Here's our summary of key economic events overnight that affect New Zealand, with news we now have a better idea of how the Americans are going to tackle their surging inflation problem.
The US Fed has raised its policy rate by +75 bps to 1.75% in a strong lean against their inflation threat. It is the largest increase by them since 1994. But it is not as strong as it could have been. They said they are "strongly committed to returning inflation to its 2 percent objective" which given that inflation is 8.6% is now a long way off and will require a lot more than a 75 bps hike. So they have begun quantitative tightening on an unprecedented scale.
Their dot-plot (p4) is now 3.5% for later this year, so another +175 bps of rises are likely coming over the coming four reviews in 2022, but then up only another 25 bps in 2023 before slipping back to 3.5% in 2024. The bottom line is that they themselves see a very high policy rate for the next two years plus.
They have also baked in an expectation that this will slow the expansion of the American economy and raise their jobless rate.
Meanwhile, American retail sales were up +8.1% from year-ago levels, but actually slipped marginally and unexpectedly in May from April. The near-term culprit is weak vehicle sales. The annual increase barely matches inflation.
US business inventories were higher in May but the rise was less than for April and largely because dealer lots have building unsold cars. The important inventory/sale ratio is not showing any warning signals.
US mortgage applications actually rose sharply last week from the prior week, the first rise in more than a month and the largest rise since April. This came despite another rise in home loan interest rates.
In Canada, May data show house prices there are falling and sales volumes are down.
Across the Pacific, China's retail trade fell by -6.7% in May from the same month last year, compared with market expectations of a -7.1% fall and after a -11% drop in April which incidentally was the steepest decrease since March 2020. This May data is the third straight month of falling retail trade.
China's industrial production unexpectedly grew by +0.7% in May from the same month a year ago, easily beating market consensus of a -0.7% drop and reversing from a -2.9% fall in April.
But in a more telling release, they said electricity production fell -3.3% in May from the same month in 2021. So it doesn't really support the claim that industrial production grew. They say there was a fall in coal-based generation, the growth in hydro- and nuclear power rose, but the change in wind power turned from an increase to a decline, and the growth rate of solar power slowed down. But maybe they have some magic secret on how to raise output by cutting back on electricity?
China's state media is having a hard time talking up 'progress' and watching the convolutions is actually kind of fun.
European industrial production rose more than expected in May from April, although is still lower than year-ago levels.
And in France, burger chain McDonald’s has settled its French tax dispute after paying US$ $1.3 bln. It's a dispute that dates back more than five years.
Australian consumer confidence is now falling towards historic lows as inflation bites harder there and the RBA seems very late to implementing any meaningful resolve.
The Australian "Fair Work Commission" has ruled that this year’s minimum wage will rise by AU$40 per week, up +5.2%. It will affect 182,000 workers and be effective from July 1. But for the 2 mln workers earning above the minimum will increase +4.6%. Both a well below current inflation. And this central planning move bolsters the argument that this type of one-size-fits-all approach actually hurts everyone. It's a system the New Zealand Government seem to want to go back to here. They seem blind to the fact that such 'national awards' effectively become what every employer defaults to, which of course makes the situation worse by locking everyone in to low wages.
Also getting worse is the electricity situation on their eastern seaboard. Their regulator has suspended the spot market and now requires all operators to run at a loss to keep the lights on. It will get uglier from here.
And the new Australian government has summoned business and industry leaders to witness formalising its campaign pledge to reduce emissions by -43% over 2005 levels to 2030.
Join us later this morning when we bring you the outcome of the New Zealand Q1-2022 GDP result. Expected is a +1.2% rise from a year ago, well down on the +3.1% rise we had for Q4-2021.
The UST 10yr yield will start today down -14 bps from this time yesterday at 3.36% after the Fed moves. Although some minor curves are inverting, the major and important ones haven't yet. The UST 2-10 rate curve is holding at +3 bps and their 1-5 curve is flatter at +45 bps. Their 30 day-10yr curve is marginally flatter at +225 bps. The Australian ten year bond is up sharply at 4.15% and another +8 bps jump. The China Govt ten year bond is little-changed at 2.84%. And the New Zealand Govt ten year will start today at 4.31%, a rise of +8 bps from this time yesterday. This is a 7-year high.
On Wall Street, the S&P500 is up +2.3% in Wednesday afternoon trade, taking the Fed's move in stride confident it had priced it correctly in the lead-up. Overnight, European markets all rose about +1.4%. Tokyo ended yesterday down -1.1%, Hong Kong ended up +1.1%, and Shanghai ended up +0.5%. The ASX200 ended down another -1.3% but the NZX50 was little-changed.
