Here's our summary of key economic events overnight that affect New Zealand, with news markets seem to returning to a more even keel after a week of volatility, even if the track is lower.
Over the past three weeks, central banks around the Western world have changed direction away from easy-money and supporting economic activity, to focusing on fighting inflation. You could argue that the new 'cause' is a result of the prior one, but hindsight judgment is cheap. Either way, there will be an economic price to pay, one that was always ahead of us. This new resolve just means it is now front-and-center and will need to be worked through. Do democracies have the resilience to tolerate the pain involved? We have gotten so used to pain-free public policy moves (ones that kick the can), that it is hard to be optimistic.
Are we heading for a recession in the major global economies? Many CEOs think we are. Will that just give firebrand autocrats ammunition? Hopefully not, but it is a big risk.
Since January 2021, eighteen months ago, a global bond index of government and corporate debt paper has now fallen more than -20%. That is a relentless, longish term slippage. But the fight against inflation probably means this is just the start of a severe repricing of bonds, one that will take much more off their values. Bond investments are not 'conservative' in times when we are in a fight with inflation.
Volatility is high (although not extreme) while 'fear' is extreme.
Separately, American factory output slipped slightly in May from April, but remained up +4.8% from a year ago, in data released today. It was the first slip in four months and the second in eight months. Overall industrial output rose in May from April because of output from 'mining' and 'utilities'. That meant overall American industrial output was +5.8% higher than year-ago levels even though capacity expanded only +0.8%.
Canadian producer prices rose a heady +15% in May from a year ago, and the rise in May from April ran at a rate above that.
The Bank of Japan left its key short-term interest rate unchanged at -0.1% and that for 10-year bond yields around 0% during its June meeting, by an 8-1 vote, as widely expected. They also repeated they would offer to buy unlimited amounts of the bonds to defend an implicit 0.25% cap every market day, repeating the guidance on market operations it made in April. Friday's decision comes despite rising inflation and a sliding yen. Against the NZD, the yen has lost -7.6% so far this year. And we should note that a cheap yen seems to make little difference to their exports. They rise or fall on quality, not price.
We should also note that the copper price looks like it is about to fall out of the high range it has occupied for the past 18 months. And aluminium may not be far behind it. Tin and nickel are showing the same brittleness. And the carbon price, which raced higher in New Zealand and Europe until February has languished in both markets since.
And yesterday, iron ore prices slumped in China. Not only is demand tepid there, Beijing is holding back their buyers from bidding on Australian-sourced ore.
Multilateralism is struggling at the World Trade Organisation. But they have agreed the first change to global trading rules in years as well as a deal to boost the supply of COVID vaccines, in a series of pledges that were heavy on compromise. Here's what the conference has achieved.
The UST 10yr yield will start today down another -6 bps from this time yesterday at 3.24% in a shift lower that indicates bond markets think the run up ahead of the Fed meeting was overdone. A week ago this rate was 3.16% so we still have a net rise. The UST 2-10 rate curve is flatter at +7 bps and their 1-5 curve is flatter at +46 bps. Their 30 day-10yr curve is much flatter at +207 bps. The Australian ten year bond is down -3 bps at 4.10%. The China Govt ten year bond is little-changed at 2.83%. And the New Zealand Govt ten year will start today down -2 bps at 4.29%.
On Wall Street, the S&P500 is up +1.0% today but will end the week with a -3.5% retreat. That takes the fall from the peak to almost -23%. Overnight, European markets were mixed ranging from Frankfurt up +0.7% to London down -0.4%. Yesterday Tokyo closed down -1.8% to close the week down -5.1%. Hong Kong ended its Friday session up +1.1% for a weekly slip of -0.4%. Shanghai ended Friday up +1.0% and a weekly gain of +1.9%. The ASX200 closed down -1.8% to end its week down -7.8%. For 2022 that is a -14.7% decline.
