Here's our summary of key economic events overnight that affect New Zealand with news that stagflation is stalking the global economy.
But first, the latest American consumer sentiment survey, this one from the Conference Board, declined marginally in May, but nothing like the University of Michigan one. The dip in this one was less than expected. Those surveyed seem happy with the 'present situation' but concerned about their 'expectations'. This survey seems more in keeping with the economic data we have seen recently.
And the latest Chicago PMI backs that up. It reports a better expansion in this industrial heartland - in fact quite a fast expansion in May. Both production and new orders jumped from April, but the cost pressure isn't waning yet. Inventories are very high as firms 'invest' to add resilience against supply-chain difficulties that aren't going away.
And the Dallas Fed's survey of Texan manufacturing paints a similar story. Their May report reveals expansions across the board. But they also report heightened concerns about the future in a more generalised way - even if firms had no evidence yet to support those concerns. It seems more 'politics' than a reading of their actual situation.
Canada reported a more modest GDP growth rate for Q1-2022 of +3.1% real. This would be regarded as quite good except in light of the recovery-growth posted in 2021.
Japan reported good retail sales growth in April, better than expected, but inflation may have played a part in these numbers. Still, it was their largest jump in almost a year. But they are bracing for new retail price hikes that become effective today. Higher retail sales due to inflation, yes, but that isn't being matched by rising incomes. Expect Japanese consumer sentiment - already low - to fall further.
And Japanese industrial production really struggled in April. Production fell and inventories rose which is a bit of a toxic mix. Supply-chain issues around component supplies from a lock-down Shanghai hurt more than expected, and we know they didn't get better in May, and prospects in June aren't great either. Their factories are going to be under the pump for a while yet. Good order levels mean nothing if you can't supply.
China's officials are noting that their May PMI's "rebounded" from April. But they are still contracting after the disaster that was April. And that is true for both their factory and service sectors. That makes it three consecutive months of decline. It will take a magical turnaround for them to book a 5.5% GDP growth in 2022 as they were targeting. It seems most unlikely at this point. Factory export orders are contracting as they have done every month for the past year.
The early data on May's house sales in China isn't encouraging, although that may pick up slightly in June as cities like Shanghai and Beijing ease their lockdown restrictions.
In an effort to boost consumer sentiment and spur economic activity, Beijing has halved the taxes on small low-emission passenger cars. They expect this could lead to an additional 2 mln such vehicles being sold.
India also reported their January-March quarterly economic performance, and it under-performed in a trend we have come to expect. Getting the blame there has been both the spread of the pandemic and high commodity prices.
The EU reported its overall inflation rate for May and it came in at 8.1%, with Germany higher at 8.7% on a harmonised basis, and France the lowest on 5.4%. Most nations came in at the German level rather than the French level.
It is not only looking like a sharp downturn in the residential construction industry in New Zealand, Australia has recorded a fall in building consents too - made to seem worse because a rise was expected, and that now means 23 of the past 25 months have booked retreats from the prior month, and year on year the April level is a whopping -36% lower.
And May hasn't been that great for the Sydney housing market. Prices fell -1% in the month from April, the largest monthly retreat since January 2019. Some analysts say it is now on track for a -10% fall in 2022. None of this will help how banks view the risks of lending to the Aussie construction sector in the current environment.
The UST 10yr yield will start today up a sharp +11 bps at 2.85% adjusting after Wall Street returned from holiday. The UST 2-10 rate curve is steeper at +30 bps and their 1-5 curve is steeper at +76 bps. Their 30 day-10yr curve is also steeper at +214 bps. The Australian ten year bond is now at 3.37% and up another +9 bps. The China Govt ten year bond is up +4 bps at 2.81%. And the New Zealand Govt ten year will start today up +7 bps at 3.60%.
Wall Street is open again, but little-changed, up a mere +0.1% in late Tuesday trade. Overnight European markets all fell sharply by about -1.4% except London which firmed a minor +0.1%. Yesterday Tokyo ended with a late fall, down -0.3%. Hong Kong was up +1.4%. Shanghai was up +1.4%. The ASX200 ended its Tuesday session down -1.1% while the NZX50 rose +1.5% in its session.
The price of gold is down -US$9 today at US$1845/oz.
And oil prices are back down from this time yesterday, down -US$2 to just over US$114/bbl in the US, while the international Brent price is now just under US$116.50/bbl.
