Here's our summary of key economic events overnight that affect New Zealand, with news that is still dominated by American [high] inflation and Chinese [low] demand. Everything now depends on American employment levels. As long as they stay high (for them), then the world may get a softer landing than otherwise. But the Chinese situation isn't helping. Trouble in both the #1 and #2 economies in the world has ripple impacts globally. Together they account for more than 42% of the world's economic activity.
Today's financial markets are acting like a herd stampede, one that is changing direction. No-one seems to want to believe the 2022 direction so far is the right way.
Equity prices are diving. Bond yields are jumping (bond prices are sinking). And the US dollar is rising fast. Commodity currencies are being devalued. It is another sharp re-rating lower, the fifth such event in 2022 alone. Only once (in the second half of March) has there been a recovery from one of these shifts lower. They are becoming much more frequent, and that tells you something important. In 2021 there was only one of these selloffs. In 2020, there was only the sharp pandemic selloff. In both 2020 and 2021 there was a full recovery pushing equity prices to the record highs that ended at the end of December 2021. The track has been down from there, in these increasing selloff events.
Since the market high right at the start of 2022, the S&P500 has fallen more than -20%, so it is now a bear market for equities.
And many now expect the main rate curves to invert soon.
Further, commodity prices are almost all falling today.
Last week markets were confident the US Fed will raise its policy rate by +50 bps at their next meeting on Thursday. Yesterday, that expectations went up to +75 bps. Today, markets seem to be expecting a reasonable chance a +100 bps hike is coming. This is "fluid" as they say, or others may say "panicky".
Meanwhile, in their large and regular survey, the New York Fed's consumer expectations report showed that inflation expectations over the year ahead rose in May, but only back to the +6.6% level they were at in March. They were last at this level in June 2013. Those surveyed thought their incomes would rise only +3% in a year, but they seemed unusually bullish about their spending, saying this would rise by +9%. At the same time, they expect access to consumer debt to get harder. Something has to give, because the overall sense of these expectations hardly makes a lot of sense in the current economic climate.
In China, street protests broke out in Shanghai over the rolling lockdowns. They were relatively small because the risks for doing so are so high, but that they happened at all reveals the extreme pressure on small merchants.
India's consumer inflation rate actually fell in May from April, down to 7.0% from 7.8% which was an eight year high. A correction like this was anticipated. However, food prices rose at an 8% rate.
The British economy shrank -0.3% in April from March, following a -0.1% contraction in March from February. The April result missed market expectations of a +0.1% expansion.
And England seems close to reneging on its Brexit deal in a desperate attempt to keep the UK from splintering. If it goes ahead it is likely to inflame independence movements in Scotland, Northern Ireland and even Wales. The breaking of this deal will confirm that London can't be trusted when it makes deals. And that will likely break its trade relationships with the EU.
In Australia, their energy regulator is raising its warnings and has introduced price caps and ordered generators to keep running, as it signals that parts of Queensland face possible blackouts as early as today.
Meanwhile, world trade in services is facing a huge threat. At the World Trade Organisation summit of 120 ministers in Geneva, India, Indonesia and South Africa are refusing to renew a rolling two-year “moratorium” that bans the WTO’s 164 member countries from imposing customs duties on ecommerce. The fear is that a round of taxes are coming for global ecommerce. The inflationary impact would be huge.
The UST 10yr yield will start today up a remarkable +24 bps from this time yesterday at 3.41%. Rate curves are flattening with mid maturities rising faster than long. The UST 2-10 rate curve is marginally flatter at +9 bps and their 1-5 curve is much flatter at +65 bps. Their 30 day-10yr curve is steeper however at +222 bps. The Australian ten year bond is up sharply at 3.93% and a +16 bps jump. The China Govt ten year bond is little-changed at 2.82%. And the New Zealand Govt ten year will start today at 4.04%, a rise of +13 bps from this time yesterday. This is an almost 7-year high.
Equity markets are re-rating lower sharply. In New York, the S&P500 is down -3.1% in Monday afternoon trade. Overnight, European markets fell more than -2.5%, except London which was down -1.5%. Tokyo ended yesterday down -3.0%, Hong Kong was down -3.4%, and Shanghai was down -0.9%. The ASX200 ended down -1.3% which the NZX50 ended down -1.9% to start the week.
The price of gold is down a sharpish -US$43 in New York, now at US$1829/oz, knocked around by the strong US dollar.
But oil prices are little-changed from this time yesterday, still at just under US$118.50/bbl in the US, while the international Brent price is now just over US$120.50/bbl. However, because it is holding its price in US dollars, it is an effective rise for most other buyers.