The NZX50 ended its Friday session down -0.5% for a weekly drop of -4.9% and taking the 2022 retreat to -19.5% although it is only down -16% for the full year. F&P Healthcare (FPH, #1) fell -6.1% and Auckland Airport (AIA, #3) fell -7.5% for the week. The largest retreat for the week was by Skellerup (SKL, #31), down -15.9%, followed by Tourism Holdings (THL, #49) down -13.1% and ERoad (ERD, #50) down -12.6%. Only 7 companies in the top 50 had share prices that rose during the past week and those increases were all between +1% and +3%.
The price of gold is down -US$11 in New York, now at US$1839/oz. A week ago it was at US$1873/oz.
And oil prices have fallen sharply today from this time yesterday and are now down -US$7 at just on US$108/bbl in the US, while the international Brent price is now just over US$111/bbl. A week ago these two prices were US$118.50 and US$120.50 respectively, so about a -9% weekly drop.
The Kiwi dollar will open today much softer at just on 63.1 USc and more than -¾c lower. Against the Australian dollar we are down to 90.1 AUc. Against the euro we are soft at 60.1 euro cents. That all means our TWI-5 starts today at just over 70.9, but that is only -30 bps lower in a week.
The bitcoin price has softened from this time yesterday and is now at US$20,618 but down only -1.9%. A week ago it was US$ 28,976 so it has fallen almost -30% in the past seven days. Volatility over the past 24 hours has been moderate at +/- 2.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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80 Comments
Its all a confidence game, including gold, and at the moment it's that scene in Star Trek when the ships under attack, there's sparks flying out of control panels and everyone's bracing for impact.
Or was that Star Wars.
Gold's only going to become properly valuable in an environment where there's no government.
Are we heading for a recession in the major global economies? Many CEOs think we are. Will that just give firebrand autocrats ammunition? Hopefully not, but it is a big risk.
Amazon CEO Jassy’s 1st year on the Job: Undoing Jeff Bezos-led overexpansion. Bezos overshot projections for demand. If anyone wants to get an idea of how dramatically pandemic distorted economy, this article provides great insight,
"Recession fears grow"
Is recession still a fear / possibility and not a reality.
Earlier one accept the reality better it can be faced just like inflation - went into denial and manipulation - it may have helped to kick the can but did it actually helped or made it worse.
Wonder why do we collect data and analysis, when it has be interpreted to suit vested interest or create suspicion when it does not suit the required narrative - again best example is transitory inflation.
We are in a recession now, they just can't report it except in hindsight.
I caught up with a group of investors and business owners last week and everyone is pulling back and bracing for a storm. Nobody trusts the government or their bank, and they think the fair pay and unemployment insurance reform will land on them like a ton of bricks.
To hell in an academically pleasing handbasket.
"..... We have gotten so used to pain-free public policy moves (ones that kick the can), that it is hard to be optimistic......"
Yes. We have got government used to the idea that if citizens can't afford it, the government can. Always patching without fundamental fix.
So people living in motels, temporary tax drop on fuel, Christchurch Stadium. ..... The list is long
The term "pain-free" depends on which echelon of society you reside within. For those of us who got in early the easy-money epoch has been a halcyon period. Those that came afterwards took a stern financial beating as, for example, house prices made a beeline for the moon and they where stuck in thankless, menial jobs.
We, and our dinner party friends, may think that declining asset prices and a tight labour market is a threat to prosperity but it is our own prosperity we are thinking about, not wider society. I say let the chips fall where they may, the winds of change are long overdue.
My properties are rented at >20% less than they were 3 years ago. I'm happy to have tenants especially for the apartment in the CBD - neighbouring apartments have been empty for 10 months. However my modest property investment were made 20 years ago as a protection against inflation (I remember the late 70's).
Nicholas Taleb's book " Anti-Fragile " comes to mind when I think of this governments modus operandi ... they seem hell bent on protecting us at all costs ... " pain free " ... molly coddle us from cradle to grave ...