The price of gold is up US$23 in New York, now at US$1834/oz.
And oil prices fell sharply on the US Fed news and from this time yesterday are now down -US$4 at just over US$113/bbl in the US, while the international Brent price is now just on US$116.50/bbl.
The Kiwi dollar will open today firmer at just on 62.7 USc. It rose overnight and slipped after the Fed, but since has risen strongly in the circumstances. Against the Australian dollar we are -½c lower at 89.8 AUc because their firming against the USD was more. Against the euro we are up +½c at 60.1 euro cents. That all means our TWI-5 starts today at just under 70.6, and up +60 bps since this time yesterday.
The bitcoin price has fallen again from this time yesterday and is now at US$20,825 and down another -7%. Volatility over the past 24 hours has been extreme again at +/- 6.1%. Below US$30,000 there is no technical support. If it goes below US$20,000 the speed of the fall could be sudden.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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108 Comments
What was it in Powells speech that made the markets react the way that they did? We’re they relived that the hike wasn’t more than 0.75%? Other than that relief I can’t see what Powell said in his speech today that would have the markets suggest this is buoyant news?
Perhaps there's a degree of pent-up investment from people concerned they would stuff things up so badly and just let it totally explode. So you end up with some risk-on, even though it's counter-intuitive to higher rates?
IDK perhaps people are getting some faith back that regulators will actually regulate, although if that is the case then it should indicate how low confidence in central banks is getting. NZD is walking back most of what it gained in the hour post-announcement already though.
The bitcoin price has fallen again from this time yesterday and is now at US$20,825 and down another -7%. Volatility over the past 24 hours has been extreme again at +/- 6.1%. Below US$30,000 there is no technical support. If it goes below US$20,000 the speed of the fall could be sudden.
I wonder how much energy will be freed up once swathes of mining computers are turned off.
Used graphics card prices down 30-50%. Guaranteed.
While I'm looking forward to being able to pick an RTX for less than my life savings, a surplus of energy will make it less viable for more expensive forms of generation to operate with a margin. So you will end up with the cheapest source of energy displacing and decapitalising others.
IKR, Come on people, dont make your ignorance so obvious lol
Bitcoin mining is great for renewable energy generation:
Very funny video on Crypto. (you need to belong to Linkedin)
https://www.linkedin.com/feed/update/urn:li:activity:694291000157319168…
As many indicators overseas and both here is NZ with expectations of the economy slowing (perhaps even into recession), and noting that NZ GDP figures due out today, is it still correct to have an expectation of a rising OCR rate. This seems counter-intuitive that as your economy (a fire that is burning out) worsens that you further assist that by raising OCR rates in the future (putting water on the fire). We still need warmth, and definitely not a raging out-of-control fire.
In the 1960’s, at a seminar a well versed self made businessman, he is long gone but the company still flourishes, in his address said about problems that if you can fix ‘em with money they can’t be a problem. Never forgotten that. Useful to turn it around in that problems that can’t be fixed with money are likely to be serious, life threatening often.
Yvil, the gentleman who uttered those words some 55 years ago is one of NZ’s greatest engineering pioneers and was knighted not that much longer afterwards for those achievements. I have remembered the words verbatim and simply presented them as such, as a matter of respect. At the time very few in the room would not have understood the message and in fact it left one to develop the obvious nuances for oneself. Obviously this all took place before you were in NZ, perhaps even before you were born, but suggest it might be worthwhile for you to think a bit beyond your own initial reaction and be a bit less one dimensional?
https://m.youtube.com/watch?v=buqtdpuZxvk
Always look on the bright side...
and pray that there's intelligent life somewhere out in space because there's bugger all down here on earth!
The Dark Forest solution explains why we haven’t heard from aliens by positing that they are purposefully keeping quiet.
The reasoning is laid out best in the science fiction novel The Dark Forest, by Liu Cixin. The plot of the book, the second in a series, concerns questions of how to best interact with potentially hostile alien life.
In the novel, the argument is laid out like this:
- All life desires to stay alive.
- There is no way to know if other lifeforms can or will destroy you if given a chance.
- Lacking assurances, the safest option for any species is to annihilate other life forms before they have a chance to do the same.
Since all other lifeforms in the novel are risk-averse and willing to do anything to save themselves, contact of any kind is dangerous, as it almost assuredly would lead to the contacted race wiping out whoever was foolish enough to give away their location. This leads to all civilizations attempting to hide in radio silence.