The Kiwi dollar will open today sharply lower at just on 62.8 USc and a -¾c retreat from this time yesterday. Since the start of June that is now a -3.9% devaluation. Since the start of the year it is an -8% devaluation. The Australian dollar is being hit slightly harder and we are a little firmer at 90.4 AUc. Against the euro we are down at 60.1 euro cents and now at month-ago levels. That all means our TWI-5 starts today at just under 70.8, and down another -50 bps since this time yesterday. But that is only at a level we were last at on May 19, 2022. So it really is all about the outsized gains by the greenback rather than anything to do with the NZD.
The bitcoin price has fallen by a remarkable -17% from this time yesterday and is now at just US$23,163. And it has been a very rough ride down, at one point in between it got as low as US$22,602. Volatility over the past 24 hours has been unprecedented at +/- 12%. It is now below NZ$40,000 for the first time in 18 months, and it is well below. Not helping was that a major crypto network froze withdrawals and transfers, causing widespread alarm in these markets.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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96 Comments
What does a similar chart look like for any random Ponzi scheme?
The people who got in "early" made insane money. The next wave also made good money. The next... perhaps breakeven. And then when the final, biggest wave of new buyers arrive (the laymen), they become the bagholders.
Crypto is an interesting technology turned into a gigantic Ponzi scheme.
The people who got in "early" made insane money. The next wave also made good money. The next... perhaps breakeven. And then when the final, biggest wave of new buyers arrive (the laymen), they become the bagholders.
Let's put it to the test. Using a conservative strategy to remove the volatility, dollar cost averaging every month (performance as of today):
Past 12 months: -6%
Past 2 Years : +65%
Past 3 years: +176%
Past 4 years: +316%
Past 5 years: +378%
Past 8 years: +4,017%
Not sure how those figures help you. Bitcoin has now been proven to be nothing but speculation. I'm sure you guys have heard the phrase "The trend is your friend".
Sorry? Call it speculation or whatever. I'm just showing the ROI on a conservative DCA strategy where the worst short-term outcome is -6%.
The difference is, Ponzi schemes do not have a second wave. They collapse and die. Bitcoin has had multiple 80%+ drawdowns as an emerging money is priced by the free market.
It will continue its volatile but upward trend of increasing purchasing power.
That is also why I am Bitcoin only, not crypto. Because yes 99.999% of the 20,000 other projects are absolute scams designed to enrich the founders while fleecing the "Crypto" community. Bitcoin not shitcoins and it would be well worth your time learning the difference :)
The British economy shrank -0.3% in April from March, following a -0.1% contraction in March from February. The April result missed market expectations of a +0.1% expansion.
And England seems close to reneging on its Brexit deal in a desperate attempt to keep the UK from splintering. If it goes ahead it is likely to inflame independence movements in Scotland, Northern Ireland and even Wales. The breaking of this deal will confirm that London can't be trusted when it makes deals. And that will likely break its trade relationships with the EU.
Little Englanders are about to finally learn that the empire is dead and they don't rule the world anymore.
Ironically, the term used to mean exactly that https://en.m.wikipedia.org/wiki/Little_Englander
I can't help but feel there are some preliminary meetings going on discussing just how badly Ukraine really matters to the West in the grand scheme of things, and Finland and Sweden joining NATO is a pretty good consolation prize, and if the war with Russia could just find a quick resolution...
I was reading the World Bank global economic outlook report last week which pretty clearly laid out that we are in for a protracted recession if the Ukraine war drags on. Similar reports have come out recently saying the same thing. Now, Putin can read so he must also see the precarious situation western economies are in. You'd imagine he is going to do his utmost to turn that into a lengthy conflict.
I strongly disagree, I think it's very good that the western world reacted to Putin's invasion of Ukraine and that it didn't simply let him take Ukraine and then, perhaps more. It takes courage to impose sanctions for the greater good, even when one knows it will hurt.
Putin will keep Russia engaged until as much territory that can be taken is taken. That will then be annexed, within the Russia border, and therefore any outside military incursion becomes an existential threat thus, as the Russians have carefully explained, bringing the nuclear threat into a clear and present danger category.
It’s not costless for Putin either, he is losing a lot of material that he can’t easily replace, including 10s of thousands of lives. He’s lucky nobody wants to invade Russia because it would be a cake walk. Even then 1960s tanks have been dragged out of storage and pressed into service.
On the economic front there has been a massive impact on manufacturing (due to a lack of components) and supply of goods. Inflation is up, the economy is shrinking fast. Predictions of large declines in the Russian economy were based on a short war, a long war is a completely different game.
