Here's our summary of key economic events overnight that affect New Zealand with news the US expansion rolls on, the core engine again of the global economy as China stumbles.
But first, there was another dairy auction today, and another fall in overall prices. This time they fell -2.9% in USD terms and -1.6% in NZD terms. That means from the mid-March peak they are down -15%. The main fall today was for the core WMP price, down -4.9% on top of the -6.5% fall at the prior event two weeks ago. Yes, pencils will be out checking whether another cut to the farmgate payout price is required.
US retail sales came in strong for April, up +8.2% above year-ago levels but perhaps just as expected. That caps a fourth good consecutive monthly rise. The more recent Redbook survey suggests that strength has continued into May. But Walmart isn't a retailer that is benefiting from this strength. Its sales are up, but its costs are up more. So far that effect is insulating consumers from higher costs.
US industrial production also came in well above year-ago levels, up +5.8%. Recent gains have been running higher.
Better still, all these strong business activity gains have not been because businesses are building inventories. In fact, these are holding at levels that are low historically on an inventory-to-sales ratio basis.
US Fed officials were out talking up their policy positions. Chairman Powell said they will not hesitate to keep raising interest rates until inflation falls in a clear and convincing way. He added that “if that involves moving past broadly understood levels of neutral we won’t hesitate at all to do that” and noticed that the American economy is strong and well positioned to withstand less accommodative, tighter monetary policy.
In China, their main bond trading platform for foreign investors has quietly stopped providing data on their transactions, a move that will heighten concerns about transparency in the nation’s US$20 tln debt market after record outflows. The suspicion is that they are now hiding even faster outflows than they have previously reported.
The crisis in Sri Lanka seems to be getting worse.
In India, their wholesale prices surged at a rate exceeding +15% year-on-year in April, well above what was expected. Food and fuel combined to drive this rise.
In Australia, polls show the election race is tightening, but only slightly. There are just three campaigning days to go there.
The UST 10yr yield will start today +9 bps higher at 2.97%. The UST 2-10 rate curve is just a little flatter at +27 bps while their 1-5 curve is actually steeper at +87 bps. Their 30 day-10yr curve is much steeper at +239 bps. The Australian ten year bond is now at 3.44% and up +9 bps. The China Govt ten year bond is little-changed at 2.84%. And the New Zealand Govt ten year is up +6 bps at 3.63%.
On Wall Street, the S&P500 is up +1.2% in Tuesday afternoon trade. Overnight, European markets were all up a bit more than +1.5% except London which only gained +0.7%. Yesterday, Tokyo ended up +0.4%, Hong Kong ended up a huge +3.3% and Shanghai ended up +0.7%. The ASX200 ended its Tuesday session up +0.3% but the NZX50 ended down -0.2%.
The price of gold starts today up +US$2 since this time yesterday at US$1818/oz.
And oil prices are -US$2.50 lower today and now just under US$110/bbl in the US, while the international Brent price is now just over US$110.50/bbl.
The Kiwi dollar will open today firmer against the US dollar, now at 63.6 USc and a +70 bps rise. Against the Australian dollar we are little-changed at 90.6 AUc. Against the euro we have dipped slightly 60.3 euro cents. That all means our TWI-5 starts today at 70.9 which is up +30 bps from this time yesterday.
The bitcoin price has risen back +0.9% from this time yesterday and is now at US$30,028. Volatility over the past 24 hours has been moderate at +/- 2.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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US industrial production also came in well above year-ago levels, up +5.8%. Recent gains have been running higher.
Better still, all these strong business activity gains have not been because businesses are building inventories. In fact, these are holding at levels that are low historically on an inventory-to-sales ratio basis.
Are we sure this is not debt fueled inert arms production to be expended in distant lands with no direct ongoing benefit to the US taxpayer?
From reading your history your posts, imagine you have forgotten more about stock and other equity markets than I will ever know. But for my modest involvement, now long distant, I had always considered investments in shares to be speculating and that is why I never invested more than I could afford to lose.
I had always considered investments in shares to be speculating and that is why I never invested more than I could afford to lose.
The founding premise of stockmarkets was to raise capital for productive capacity development - creative destruction was an embedded construct. Unfortunately, bank debt based leveraged margin trading and corporate stock buybacks got entangled in the process.
They need to spend taxpayer money here: America's Electric Grid Has A $2 Trillion Problem
No to mention the cost of standby idling gas plants for the when the wind doesn't blow - as happened in Germany last month.
https://www.agora-energiewende.de/en/service/recent-electricity-data/ch…
Audaxes,
Are we sure this is not debt fueled inert arms production to be expended in distant lands with no direct ongoing benefit to the US taxpayer?
Assuming your premise is correct, do you really think the US would not want anything in the future, from the "distant land", in return for their supply of weapons?