This ruined Star Trek for me, and all other excitement about E.T life, because it actually makes sense.
They couldn't be more wrong. It's like describing Bronze Age cosmonauts, Sea Peoples in space or Genghis Khan as starfleet captain.. Modern space travellers would avoid fragile ecosystems and unhesitatingly sacrifice their own lives to help less fortunate aliens.
This is why we haven't seen any. Trust me I know about these things.
First of all spoilers.
The dark forest reveal is one of my most enjoyable surprise moments in a book.
Also you left out a few key pieces:
• Inability to communicate/investigate faster than light (leading to suspicion).
• Potential for rapid and unpredictable changes in tech such that species B could leap frog species A.
• the ability to wipe people out from a distance.
• Therefore, best to wipe anyone out at first sight rather than wait and see what they are like.
But most important of all. If this holds, don’t announce your presence in the dark forest.
https://www.reuters.com/markets/commodities/us-partners-enter-pact-secu…
And every time the music stops....... one less chair.
When one see such headline, wonder WHY as Mr Orr head of RBNZ has point blankly told that they are not responsible for housing price
https://www.macrobusiness.com.au/2022/06/reserve-bank-smashes-new-zeala…
Another question from such headline, should RBNZ and government work only to support the house price growth at al, cost despite average citizen struggling to survive with high inflation.
This coming bust will take a heavy toll on young Kiwis who had no option but to work in tourism during the Key regime, lost their livelihoods during the first Covid lockdown, were then offered fees-free construction apprenticeships and now face retrenchment once again thanks to the current government's demand-side economics.
They said they are "strongly committed to returning inflation to its 2 percent objective" which given that inflation is 8.6% is now a long way off and will require a lot more than a 75 bps hike. So they have begun quantitative tightening on an unprecedented scale. [my bold]
Hardly - no signal of outright security sales
Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in the calendar months of June and July that exceeds a cap of $30 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS received in the calendar months of June and July that exceeds a cap of $17.5 billion per month.
This nonsense from Bloomberg has to stop.
Balance-sheet reduction from the Fed, the ECB et al will contract liquidity yet more. But just as rising liquidity floats all boats, falling liquidity can simultaneously sink them all. Every dollar of the monetary base supports $10 of credit, but every $1 destroyed in QT takes $10 of credit with it.
The Federal Reserve abandoned fractional reserve banking completely on 26 March 2020. Link
We're all in a terrible, terrible position. Interest rates are increasing so aggressively, there's going to be a world of hurt in 2023. Yet we cannot let inflation run away.
I think there's a real risk that the delay between the rising rates and their effect on inflation, is going to lead to Central Banks overcooking their response and totally killing the economy.
This monetary austerity will have to be worse if the Labour government does not show some fiscal discipline. Apart from budgeting a deep cut in Covid-related expenditure for the next fiscal year, the NZ government is not holding back on utterly wasteful pet projects.
Waka Kotahi spent $337k on the opening ceremony of the Transmission Gully in March 2022. The Road to Zero campaign has a $200m budget, $85 million of this is allocated to advertising alone.
This level of public sector incompetency has never been seen before - an agency supposed to increase economic supply is instead pumping hundreds of millions on the demand side.
Back in 2018 I sorted out my stuff and thought I was in a great position. Yet it's looking less great by the day although I am glad I did that back in 2018. Things aren't looking as comfortable as they once did. I'll likely be fine but it's fortunate I am frugal and don't have much desire to buy expensive things. A good Internet connection, enough spare money to buy good quality meat and a pair of running shoes and I am happy. Yet many must be in a much more precarious position.
When you consider the cost of shoes and the mileage you get out of them they are extraordinarily expensive. Much more than it costs to run a car. I have bought seven pairs this year, searching for the right ones. Highly recommend Inov-8 and Altra Lone Peak zero drop shoes.
My shoe advice for what it’s worth:
Keep a good rotation going, have a pair specifically for hard trails or track sessions, use them once or twice a week. Once they begin to wear, demote them to easy runs only. Buy cheap insoles and really good shoes on special. Two pair of insoles and a good pair of shoes will last longer than two pair of shoes. And be much cheaper.
End of season specials are great, just got 2 pair of Solomon ultra glides for $330. Demoting my current pair.
