle population control. It will one day of course but only after civilization as we currently know it has crashed and burned and the "Recovery" needs to be sustainable to avoid a repeat.

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I couldn't like the comment (as couldn't bear the thought of being so depressing) but the skeptical in me thinks there is a chance you are right.

The dystopia sci fi might have some good "adaptation" forecasts.

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Good call Carlos. The argument for carrying on as we are doing in terms of fossil fuels is that the global warming, sorry, climate change, sorry climate emergency, sorry, climate crisis Religious Police are either wrong, or they are right. Then if they are right, everything will grind to a halt, our planet won't even notice our demise as a species, and it will plod on, as it did before we turned up. Looking after the planet problem solved.

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As has been pointed out many times, the planet doesn't need looking after as it just a rock floating in space. It's a human problem.

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Carlos you clearly undervalue the currency of virtue signalling, despite the awkwardness of taking the country backward on almost every measure bar pandemic management, Ardern will get mega cred for this pointless exercise in the halls of the UN (her next stop).

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No mention of the emissions reduction plan released today?

Regardless of your thoughts on climate change and the government's response to it, I think it is pretty clear that the emissions reduction plan will have a big part to play in economic policy moving forwards. Would be good to see Interest take an interest in it.

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Need a link to house prices and the headline writers will be all over it

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Why speculate when in a couple of hours the need is removed

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Our next MPS review is just a week away on the 25th May, its going to be very interesting. Obviously looking like a big hike to me, unless of course they are looking at housing and not inflation. They cannot hide from this now, their decision will confirm it.

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Agreed

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Plenty of discourse of climate delay going on in the comments section today.  Shall we start climate delay bingo?  Can use the diagram from here:

https://www.cambridge.org/core/journals/global-sustainability/article/d…

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