The population is in terminal decline with more deaths than births and lots of young people have fled the country to avoid being sent to die.
And China isn’t much interested in helping, more exploiting the situation.
A salvo of a single pr. 941 Akula (NATO Typhoon) SSBN without leaving even its base would unleash around 200 MIRVs at the US Eastern Sea Board and would wipe out all major (from Philadelphia, New York, Boston to Charlotte, Jacksonville, Miami--the list is too long to read) cities and military bases wrecking a chaos and losses of unimaginable scale in the first 30 minutes of the US attack of Russia. And that was just one of many Russian subs, not to mention other means of delivery, which would literally eliminate the US and NATO countries as nations and functional states That was at the height of Russia's destitution of 1990s. Link
Putin has made it clear he wants ALL of Ukraine. This is about restoring Imperial Russia with him being Peter the Great II. He doesn't give a rats about the cost in bodies or whatever. This is about him.
And once Ukraine has been subjugated, he will then look to the next target and so on, because that is what Imperial Russia, and especially Peter the Great did. He is not a modern, diplomatic leader at all. closer to a neanderthal really. Just a lust for power. He doesn't realise it but for all his rhetoric about Nazis in Ukraine, he has come closest to emulating Hitler, in Ukraine, than anyone since WWII.
No, Murray - this is about who stands longest, wins. There's not enough to go around, and by a long - and rapidly lengthening - margin. Note the reference to Putin: https://consciousnessofsheep.co.uk/2022/06/09/greens-unlikely-to-surviv…
' We might, for a while, get away with the myth that what is happening is all the fault of “Madman Putin” – but that narrative gets very old very quickly for households forced to choose between food and warmth in the depths of winter.'
This northern winter may well see the 'great upheaval'. Pity our Opposition is mired down at Laura Norder level, and our Government barely awoke....
Only this time the west is siding with the Nazis
trying to compare Putin to Hitler is just rubbish and trivializes Hitler's agenda.
The US has slowly been imperializing Ukraine since 1990 and of course engineered the 2014 coup, having to change the law to fund the Neo-Nazis. We all know that the Bidens have had shady dealings in Ukraine and corruption is rife. The US sees Ukraine as another territory that they can exploit. Why else would they be so disproportionately engaged in "Helping" Ukraine
Now Putin is re-imperializing Ukraine, for some valid reasons and probably a lot of ego related reasons.
The US keep shooting themselves in the foot.
But not our problem in my POV
Then perhaps you'd like to comment on the content of this article?
https://edition.cnn.com/2022/06/10/europe/russia-putin-empire-restorati…
When Putin himself states the ambition, it is a little hard to refute?
Sure! This is Putin talking to his home base through the media, trying to drum up support for his disastrous military intervention in the Ukraine. Putin's strategic rationale was pretty clearly put to the international community before the invasion, and directly articulated to Biden at the December 7th summit.
They even helpfully summarised it into 8 extremely readable points: https://intellinews.com/russia-issues-a-eight-point-list-of-demands-229…
Articles 4,5 and 6 are pretty clear. The war is about halting Nato's expansion eastward, preventing the deployment of short-range nuclear missiles on Russia's border, and restoring some of the mutual security assurances put in place after the reunification of Germany.
Do you understand how countries become members of NATO? NATO doesn't recruit them, they have to apply. And then they are expected to meet some fairly stringent criteria around stability, nature of Government (democracy) and expected defence budget. So Russia's demands are not about NATO but of denying Ukraine and any other country for that matter, the right to self determination. NATO has long proven itself to be a defensive rather than offensive organisation. The only way Russia could see it as a threat is that NATO would defend countries it expects to be able to subjugate.
You're defending the indefensible.
Not the tax picture you've been led to believe (by the whiners): https://i.stuff.co.nz/business/money/128946645/average-earners-in-nz-wh…
The first barometer of any major downturn in the world's economy are always the stockmarkets. This has always been the case. They are tanking around the world now. Other indicators follow ie unemployment, bonds and property.. We are in for a big recession going by the Dow in the last few weeks.
Conversely, the Stockmarkets will be the first sign of recovery.
That's an economist's view.
Actually, the share markets - along with bitcoin and real estate and art and and and - are merely the result of a lot of ignorance. It's a bit like folk rushing to the stern of the Titanic - you are arguing that we will see them back on the bow......
Good luck with that....
pdk,
"Actually, the share markets - along with bitcoin and real estate and art and and and - are merely the result of a lot of ignorance".
