Here's our summary of key economic events over the weekend that affect New Zealand, with news nowhere is the change of economic mood sharper than in crypto markets.
The selloff in those markets has deepened over the weekend, and the bitcoin price has now fallen below US$20,000 for the first time since December 2020. In New Zealand dollars, it is threatening NZ$30,000. That means it has lost three quarters of its "value" since its peak in November 2021. Engine-room companies in the crypto machine are laying off staff.
The cryptocurrency industry was built on swagger, enthusiasm and optimism. All three are in short supply these days as these losses and layoffs mount.
Meanwhile, American factory output slipped slightly in May from April, but remained up +4.8% from a year ago, in data released on Saturday. 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%. Still, the small monthly slip does feed into the idea that the US economy's expansion is slowing down.
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.
But over the past three weeks, central banks around the Western world have changed direction faster 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.
It looks like central banks are in a rush to get control of inflation before the consequences of slowing or even contracting economic activity takes hold. It's a race they may not win. Certainly the effort will have some tough consequences for emerging markets, many of which could end up collaterally damaged.
Bond markets apparently saw this coming. 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.
It may be the end of high commodity prices too. 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 at the end of last week, iron ore prices slumped in China. Not only is demand tepid there, Beijing is holding back their buyers from bidding on Australian-sourced ore.
In Australia, the number of houses being brought to auction is rising fast. But the clearance rate is falling - to a low-for-them of under 60%, something they haven't had barring the pandemic, for three years.
Back to the global scene, multilateralism is struggling everywhere, including at the World Trade Organisation. But they have agreed over the weekend to 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 -1 bp from this time Saturday at 3.23% in a shift lower that indicates bond markets think the run up ahead of the Fed meeting was excessive. A week ago this rate was 3.16% so we still have a net rise. The UST 2-10 rate curve is marginally flatter at +7 bps and their 1-5 curve is marginally steeper at +48 bps. Their 30 day-10yr curve is unchanged at +205 bps. The Australian ten year bond is down -1 bp at 4.09%. The China Govt ten year bond is little-changed at 2.83%. And the New Zealand Govt ten year will start today also unchanged at 4.29%.
The S&P500 futures indicates Wall Street will open at about the same level closed at last week.
The price of gold ended last week in New York at US$1840/oz. A week prior it was at US$1873/oz.
And oil prices have risen slightly from this time Saturday to just under US$109/bbl in the US, while the international Brent price is now just over US$111.50/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 at just on 63.1 USc and more than -¾c lower then where we left it Friday. Against the Australian dollar we noticeably firmer 91.1 AUc. Against the euro we are still soft at 60.2 euro cents. That all means our TWI-5 starts today at just over 71.1, a gain solely due to the faster-falling Aussie.
The bitcoin price has fallen from this time Saturday and is now at US$19,403 and down -5.9%. Over the weekend it got down as low as US$17,602 and is trying another of its comebacks now, but recently such efforts have run out of steam quickly and a new low is then breached. A week ago it was US$ 28,976 so it has fallen by almost half in the past seven days. Volatility over the past 24 hours has been extreme at +/- 6.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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120 Comments
“The cryptocurrency industry was built on swagger, enthusiasm and optimism.” Long ago, and quite painfully, I learnt never invest in what you do not understand. It appears that self taught adage has been useful in this particular regard here?
ps. Assume some will have bought in and sold up and will have some happy profits to count?
So true. My observational experience of the share market is that emotions are the dominant force. A lot of professionals will argue that share prices are the sum of all the expert opinions. But so often we see examples where boards and management of companies which are publicly listed just ignore many of the voices of their shareholders. They appear to be driven by ego and hubris which ultimately is really bad for some companies with very good fundamentals. Plenty of examples abound.
The three things are not comparable.
All of the rhetoric about crypto hs been proven to be false and it will get worse.
Store of value, inflation hedge, new gold, future of transactions etc. What a load of rubbish. It is a manipulated market where a few people hold all the power. And it still has enormous energy demands.
Hopefully anyone who has spunked the house deposit is smart enough to get out now.
What a load of garbage! Bitcoin was created for this exact scenario, and is performing exactly as it was designed. An anti fragile, first triple-entry accounting innovation on an open and decentralised, immutable ledger. No hacks, no downtime, a transaction block grinds out every 10mins without fail and immune to fraud.
Traders and speculators control the entry/exit price narrative in the short term, and have caused all sorts of carnage with respect to price volatility, but over 4 billion people live under double digit inflation and/or authoritarian rule, with no hope of self sovereignty other than bitcoin, and they continue to stack. Savers will control the narrative in the long term. We are still early in the S-curve of adoption, and short term “price” is irrelevant. Regulatory clarity will only speed this up. I’m here for the revolution.