The Kiwi dollar will open today down -¼c at 65.2 USc. Against the Australian dollar we are down at 90.7 AUc. Against the euro we are little-changed at 60.7 euro cents. That all means our TWI-5 starts today at 71.9 and softer.
The bitcoin price has risen +4.2% since this time yesterday and is now at US$31,988. Volatility over the past 24 hours has been moderate at +/- 2.9%. And see this.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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54 Comments
https://thesenecaeffect.blogspot.com/2022/05/the-age-of-extermination-v…
'As European energy and food stores deplete, likely by this winter, the EU economy will become medieval. Russia is self-sufficient in terms of energy and food, but there is not a sufficient supply of energy and food in the world to replace the sanctioned Russian sources in the coming years. The die is cast. The EU is due for a minimum of two years of deindustrialization.'
https://www.theguardian.com/business/2022/may/30/almost-500000-uk-small…
Time we discussed where NZ INC is heading.
The EU is betwixt, crosslegged & the unity of the union severely strained . Will we, can we, shall we cease using Russian energy? The simple truth is no they can’t. Meanwhile to the east Russia has happy friendly large consumer customers for the same, India, China, Pakistan and on. Meanwhile in the EU core inflation rises rapidly not only for fuel of course. Some most unhappy infighting taking place undoubtedly. Brexit may at least provide relief from that in part, as a unforeseen upside?
90% of Russia's pipelines don't go East. The infrastructure required for Russia to shift the same volume of oil and gas to those countries doesn't exist. It took them 30 years to build the existing stuff. The oil &/or gas lines freeze up too once its stopped being unloaded at the other end. It took them 30 years to get them going again after the USSR went splutt?
Short answer is all those easy energy calories are being deleted from the world economy and won't be coming back in a hurry.
Everyone swallowed the "benign strategic environment" comment that Helen Clark made. But not one of them understood that it takes years of planning to prepare for variations, and when cut backs are made, the costs of recovery can be exhorbitant. So that "benign strategic environment" attitude has seen successive Governments oversee the gutting of NZs resilience, and ability to be self sufficient. Most recently Refining NZ's closure of Marsden Point being the most idiotic, short sighted, greed driven example of this. Our Government could have identified the refinery as strategically important to NZ's independence and resilience and stopped it's closure. So the "pitchforks and lanterns" comment may well be closer to the truth than many would be comfortable with.
Our politicians love to extol the fact that we are a neutral country who can deal with anyone. But to do that effectively one must have the means to be independent, and strong. Instead over the last 40 years we have become weaker and more dependent on frail lines of logistics.
"Most recently Refining NZ's closure of Marsden Point being the most idiotic, short sighted, greed driven example of this"
But Refining NZ has disputed that, saying its assessment is that the Marsden refinery was more emissions-intensive than the 'super refineries' New Zealand was likely to be supplied with in future.
Industry source have suggested that the end to refining will free up about 5 per cent of the country’s gas production for other uses.
Of course they did. They had to provide a justification for making NZ significantly more dependent on long lines of supply across international water in a time of increasing international unrest.
They could have also gone to the Government for support to upgrade the refinery as a strategically important national asset, but they didn't because it would likely dilute ownership and decrease their profits. So now we will also lose the skill sets associated with refining oil. Our government are as willfully blind as anyone.
I understand where you're going, but while fossil fuels are on the way out, it will be quite a while before they're gone simply because the technology is not there yet for the alternatives. Fundamentally the Government is already crushing the car before they've figured out what will replace it and how. Plus once the alternatives are in place and affordable and the production of green house gases is back to a sustainable level (and the atmospheric levels are dropping) hydrocarbons may well continue to be a fixture, just a lot less so.
Making a big assumption here but is accessing the crude oil to import which then needs to be refined at Marsden significantly easier than accessing the refined product from Singapore? (Or where-ever it actually comes from) If it is not dramatically easier then we probably have not lost much in terms of security...
Freeing up gas production for other uses seems like a good opportunity, shame we seem to be on the path to phasing it out with Comcom signing off on gas networks to increase prices to get their investment back sooner
Clark was not a leader in that sentiment, but a follower. Francis Fukuyama's End of History essay was penned in 1989, years before. It was also common to see sentiments on NBR.co.nz of "what does it matter who owns NZ land, we can always legislate over it" (we who couldn't keep two French terrorists in jail in the face of trade threats).