The old adage is ~400k per pair but you can easily get 1000k if you replace the insoles and take care of your feet. I buy a good road pair and a couple good trail pair a year and they last just fine. Works out to be about $15 a week, or $2.5 per run. Prefer that to a gym membership any day! Anton just cuts the soles off when they wear out!
The runners with knee issues are ones who don’t do weights or body workouts. Knee issues come about from poor muscle maintenance and balance more than thrashing. Unless you’re hitting the downhill at 100% every time you go out lol
Good advice, thanks, malamah. People will no doubt be shocked that shoes cost $2.50 a run! I always buy the specials too.
I'm thinking about only buying trail shoes for running from now on. When the tread wears off they will be pavement shoes! I try to keep off hard surfaces as much as I can anyway and they seem durable, especially the Inov-8s.
No knee issues yet although a bit of a sore shoulder from weights and chin-ups.
Yep as they get worn, demote them to shorter runs. New shoes for longer runs. In essence the total work on the feet from short runs in worn shoes is probably less than long runs in new shoes.
I'd still get 1,200 to 1,400 km out of my shoes before putting them in a box in the garage for gardening duties.
And yes to weights. Just starting the process now of strengthening leg muscles after having never experienced knee issues in all my years running. Old age is catching up with me now.
100%. I used to buy Asics (extreme pronator) and 20 years ago, I would get quite a few thousand km out of them. Now, I am lucky to get a few hundred before the soles wear out. I have all these shoes where the top part is fine, but the soles are flat.
There's a business in here somewhere...
Orr is probably watching Au and US rises and seriously starting to worry how this will look for him a year from now - if everyone else is going high and he stays on a slower trajectory and our economy stuffs up more than others.
If he can sneak in a 100bp or a few 75's i think now is his the time for sure
With food price inflation hopefully there will be a lot less wastage. I was wondering though, with 'use by' dates is it wrong to always select the best one. I'll often search the shelf for the freshest product and choose that one.
What does the readership think? Ethical or not?
And then passing thru your intestines
Meat and fish can take as long as 2 days to fully digest. The proteins and fats they contain are complex molecules that take longer for your body to pull apart. By contrast, fruits and vegetables, which are high in fiber, can move through your system in less than a day.
That's because vegetables are largely indigestible and contain a plethora of toxins. The body tries to expel it as soon as possible. Meat, however, is broken down to the molecular level and fully digested by the body because it appreciates the intense nutrient density. You never see bits of meat in your stool do you?
Protein is very quickly and efficiently processed by your body, it is 100% digestible.
For an interesting talk on fibre in the diet, watch the video from Dr Paul Mason.
https://www.youtube.com/watch?v=xqUO4P9ADI0
Shrink wrap tray packed meat that supermarkets have packed themselves are more reliable. Be more wary of vacuum packed meat they have brought in as is as they will be older and there are chances with all the handling and rummaging you will get a “leaker.” Personally, even for our cat food, I always look for the longest shelf life on offer for fresh produce. Part of nature’s deal really isn’t it, the early bird gets the worm etc.
Use by dates are a marketing tool
You're dead wrong. Use by dates are there for food safety reasons and are mandated for certain foods, mostly animal products.
What ARE marketing tools are "best before" dates. And I agree, they result in a lot of wasted food. They also result in people who know about the Reduced to Clear shops getting great food for chump change.
I do exactly the same. At the local New World, there can be a variance of 3 days on the expiry date in the trays of meat with some best used before tomorrow and others good for another 4 days. Why wouldn't you go for the fresher piece, everything else being equal. It's exacerbated by the fact that they often only have trays with a few pieces of meat, say 2 or 3 rib-eyes....but I only want 1. In that case, you really need something with a longer best before date because while you might cook 1 tonight, the other might not be cooked for a few days.
State of Auckland market
https://homes.co.nz/address/auckland/glendowie/29-jefferson-street/jxYqo - SOLD.
homes.co.nz estimate in Feb 2022 - $1.78 million
Sold for $1.31 million
That's a 26% decrease off the Feb high.
Further I would say the 1.78 million is pretty accurate.
The UST 10yr yield will start today down -14 bps from this time yesterday at 3.36% after the Fed moves. Although some minor curves are inverting, the major and important ones haven't yet.
Hmmmm. - looks inverted from 3s out to 10s.
And oil prices fell sharply on the US Fed news and from this time yesterday are now down -US$4 at just over US$113/bbl in the US, while the international Brent price is now just on US$116.50/bbl.