What, other than freezing its New York deposited financial assets as was done to Afghanistan? Most distant lands infested with US "democracy" enhancing debacles end up as failed states.
NED Scrubs Ukraine Activities From Website Amid Renewed Scrutiny on “CIA Cutout”
When what will effect Bitcoin? Are you saying that Venezuala controls the Bitcoin price somehow?
Chinna literally banned all mining in the country, and the recent reports that came out this week still estimate about 22% of the hashpower is still located in China. Massive own goal on that one.
Terra/Luna just dumped 80,000 BTC (about $1.5b USD worth) on the market and we are still at 30k. Thats pretty impressive in itself.
He (Powell) added that “if that involves moving past broadly understood levels of neutral we won’t hesitate at all to do that” and noticed that the American economy is strong and well positioned to withstand less accommodative, tighter monetary policy. [my bold]
The infamous unobserved economists’ R*, or R-star (natural/neutral rate), is a fiction. It’s one that they came up with after-the-fact to try to explain why their policies didn’t actually work the way policymakers had initially promised. While in public, officials still speak glowingly of each QE, one after another after another, in private they know it deserves absolutely no praise.
Study after study has shown basically the same thing (this pulled from a 2012 IMF research paper):
A suggestion: To add the NYMEX gasoline futures to your daily reports. Those futures have been rising much faster than the WTI and Brent futures over the last 6 - 12 months. At the end we more or less pay a price related to the gasoline future at the pump here in New Zealand after Marsden Point refinery has been closed.
When do we reach the moment when the average person decides enough is enough?
High energy prices are almost exclusively due to de-carbonising. Russia is still selling it's fuel so do not blame that conflict (the Rouble is now 25% stronger than pre-invasion). Western Govt.'s have cancelled storage facilities, stopped exploration permits, cancelled refineries
No one thinks that lowering emissions is a bad thing, but to do it before we have an alternative that the "average" person can access we are heading towards anarchy.
High energy prices relate to a number of factors, (boo.. the sensible voice ;)) not just the contraction of investment. The main cost driver in my view is still increased demand and static output (OPEC calling the US's bluff). By the way there is still plenty of investment (and government funded investment) in new gas fields, just not enough to keep up with demand or replacement forecasts. Inflationary environments affect all the prices in the economy, oil is just taking part.
Lowering emissions is not a debatable requirement in my view (I appreciate others differ) and so if there is an effect of incentives and taxes on the cost of fuel then that is appropriate, I just don't think it is that material at the moment.
Agreed, but the dominant factor is the energy policy decisions of Western Governments coming home to roost hence static output. To deny this is not the sensible voice.
Your "let them eat cake" view is not going to end well when the "average person" has to choose between eating and heating. That may not be popular with the tesla driving woke management types, but it's coming.
Quite a bit of data here
https://www.mbie.govt.nz/building-and-energy/energy-and-natural-resourc…
The joke BBC blaming Sri Lanka's woes on "...the pandemic, rising energy prices, and populist tax cuts."
While excluding the rooms elephant - "Then came Sri Lanka’s sudden, and disastrous, turn toward organic farming. The government campaign, ostensibly driven by health concerns, lasted only seven months. But farmers and agriculture experts blame the policy for a sharp drop in crop yields and spiraling prices that are worsening the country’s growing economic woes and leading to fears of food shortages. The damage is so much in agriculture and agriculture-related exports,” said W. A. Wijewardena, a former deputy governor of Sri Lanka’s central bank, “that it will take some time for the country to recover.”
https://www.nytimes.com/2021/12/07/world/asia/sri-lanka-organic-farming…
This elephant that employs 25% of the population and 1/6 of the export earnings - carpet bombed on an organic whim. "The damage is so much in agriculture and agriculture-related exports,” said W. A. Wijewardena, a former deputy governor of Sri Lanka’s central bank, “that it will take some time for the country to recover.”
Alas, many of the plants are not still growing, or growing at much reduced rates. And without money to purchase the imported fertilisers, Sri Lanka now faces major food deficits Other external factors have of course fed into that situation. But the crazy decision to ban fertiliser imports and 'go organic' lies at the heart of the problem, with the overall economy now unravelling.
KeithW
Baywatch, you may want to educate yourself a bit more on the situation in Sri Lanka. It's a dire situation and it has all to do with the ban of fertilisers which lead to a vastly, vastly reduced crop, which hurt both the local consumers and the exports massively, this is not, as you put it, "hilarious"
You need to look up a thing called "Covid" Yvil...
Most of the acquired debt has been accumulated due to the government taking out significant loans to fund domestic infrastructure projects that were politically popular, which practically reinforced rent-seeking behaviour and patronage networks, while economically they made very less sense.
Sri Lanka exports mostly textiles and garments (52% of total exports) followed by 12% Tourism - but yes lets blame Organic farming
But 100% of their population needs to eat food.....