Absolutely on the money re successive governments ignoring issues of strategic importance. Another one seems to have been selling off our energy generation companies (for a subsequent $5 billion loss) without a plan for adequate future supply.
For years Germany was warned by the USA to avoid energy reliance on Russia. But ignored it.
Mind you..
- For years nz has warned exporters to grow revenue outside of china
- For years the we have been warned the NZ property market is overvalued and risk of crash
- For years the west has been warned its supply chain is too reliant on china
- For years we have been warned we are all slow to action over climate.
People in glass houses and all that
It's easy to understand. There are plenty of examples around to demonstrate the horrors or war and the costs to societies, so politicians and diplomats get out there with their huge egos and talk the peace. So much so they convince themselves they can deny human nature and avoid or prevent such things from happening. Many who experienced war have identified that the longer we go without a significant one, the more likely it is we'll face one due to complacency. This attitude was clearly evident in the build up to Russia's invasion of Ukraine when so many expressed that they didn't think Putin would be so stupid as to do it. It is also clear that much of the world's leadership is prepared to 'tolerate' low level wars, so long as they do not get out of hand. The US and France often send the forces to assist one side or the other to ensure that doesn't happen, but is is almost like saying they are a good reminder of what we don't want, blowing off steam?
So Europe in their hubris seemed to believe we had moved past major conflicts. That whoever ruled Russia, and any other country impacting on Europe could be controlled through diplomacy and trade, and maybe the odd behind the scenes threats. That's likely why Erdogan in Turkey and Orban in Hungary are tolerated rather than being kicked out of the EU and NATO. But they clearly failed to understand the extent of greed and lust for power can drive some.
There was a piece of spin, regurgitated by the unthinking. It went: The stone age didn't end for want of stones, and the oil age won't end for want of oil.
It was coined by an oil tout, passed on by a Saudi oil Minister.
Only problem with spin is that it is always untrue. In this case, energy is being conflated with an abundant mineral. One is life-essential, one is not.
Your comment is equally incorrect; folk like me warn of the unsustainability of relying on draw-down of finite stocks. There is no - repeat no - point in avoiding such realities. Just as if you come out of oncology with a less-than-optimal prognosis; do you blame the specialist? Accuse them of fetishising your imminent demise? No - they're telling you to make adjustments to fit your reality.
So do folk like me. Go well...
"The stone age didn't end for want of stones, and the oil age won't end for want of oil." No the stone age ended because something was invented to replace stones. For the oil age, the oil companies have actively acted to prevent something being developed to provide an alternative to oil.
Not really. Nuclear power ran into it's own social, safety and economic barriers. Nothing else scales to fossil levels; they are the compressed solar energy of countless years whereas all else is the uncompressed solar of 'now'. I've spent to decades exploring all real-time solar capture options (food, passive capture/storage, PV, thermosyphoning, microhydro) and I can tell you that less can be done than with FF. By some orders of magnitude. Yes, it can be a good life, but it is not FF-scale life. We are past the time for seamless change, largely fooling ourselves in that regard. Without the EROEI margin of FF, we won't be building, maintaining or recycling PV, for instance.
Nuclear is blasting through those old social, safety and economic barriers.
The nuclear reactors of the future are completely different to the big old school reactors like the one that Homer Simpson works at.
Think nuclear reactors that are small enough to fit on a flatbed truck. Think small modular reactors that can be mass produced in factories. Think Rolls Royce's new fleet of SMRs in England.
British engineering firm Rolls Royce plans to turn on its first small modular nuclear reactor (SMR) by 2029.
[...] it aims to complete “up to 10 [SMRs] by 2035”.The company’s SMR design would generate 470MW with an initial cost of approximately $3bn. The company expects this to fall to $2.45bn over time, with an operating cost of $68/MWh.
At $68USD/MWh that would be half the generation cost in NZ lately.
https://www.power-technology.com/news/uk-first-smr-rolls-royce/#:~:text….
PDK you need to get out more - it seriously looks like you are seeking out information that supports you view rather than information that will widen your horizon
The supply of food has only been diminished because Russia has invaded Ukraine and disrupted supply chains and the planting season
More coal may be burnt and nuclear power generated but starvation is NOT looming for Europe
Not to mention that food waste and obesity are both problems that might be solved now
Unfortunately it wont play out like that.
The west will continue to overindulge on big macs and beer. We can afford to outbid everyone else for nlw.