... nice in theory ... but when the Black Swan smashes into the windscreen of our idyllic cruise through life , we're caught out , unprepared , unable to cope ... Reserve Banks & politicians are squeezing out the robustness from life ... leaving us fragile , vulnerable ...
You could argue that the new 'cause' is a result of the prior one, but hindsight judgment is cheap.
I think some of your readers may have been well ahead of the curve this time in doubting the "transitory inflation" hypothesis. In many ways it was one of the most irrational tangents I've ever seen a Reserve Bank go on, but they all did? One can only surmise what the reason may have been that "transitory inflation" ever took hold:
"Groupthink is a phenomenon that occurs when the desire for group consensus overrides people's common sense desire to present alternatives, critique a position, or express an unpopular opinion. Here, the desire for group cohesion effectively drives out good decision-making and problem solving."
Good read - this is an interesting analogy/quote from the author;
Today’s “Inside Money” standard, known colloquially as the Dollar Reserve standard, is actually what I like to call “Milton Friedman’s Nightmare.” It is nothing more than a system of competitively devalued and inflated debt-based scrips running around drinking each other’s milkshakes until everyone’s glass is empty.
This isn't 'the middle' of anything. Was that just a throwaway? Or do you really assume a 'normal' out the 'other side'? What we think of as 'normal' was a temporary hiatus, say WW2-on.
This is an inexorable, physics-driven alteration; permanent and a one-way trip. We can adapt (I've been writing about how to, for years) but we cannot alter the trajectory. And so many folk are unaware of what are the driving forces.
The difference between the 'floor', and where we are (debt-injectedly and resource depletedly) now, is one point; the fact that the floor is lowering per time, is another. Good to see we're starting to talk about it, pity we're so late.
Where there is a will (and a buck to be made) there’s a way. I don’t believe the peak energy argument at all, there is plenty of energy out there we just need better or cheaper tech to extract it. Once everyone has a couple of very large batteries parked in their driveway then the peaky renewables like wind and solar become significantly more useful.
I’d be highly surprised if we didn’t have more energy available to us in 100 years time than we do now. Not that I’ll be there to be surprised (although even that might be possible from technology, I’m probably a generation or two too early).
How does ingenuity and resourcefulness find a way through this Harvey W;
In the past decade, the global refugee population has more than doubled. According to the UNHCR, over 84 million people around the world have been forced to flee their homes. Among them are over 26.6 million refugees, the highest population on record. 68% of the world’s refugees come from just 5 countries.
The Largest Refugee Crises to Know in 2022 | Concern Worldwide (concernusa.org)
When you imagine a "way through" does that mean a way through to preserve your wellbeing/lifestyle, or the worlds? What kind of technology might deal with the refugee crisis? You can see the old world order crumbling when a Western nation like Britain sees forced drop-off arising out of a political 'deal' with a despotic regime in an impoverished, strife-ridden country as the only form of "ingenuity and resourcefulness" on offer.
I posted below Kate that many people assume what we have experienced the past few hundred years to be normal in terms of development and quality of living.
But its not really....the dark ages that followed the Roman Empire shows that tribalism can quickly take hold of society and when that happens, rational thought can go with it. We regress in our thinking more towards the caveman than a cooperative being that is part of something bigger than itself. Technology disappears and the development of thought, trade, cooperation, exploration...all go with it.
The tribalism we've witnessed the last 5-10 years has been worrying to me as people lack the ability to think clearly an see issues from multiple perspectives. Its a sign of mental decay from my perspective...as the quality of society degrades.
But where will the leadership come from to avoid this decay...it certainly doesn't appear to be in the men and women who are influencing society at present...e.g. the Trumps, Bidens, Powells, Putins, Yellens, Lagardes, Pelosis of the world who are so determined to be in control and influence the direction of society (which appears to be more about the advancement of 'self' than the collective).
I agree they probably were happier....and agree with that theory that Yuval Harari raises in his book "Sapiens". Capitalism (nor socialism), nor the industrial/technology revolutions appear to have made people to have improved mental health. Do we have better quality of life? Not sure...we live longer but many need antidepressants to get through it.