Italian leaders and the leader of the Bank of England are prediction apocalyptic food shortages in the coming years. People will tolerate a lot, but starvation is one thing that is guaranteed to push people over the edge.
Before heading to the IMF, Sri Lanka steeply devalued its currency, further stoking inflation and adding to the pain of the public, many of whom are enduring hardship and long queues.
In the interim, Rajapaksa has also sought help from China and India, particularly assistance on fuel from the latter. A diesel shipment under a $500 million credit line signed with India in February is expected to arrive on Saturday. Sri Lanka and India have signed a $1 billion credit line for importing essentials, including food and medicine, and the Rajapaksa government has sought at least another $1 billion from New Delhi.
After providing the CBSL with a $1.5 billion swap and a $1.3 billion syndicated loan to the government, China is considering offering the island nation a $1.5 billion credit facility and a separate loan of up to $1 billion.
Somebody tell James so we can circumvent all the social engineering.
"South Korean power industrial giant Doosan has agreed to forge materials for NuScale Power’s small modular reactors (SMR) starting as early as this year, in a project that would support the commercial deployment of VOYGRs—NuScale’s name for its SMRs—at the 462-MWe Carbon-Free Power Project (CFPP) in Idaho Falls."
https://www.powermag.com/doosan-kicks-off-nuscale-smr-production-for-id…
Nuclear is NOT carbon-free. Nor is it resource-free. Nor, I suspect, are you free.
Nuclear, at best, does electricity - and maybe some very local heat. That doesn't get us very far, in replacing existing infrastructure within the remaining carbon-budget, indeed even without that constraint. That would require mineral resource use on a heroic scale, at heroic pace. Just another hydrogen-like pipedream; an extend and pretend excuse.
There is also the problem of disposal - from the aptly named Yucca Mountain to French ponds vulnerable to attack, societal collapse or forces majeure. Never been adequately solved.
Then there is lead-time - but I'm prepared to ignore than, given that it applies to any move.
Nuclear fusion or fission doesn't solve carbon emissions. There will still be production of essential fertiliser, inessential plastics, cows will keep belching and concrete required for schools, roads and the basic infrastructure the 3rd world deserves. However once Nuclear is in place at some enormous capital cost then it is effectively free electric power (an equivalent to refining Aluminium at Tiwai Point once the hydroelectric generation was built). Given 'free' electricity almost anything is possible such as extracting CO2 from the atmosphere and oceans, creating a hydrogen economy, etc.
The problem with disposal is exaggerated - my guess trivial compared to the colliery spoil heaps such as the one that killed 116 children at Aberfan.
If we get free electricity PDK will eat humble pie but it may never happen so until it does he is right.
If New Zealand was a capable organiser (we are not) we could develop local distribution and generation.
Our road, 28 houses, could easily be self sufficient in electricity. It would take legal and financial strucures we just don't yet have.
The old idea of huge generation, and transferring to a myriad of tiny users is just old hat (and a method for extracting excess profits from the huddled) The Onslow idea is obsolete.
The grid becomes a balancing device in a nation running on electricity.
I have experience dealing with this kind of issue and local councils. As a consultant, I found it was pretty much impossible to get local beaurocrats to agree to any kind of new dwelling construction unless it is connected to the grid.
You'd probably need some kind of National Policy Statement or other direction from central government, to get all the little local authorities to change their district/city plans to allow it. Otherwise it is a bang-your-head-against-a-brick-wall type situation.
Sure, but it's possible to power a family home entirely from solar power so I don't really see the issue with powering 30. Requires some math to work out how much power is going to be required, and from that how many solar panels, batteries, inverters and so on. In terms of legal and financial structures for this kind of thing, I don't see why we'd need anything other than a company to be set up and owned by the 30 households that receive the power?
At a high level to run an electricity network you need a supply that is large enough to maintain the frequency of the network. In NZ that role is served by our large generators in our Dams.
If you cannot maintain the quality of the power you will trip the protection relays in your distribution board. Usually this is no big deal but there can be damage to more sensitive electric equipment.
In addition in your friendly 30 person network this is going to happen with some frequency as starting a washing machine, tumble dryer or even a large heat pump will hurt the power quality of the network as the amperage is too low to sustain the start-up dip. This can be helped by batteries in every house but if two house are using them at the same time then it will be a challenge. As for charging EV's this will take even more careful organisation.
It's not impossible but it is not going to be cheaper.
You can set up an embeded network in any current distribution network today. A lot of industrial corporate's do this (Fonterra). You can also enter into power purchase agreements etc to sell back to the network. (Fonterra call this co-generation and run it at their milk plants when the wholesale price makes sense).