The poor countries will be unable to compete with us for food costs and other resources.
Always the same.
This time the difference is that the other alliance (russia/china/india/etc) will use the opportunity to grow their alliances with the porrer world by supply what the west cant.
Long term. Bad news for the west.
Fair comment - I try to read opposing material where I come across it, but don't usually reference it. There is a section of my bookshelf full of Ayn Rand, Richardson, Douglas; lots who I disagee with. An interesting one is:
https://www.amazon.com/gp/product/B07P5GPMTY/ref=dbs_a_def_rwt_hsch_vap…
which I mentioned hereabouts.
Nuclear power? https://natehagens.substack.com/p/the-great-simplification-19-simon?s=r
I'd be interested in your comments on the latter :)
Those are very interesting articles.
I am sceptical that capitalism can be used to solve the problem of resource scarcity and climate change - as that is unfortunately how we are trying to do it now and its visabily not working. In fact its making things far worse.
Seems to me it is leading to the elite class (and countries) who can afford to pay more for the resources they want, are getting all the food, are able to afford access to clean (and dirty) energy, can afford electric cars, can buy up assets and invest in new infrastructure to support the changes. In doing this we price out the poorer nations and classes that cannot afford to compete with us for these resources. Current acceleration of inflation (as we all compete for less) and wealth distribution (rich countries and people get richer) highlights the problem.
To avoid wars and social unrest - somehow the system needs to visibly share the resources we have amongst all, fairly - and soon. Unfortunately 'sharing resources' isnt a known attribute of capitalism.
How can capitalism solve the problem of resource scarcity?
In the natural world, the scarce resources go to the species that are best adapted to exploit the niche within which the resource is available.
Humans, on the other hand have broken these rules by creating debt, and borrowing from the future. So scarce resources end up going to those who can outbid all others (who want to compete), or who have the right contacts, or the right advocates, or the right law makers on their side.
Personally I see nuclear power with new modular reactors as a big part of the global energy mix in future - and the supply of energy overall will continue to meet our needs/wants/desires
What I see as the problem is our consumption - and maybe that combines with just to many people on the planet. We have not yet as societies really accepted that consumption is a problem and maybe we never will until the last tree is cut down - and just maybe we will be smart/lucky enough to come up with technological solutions.
Right now we still globally hold consumption as one leg of a wholly grail of economic growth - along with more people seen as a good thing and also a driver of growth. Even during the pandemic the message (globally) was - here's money please go out and spend it
So in little ol' NZ we could have a 100% renewable energy supply (nuclear or not) but swapping out 4.5 million oil powered cars for 4.5 million electric ones is not really a solution to anything just increasing consumption using different resources. Small example of global problem. Sorry I dont have a solution I just do my best to minimize my footprint
Hi all
I have a decent amount of NZD that I want to chuck into a term deposit. Would I be right in thinking that in theory, with every rate hike, if you wait long enough (say a few weeks) it would be usual to except term deposit rates to inch upwards a bit? (but I suspect not as much as mortgage rates go up)
lonewolfnz the banks have really been dragging their heals on upward movement. I put my TD down back in Feb and it took 2 months to see any upward movement so the money lost in waiting exceeded any gains from rate increases. Rates are really beginning to move now however and have swept past my 2.3%, however I'm fully expecting that to have doubled by Feb 2023. Still picking TD rates will be 4.8% for 12 months in Feb 2023.
In full: Former BoE Governor warns of a "very unpleasant period" ahead - YouTube
Former Bank of England Governor Mervyn King blames central banks for fuelling the cost of living crisis by printing too much money during the pandemic.
30 minutes of lucid, eloquent plain English.
Any mention of the retail banks printing too much debt and "the people" fuelling the fire with their fear, greed and lust?
Easy to blame central banks and rightly so, but when do we also accept that the 99% swallowed the hook, line and sinker, and have all contributed to the problems?
Drowning in debt and "riches" and still believing the drug dealers will save us, that our overlords will rescue us.
Insanity and pathological delusion... meh!
Mervyn King said a long time ago that the property market was how 'money printing' really enters the world of the hoi polloi.
Of course, he never talked about this during his reign at the BoE as it wouldn't have been palatable to the ruling elite (govt and banks in particular).
He became more candid after leaving the BoE. Despite King's openness, he was ultimately part of the problem, but now seems to be tinged with guilt.
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