Apart from Bitcoin, that's complete nonsense. The art and property markets have been around for centuries and stockmarkets are not that new either.
None of these markets are perfect-far from it, but they are part of the human condition. If i have an area of specialist knowledge, it's the stockmarket and it has played a significant role in the global economy-for good and ill. Will it survive? I have no idea, but it certainly didn't arise from ' a lot of ignorance' as you suggest.
Just to add to that. PDK consider what a share market is. originally ordinary people would not be able to own a business unless they created their own, and for so many reason for most that won't happen. Plus many business owners, probably most, are always looking for more funding. So a business owner is able, by diluting his own ownership, sell off part of his business, sharing the ownership of it with others, raising money with the promise of sharing the benefits of the business. Yes share markets have moved on a little from that, but essentially the principle remains. So not ignorance but common sense.
Your issue I suspect, comes from the consumption of energy and the view of unlimited growth, and I agree, but this has nothing at all to do with share markets. Although the impacts would affect them. The constraints that need to be put in place would limit growth, and should stop it and force a contraction, but the markets in all their manifestation are not the problem. Population size is. Restraining business/manufacturing growth will achieve only conflict. What must occur first is stopping population growth and taking it backward to some level that allows the environment to flourish as well. That requires every nation in the world to come together in agreement to avoid a final all out war - good luck with that!
In some respects you are correct, but think back. The vast majority of information utterly failed to recognise that the limits of a finite environment were looming near. The voices that were trying to communicate it were being drowned out by the 'conventional wisdom' which is still trying to talk 'growth'.
The world's leadership will not in any terms speak of population limits. This is a failing admittedly of democracy, and the authoritarian states don't talk it either but for different reasons. Changing that is the task.
China and Singapore both talked about and implemented population limiting policy, you realise Murray? That's just two off the top of my head, there have probably been a lot more. In fact there have been times when populations have given people direct monetary bonuses for having more kids, which has happened in lots of states.
It is talked about all the time by governments. But only by brave ones that have the courage to look into the future. Most Western democracies are now run by short term populists, ours included, so barely even think about things beyond their next terms.
I don't think you are wrong. However the problem with this idea is it will lower the NZD and we will result in higher inflation. This goes against the core mandate of the RBNZ which is to keep CPI between 1-3%.
I don't know how well the system will handle the sudden increases in interest rates. It may result in a financial crisis.
Worth noting, many of these stock falls are not to low value, rather many are falling from overpriced to fair value at this stage. Eg, on the NZX stocks like Meridian have not even fallen to fair value yet. This is a heathly correction, the NZ housing market to follow.
Determining fair value is a subjective price to earnings ratio. It is based upon a view of how profitable the company will be over the course of the next few years for the average punter. Or in terms of a speculator, the next few months. Or the super fund, the next few decades.
Justa comment,
That is my feeling at the moment too, to use a crude metaphor I can't help but feel like my kiwisaver is buying $20 notes for $30 each.
I know the conventional wisdom is keep the contributions going to do dollar cost averaging and get employer contribution etc but if the share market is nearing the end of a bubble does that still make sense?
Well, if things are going to tank, it will bring your balance down quite a bit. But don't think of it having just erased your last contributions. The loss is across your whole fund. So it has "only" reduced your last recent contribution by a proportion. So was that last contribution worthwhile? It wasn't a stunning investment but its reduction was by no means 100%.
I had to put in my $1040 recently. Painful but if I didn't I wouldn't get the governments $520.
But having said all this, I did recently adjust my funds to be way more cash orientated.
Might look into adjusting the make up to be more on the cash side of things too as down 9.66% for last calendar year.
I know that means crystalising the losses but on balance I think things are going to get considerably worse over next year so might be good to acknowledge the leak in the boat...
Is the BoJ willing to absorb the entirety of the Japanese government bond stock?
Where is the fair value of the yen on this scenario and what happens if the BoJ changes its mind?
The BoJ may want to generate inflation, but how does it get there with triggering a complete systemic collapse?
Social issues engulfing Japan - Japan‘s Looking At 10 Million Hikikomori
A little.
It is bittersweet. Like the Allied Forces on D-day who had to storm the beaches over the bodies of their fallen comrades. I know that my family will be able to buy a home at a 50% discount in the not too distant future. It is sad that we will have to climb over the bodies of fallen investors to do so.
Those FED rate rises are not going to stop any time soon. They will take out the current crop of Kiwi housing investors like machine gun fire. There will be lots of blood.
Gold is doing OK, btw.
Well, here we are at last. The S&P500 has now crossed into bear market territory, the NASDAQ got there some time ago and we are not far away-we'll get there soon.