Europeans entrapped by sanctions! Siemens can't repair pumping units of Nord Stream 1 pipeline because parts from Canada can't be procured due to sanctions! So, Gazprom reduces gas supply by 60%; market price jumps to $1300 per 1000 cbm! Can Biden help? Link
Replying to @BhadraPunchline
Sanctions for for thee[China India] not for me[US UK EU]! >https://home.treasury.gov/system/files/126/russia_gl8c.pdf
< Authorizing Transactions Related to Energy >https://bloom.bg/3NV6Aoj< US quietly urges Russia Fertilizer Deals @ScottsHumor
Good move Tom.
My take is this: Markets are always cyclical, in this case the downturn was kept at bay for waaay to long by the reserve banks and governemtns who for some reason forgot history and truly believed they could sustain things - and thus people got the feeling that the people in charge had got smart enough not to let it fall again... but reality is that downturns will always follow upswings (unless human nature and capitalism changes)
so the man in the street borrowed loads to jump on the merry property bandwagon and blew theasset price way higher than it should be for longer. And the process has become like tulipmania.... probably we will find a lot of other inflated assets and services as things change too like bitcoin and building materials...
Thus the possibility of a super long and super low downturn to match the higher longer boom curve is now a very probable outcome with a great opportunity to buy if you time it right and hunt around - we got a real bargain in 2011 way after the GFC with a property at nearly half the boom value. I reckon this time 60-75% drop is a real possibility and great opportunity for people like you that hung in there and did the right thing (and if you arent greedy then buying a well priced house right at the right time really has a massive impact on your future - more surfing, less work etc). To work out the timings history is always a good guide so looking at the GFC curve out for NZ (how we behaved) and comparing with the situation in Ireland in the 2000s when they had a 70% crash (what happens when the crash is bigger.. but in a different culture and gelocation/economy)... would be a good place to start to figure out the likely trajectory
Of course a quick finish to the Ukraine conflict and if geotensions settle faster.. all bets are off as inflation may drop faster and we coudl all go back to making money from Tulips (houses)
Very similar situation here. I'm so glad I didn't listen to the resident property spruikers. Despite all their mocking, it turns out I was actually right not diving in head first into a giant pile of dung by borrowing a million dollars or so. I'd be in serious trouble if I did.
Interesting.
We decided not to buy once prices passed $300k in Melville, of all places, back in 2014 (helped somewhat by the LVR introduction rendering our deposit .. short).
We then invested our $$ into a business, which trucked along happily until the second lockdown spooked all our clients and we ran out of cashflow, so closed the business and back into employment we went.
I'd like to say I feel smug now that I'm not paying off a million dollar mortgage, but actually, it was just the way things went. Though, I still can't work out how people with considerably less income than us thought they could afford these houses, regardless of their deposit size. Then again, I've always stress-tested myself at 13%, since I well remember my parents losing our brand-new home in the late 80's.
Sold my bear ETF's today, 43% gains in two months. I'm still bearish on the US stock market, but I think the major drops are now behind us in the tech sector.
Still contemplating what to buy... Expanding my positions in Micron and Himax look very tempting, both are chip makers, P/E 8 and 3(!) respectively.
Looks like China will be busy sorting out their problems in the mainland, so I'm less and less worried about them attacking Taiwan.
I think the ongoing damage to our Tourism industry (I don't see any short/medium term recovery) is not discussed enough, particularly the impact in GDP. Some interest stats from MBIE in 2019 (pre-COVID);
Key provisional estimates for the year ended March 2019:
• Total tourism expenditure was $40.9 billion, an increase of 4.0 percent ($1.6 billion) from the previous year.
• International tourism expenditure increased 5.2 percent ($843 million) to $17.2 billion, and contributed 20.4 percent to New Zealand’s total exports of goods and services.
• Domestic tourism expenditure increased 3.3 percent ($746 million) to $23.7 billion.
• Tourism generated a direct contribution to GDP of $16.2 billion, or 5.8 percent of GDP.
• The indirect value added of industries supporting tourism generated an additional $11.2 billion, or 4.0 percent of GDP.
• 229,566 people were directly employed in tourism (8.4 percent of the total number of people employed in New Zealand), an increase of 3.9 percent from the previous year.
• Tourists generated $3.8 billion in goods and services tax (GST) revenue, with $1.8 billion coming from international tourists.
• Overseas visitor arrivals to New Zealand increased 1.3 percent.
OK so a lot of flapping today.
https://www.youtube.com/watch?v=KxViHCJ_QYA
Watch it through, its not all interesting but he has it nailed in my opinion.
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