And also agree that the caveman became cooperative over time..that is why homo-sapiens survived, but all other species of human died (they could better organise themselves in order to kill/dominate the other species of humans...)
But we're talking about the next level above that now where we try to organise billions of people (not groups of hundreds or thousands) towards common goals of prosperity and sustainability. I don't think tribalism is a positive factor in making that happen.
Is this part of evolution? Who knows....perhaps...the strong win and move on...But then again, would you say that the Germanic tribes were superior in evolution than the Romans? And yet the Roman empire fell and ended up being invaded by people of arguably far less superior qualities...or were they? (I don't know the answer). The same could be true with respect to the post-renaissance western world and its dominance.
To summarise the above....cavemen were cooperative in small groups (like up to 50 people...). They didn't have the mental capacity to cooperate in groups larger than that...
That is why it has required hundreds of thousands of years for society to get to the point where we can have things like countries and empires and coalitions between countries....because before recent history, our mental capacities weren't evolved enough to work together in groups of millions or even billions. For this to work we need laws, common principles, trust, cooperation, faith, mutual respect...even concepts like the golden rule would be rather foreign to a caveman. Yet we assume these things to be timeless principles...they're not, they are a very recent development.
And as discussed above, at times we may regress backwards where that cooperation between groups of millions of billions breaks down and we go back towards on that scale of evolution from modern human to a more basic human (not a caveman, but that caveman is still in our DNA) who can only organise themselves in very small groups (i.e. tribes).
I wonder if one could thrive as a hunter gatherer in a city like Auckland? There are plenty of waste bins to do gathering. I don't want to suggest anything illegal but when you think about it there are a lot of food sources in any big city for a hunter gatherer.
Fortunately the advantages of modern urban living far outweigh those of the modern hunter gatherer. I mean how can you live without Internet although I guess there are free Internet connections that can be 'gathered'.
My much more comfortable suggestion is to build a harem of female (or male) partners that will go out to work for you while you laze around at home. Some have successfully achieved this.
How can you live without internet? Modern hunter gatherers tend not to live in controlled, surveilled cities, with limited toxic food sources of waste bins and grocery stores. Not sure there is a difference. We fish, plant our gardens, tend our animals, pick the wild berries, harvest the wild mushrooms, hunt deer and wild pigs, grow some weed and my female harem happily prepare these foods. Auckland doesn't sound like a great place, unless you have internet!
The world population increased by 1.8 billion (nearly 30%) over that decade so in fact a lot more people are being housed & fed than before. 26M refugees is still only 0.3% of the total world population - many are also "economic refugees" looking for a better std of living rather than fleeing direct persecution.
Technologies to help include birth control & education.
Birth control and education won't fix things in the 5 countries mentioned that have produced 68% of all refugees. And when you can't feed or house yourself - and others are stealing what little you might have, sure, you're an economic refugee, but that doesn't make you any less a refugee/displaced person.
Is it so hard for folks to accept that the root problem is resource depletion; be it drinking water shortages; building material shortages; food shortages; energy shortages.... unfortunately, I don't think there is any techno fix for resource depletion.
From the UNHCR webpage for the UK ""The top nationalities of people applying for asylum were Syrian (75,615), Afghan (49,905), Venezuelan (19,235), Colombian (18,160), Pakistani (17,960), Iraqi (16,420), and Turkish (13,845).""
The Rohingya and South Sudanese don't get into this list. It seems that being a refugee requires money to get out of the country. In the case of the Ukraine, it was remarkable how quick people left by car and train. The UK has responsibilities for the people who are under threat because they were employed by the British: so some Afghan's and Iraqis. Otherwise I cannot see why Colombian's, Turks and Pakistani refugees should expect residency in the UK nor why the UK can't check their motivation by placing the asylum seekers in a safe 3rd country. The word 'safe' in this context is worthy of discussion.
Extreme religious beliefs and foreign meddling have caused a lot of the refugee flows. The problem of refugees is rather overstated and make popular filler stories for news organizations.