The idea of the say 30 house network is NOT to be off grid. Rather it supports the grid as well as utilises it. eg. You might draw power from the house down the road, or even from somebodys plugged in car. That can smooth demands on the grid. Obviously you need strong commercial agreements to do that, as well as some clever IT to divert the flows.
Some New Zealand companies are entering this field. ie: OurEnergy.
The legal/organisational changes required are for say the lines company, who think in terms of supply in one direction, and are physically set up to do so. They need to adapt to in/out local flows and also change their pricing to better serve it. Might require some government intevention.
Same for Transpower.
Could be better to spend on this rather than the billions for Onslow, which is so last century.
There is a lot to this KH. I am familiar with OurEnergy and I agree it is an interesting experiment.
At a physical level the electricity generated locally is not able to be used by the network beyond the feeder transformer. The feeder transformer works one way. To have a real sharing of electricity you would need another transformer to scale up the surplus into the 400v then 11Kv required to support other elements of the distribution network. At this time this is uneconomic.
Even then the actual switching of load would take a host of intelligent IoT devices attached to the upstream transformers to ensure the network power quality can be managed. Depending on the location and size of the feeder we may need tie-lines to connect feeders and switch at the edge instead of at the sub-station as we do now.
All this and the regulated rate of return of lines companies makes investment in this inflationary environment unlikely. A regulated industry that is being disrupted - there is a lot of heat and fire to come before we can really fix some these issues.
I read a paper once that explained that we will eventually have to move to 24v
ever wondered why your computer cable has a black box half way along…the power supply is too high and needs to converted into heat…waste
waste time billions of situations equals a lot of waste
the savings across a country the size of the us were substantial in infrastructure
I would imagine PDK could give a better idea on the realities of going totally off grid. But most people I know have 2-3 forms of generation based around a combination of Solar, Wind, or micro-Hydro. Often they have a backup diesel generator as a last resort. Most of them are also capable enough to maintain said systems and make minor repairs.
I don't see that happening in the 'burbs, without a fundamental change in culture and usage patterns.
Just whacking a couple of solar panels and a few batteries on every street and thinking it is BAU, simply wont cut it.
People are forgetting that when your on the grid, if the power goes down its generally not your problem to sort out. For someone like me with an extensive electronics background and having maintained pretty much everything in my life, I cringe at solar power, batteries and inverters. What people are not factoring in is the replacement costs and the maintenance. I have a solar system, its a 50W panel and an MPPT charger connected to a car battery, its great at keeping a spare battery charged and can provide emergency cellphone charging but the thought of upscaling that to supply the whole house, no thanks.
Yes, Human Nature would see a complete lack of volunteers opting to head out in the middle of the night in a raging storm to identify and resolve why the power is out.
Then every 10-15 years when new batteries and infrastructure are required, I am sure John and Jane in No. 18 will be first to step up and organise it all and cover costs for the replacements.
You would likely just end up with tens of thousands of small scale gentailer compaines trying to look after everything. Eventually they would all merge to benefit from better economies of scale, those would then become partially run by the Govt to ensure stability and equity, and boom we are back where we started.
But yeah, nah, sounds like a great idea.
This is my main issue. I've got a 3k system that powers PE water heating. When the inverter goes down I'll be able to heat water off the grid and maybe it'll be an opportunity to get a battery capable inverter and a battery. By then the panels will be 15 years old. I doubt fixing the system will ever pay for itself.
Kiwimm - no, self-sufficiency can be inexpensive and efficient. My system has yet to add up to 6k in costs, doesn't use the generator at all these days, consists of 3 separate systems (200 watts, 380 watts and 300 watts) plus the 72watt microhydro. All batteries have been second-hand (cell-tower and university back-up ones).
Mind you, 'typical' is the key. Most folk expect stuff - stuff which two generations ago was unheard of.
PDK there must be some business opportunity here. Harrisons are currently pitching solar at $9k for the average house without a battery! Second hand battery installations must be able to be economic? I know there is a warehouse in Tauranga filling with old Leaf batteries that might make a good start.
US retail up is 8 point some percent.
Inflation even using the official figures is about that, and if inflation were to be measured using historic comparative basis, twice that in practical, white-van man, oops I mean Person, oops I mean Non Alien Indigenous to Planet Earth Bipedal Primate, experience.
Shurely, in real terms, US retail is going backwards? And, as Audaxes notes, paying for those inflated amounts by credit card, as savings are goneburger and discretionary spend stretched to ping point?
"Chairman Powell said they will not hesitate to keep raising interest rates until inflation falls in a clear and convincing way. He added that “if that involves moving past broadly understood levels of neutral we won’t hesitate at all to do that”
It is time that the RBNZ adopt the same position. Interest rates must be sent aggressively higher until inflation comes back under control. An OCR peak between 4% and 5% will be necessary to achieve this, the sooner the better. And even if Orr keeps burying his head under the sand, in any case medium and longer swap rates will rise anyway.
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