I have been around long enough to remember a major bear market in the UK almost 50 years ago, so this isn't a surprise. Of course, I didn't know when or what would trigger it( I'm not that clever), just that it would come along at some point. In fact, I am only surprised it took this long. I started to very gradually remove money from the market some years ago and I didn't care how little interest I got, just to have lots of liquidity.
Just as I didn't know when this would come, I don't know when it will end and I certainly won't be trying to pinpoint it. Perhaps later this year I will start to gradually feed cash back into the market.
There are lots of new shareholders who have come into the markets through platforms like Sharesies and Hatch and I believe that many of them have been attracted to tech stocks. I wonder how many of them will stay the course or like '87, will this scar them for life?
What do others think?
I'm a relatively new shareholder, but a bit older (for various reasons I have got into the game a bit late) and will be holding. I think there are those that will duck out, but anyone with holding in decent companies or index funds will hopefully stay the course. Time in the market and all that. I'm not actively investing at the moment but will keep building a small cash reserve to feed back into the market when I feel the time is right for me.
As the saying goes... Once bitten, twice shy.
This has the potential to be a lot worse, as access to the markets is a lot easier, and there was a lot more hype and FOMO leading into this than the 80s.
But on the flip side, the individual investments tend to be smaller, so maybe the pain at an individual level and resultant scarring will be lower.
Personally I think the scars will be equal or worse than '87, purely given the potential price drops could be a lot bigger this time around.
I've only ever put in what I can afford to lose, through Sharesies. I'm a late-joiner (about this time last year, brilliant timing) and prefer to focus on reliable returns rather than huge income. My wife and I picked up a reasonable number of NPH shares during the IPO, and while they've cratered recently they're still up on the $2.60 IPO price. That was more of a "buy local" effort, and I keep forgetting we have them.
I've never really followed the markets with any great fervour, so perhaps my portfolio is more conservative than most. I look more towards stocks dealing in necessities like primary industry, transport, and finance, with just a few speculative bets. I stopped putting money in about 3 months ago as I grew increasingly concerned with the way markets were headed, and I've let the money build up while I wait for the plunge.
In general though I don't try to time the market (present time excepted), and I won't be annoyed if I don't pick the bottom. Near enough is good enough for me, I have a decent income from my (touch wood) recession-proof job that means I don't live or die by the market.
I do, however, foresee many people panic selling as the shares they check 5 times a day on Sharesies/Hatch drop, and crystallise their losses.
Dollar cost averaging is probably a viable strategy still.
Commodity based funds still going strong, so are oil companies.
Or if you're feeling bold, you can short stocks or invest in reverse index funds.
I've been doing all three this year, although DCA'ing into tech stocks hasn't been very lucrative :)
One of the lessons from 1987 was to keep plenty of cash handy if you can as eventually bargains appear in lots of places - houses, shares, cars, etc etc. And if not cash then the ability to borrow is also useful. If you are in business collect cash early
There is a saying that wars are good for the economy - and this is not to diminish how very bad it is for the people involved but at some point the rebuilding needs to start
As always timing is unknown and the herd has just started to stampede so stand back from the exits - there are probably measures of emotion that will signal the turn at the bottom but I dont know what they are - any one else know?
"Since the market high right at the start of 2022, the S&P500 has fallen more than -20%, so it is now a bear market for equities."
"Don't be a parasitic property investor", they said. "You should invest in productive businesses", they said.
More than 75k+ down on the sharemarkets so far...
As I said when the crazy US sanctions started kicking off, the West, led by the US has shot itself in the foot. Their insistence at extending NATO eastward eventually poked the bear enough to force a response, the Wests sanction response (to try and exclude a major energy producing country from the worlds financial systems) has been just as crazy as Putins stupid invasion. The result of all this is seen with mass inflation, the West will be particularly hammered and the next round of people to get in won't have a way out either, having been setup to fail, no matter which democracy we look at.
Meanwhile India and Russia look to continue with their rouble/rupee energy deals and the US probably can't afford to sanction India for it while it looks like India won't stop accepting Russian oil. Russian oil is now reported as coming from "Unknown", to avoid sanctions anyway.
What's most amazing is seeing Kiwis who hitched their identity to Trump (see Trump 2024 flag festooned utes) now struggling to process that no Kiwis care two hoots about Biden when they go on their anti-Biden pro-Trump rants... Kiwi Trumpers always were caught up in propaganda aimed at Americans, and they seem to struggle with the fact no one cares enough to give them a battle to play the hero in here in NZ.
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