The worldwide obesity problem collapses concerns about resource depletion. We are a long way from that.
Falling fertility rates might be natures way of saying we have too many people relative to the resources available in the current environment.
Do we gamble that nature is right, or artificially attempt to sustain ever more people, many of who are living on antidepressants, to suffer because 'humanity' is good? And is it unkind to allow nature to take is course by reducing numbers of people to more sustainable levels or would it be even more unkind to continue to excessively procreate and have people live through famine and hardship.
I don't know what the right answer is (I don't think there is one).
All created by corporate greed (government sponsored). In the USA the greatest resource (land) is being destroyed by corporate farming turning soil to dirt, producing commodities devoid of nutrition. Corporations (Pfizer) operate for profit and never care for the working class slaves. Even the FDA created to 'protect the people', operate for profit. Hunter-gatherers never had that problem.
There are refugees and there are refugees. Stalin relocated the Crimean Tartars but they were not refugees nor were the tribes the USA put onto reservations. The people who cross the English channel from the EU are counted as refugees despite having the money for the journey and being predominately young and male. Syria produced 10 million internal displaced people and when half of them crossed the border they became 5 million refugees. The Rohingya are refugees with their alternative being starvation, rape and murder. Quite different from the Ukrainian women and children who are taking what is likely to be a temporary refuge and will eventually return whoever wins the war.
Rwanda is a bad solution but those who say so must provide an alternative. Something better than 'open borders' or 'allow pirates to profit and families to drown'.
Yes there is always the threat that we follow in the Romans....what we think is permanent (in terms of technology and quality of living) is impermanent and could be followed by a 1000 years of 'dark ages' as rational though gives way to tribalism and decay. The development and use of technology require cooperation and stability within a society, not fear and fighting (which is the direction we have been headed towards).
Always strikes me when I travel around Europe, especially to places like Florence in Italy when you consider how life was in the times of the Romans, the hundreds of years that followed, and what we experience now and think is normal after the renaissance. Its not a certainty and could easily be taken from future generations.
Yes I've been through Italy 3-4 times and love the history, food, culture etc.
Pantheon is great....
Also the old Rome area...it was fascinating to see the chain marks left on the Roman Pilars that the Germanic tribes tried to pull down....but they didn't have the technology to destroy something like the columns/pillars (for the marble), let alone consider trying to build it. A few thousand years later those buildings/pillars/columns still stand while empires fall, tribes come and go....world wars etc.
Not when oil is $120 and fertilizers are up 100% im afraid. No wheat planted in Ukraine for next year either. Food price rises to continue. Add to that labour shortages. The spiral is still spinning strongly...........Oz inflation now over 6 and rising, they are way too late to the OCR party.........
People will never stop spending, as long as western world governments continue to live above their means and central bankers stop their crazy unsustainable Keynesian policies. Covid was a great excuse to kick the can down the road. Inflation will continue as long as the crazy speculative money creation continues. And as you guys like to say when we are all out of cool-aid, we proceed to a deflationary spiral, (hopefully).
Latest Taxpayers/Curia political poll has Gnats/ACT on 46.8 % combined : Labour/Greens on 42.5 % ... the Gnats & Act could form a government , with a projected 62 seats ...
... the trend line shows support for Labour consistently ebbing away ...
Time to celebrate : a bottle of 3 waters , anyone ?
... it's the choice between a rat sandwich with mustard , or the rat sandwich with tomato sauce ..
Not so much a celebration ... just , a preference for mustard ...
( bearing in mind that this is the worst , most incompetent government within living history , arrogant & wasteful in a degree never seen before ... I still rate Luxon & the Gnats just marginally better than Ardern , Mahuta & Robbo )
Just watch a heap of non french players running round a french field with some locals. Can't say throwing money at non local players made either team good or even better.
Blues spent years raiding provincial talent and letting their head elsewhere. Lately they made a effort to retain talent and with an incredible talent pool available have made it to the finals. Much better.
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