Time will prove you wrong…just like Krugman on the internet. Good luck with your fiat bags though, especially when CBDCs roll out.
And if it doesn’t go to hell, you would have missed the greatest opportunity of your lifetime. Doesn’t make much difference to me either way as I’m covered for both.
Bitcoin is insurance on a basket of failing fiat currencies, and the advent of CBDCs… I have it just in case.
I don't hold BTC, but have to say that I checked out of a website last week and one of the methods of payment was PayPal, who use BTC. In the US, you can purchase basketball tickets (Mark Cuban's team) using crypto, I've seen tvs on US sites using crypto as payment. More companies are using crypto these days, but I agree, the trend hasn't really hit NZ yet.
Strong network effects are at the core of every platform business today. In fact, in a recent three-year study by NFX, network effects accounted for 70 percent of the value in technology companies over the last twenty-three years.12 Network effects are very different from the economies of scale which traditionally drove power. Through economies of scale, the bigger a company was, the more buying power and leverage it had to squeeze out competitors. In contrast, a network effect exists when the value of a product or service gives more value to each user as the number of users increases. A telephone system is a good example: if I am the only one with a phone, the service is useless because I cannot call anyone. With each additional user, the service becomes more valuable to all users, which in turn creates a positive feedback loop of value leading to exponential growth.
- Jeff Booth (The Price of Tomorrow)
It sounded bad and nonsensical from the get go. People raved about how amazing blockchain is, which to me sounded more like an application rather than a currency.
Best case scenario some form of digital exchange service comes to being and undercuts the current international remittance market.
Watched an interview recently with Judith Collins, she was asked what her thoughts on blockchain was.
- "I think it's extraordinary, it's a little bit like NFT's"
- "People pretty much decide something's going to be worth something, not that it actually has an intrinsic value"
- "It's transformational because it's changing the way countries think about things"
https://fb.watch/dLhVGb81w2/ from 1 minute 10.
At the same time, when you get huge anti-parabolic price movements, they usually over do themselves and pop back up by ~30% after bouncing off a floor. Though where that floor is for crypto is anyones guess. Looking at history, I would say maybe on or around 10k or a wee bit lower? It's like the ultimate game of catch the falling knife!
Headline in media today :
Is NZ’s housing market a ‘canary in the coalmine’ for the rest of the world?
Trying to raise question as is in everyone mind and is pulling the housing market down at a pace never seen before so raise the concern to come up with conclusion to create confusion, that may be it is not not as RE lobbyist ( trying to raise doubts) knows that it is true and happening. Also in this environment, it is hard for them to deny so better to confuse.
Invest in solar panels - at least you have a 27 year payback. Though the local landfill might be a better investment.
https://www.telegraph.co.uk/news/2022/06/17/used-solar-panels-could-clo…
This tweet from Nic Carter (BTC proponent and thinker) was quite amusing. Focused on psychology:
crypto haters absolutely euphoric right now,
dunking
- economy is headed for recession/depression
- mortgages unserviceable
- global energy/food crisis
- 60/40 portfolio ruined
- sovereign debt crisis
- inflation rampant
- consumer confidence ATL
And they're celebrating
Indeed:
Sorry Chairman Powell, Even FRBNY Now Has To Forecast Serious and Seriously Rising Recession Risk
Angry April TIC Zeroed In On China’s CNY and Japan’s JPY
It’s worth reiterating what’s demonstrated (conclusively) by this data, beginning with the fact that China’s yuan isn’t being purposefully “devalued” as a matter of policy, rather the Chinese commercial and financial requirements are being stripped of “dollars” as a function of this increasingly difficult and dangerous Euro$ #5.
While China continues to enjoy record and near-record merchandise trade surpluses, therefore a surplus of “dollars” from it, the reason they aren’t and haven’t been able to literally bank those surpluses is what you see above – the negative financial eurodollar flows had to have been so much worse (which we already knew, just more corroboration from here an American source).
The implications, obviously, extend far beyond Beijing’s limited reach and capacity to affect CNY’s trajectory therefore China’s quite perilous monetary condition (despite conventional thinking totally contrary; we’re constantly led to believe there is no more effective, nearly omniscient technocratic ideal than the CCP’s PBOC which performs far more like the hapless bureaucrats at the Fed in just being along for what is always the eurodollar’s ride).
In this case, the wreckage has extended to China’s primary eurodollar benefactors located in Japan. This sort of contagious baby-out-with-the-bathwater behavior by the global eurodollar system had become more apparent during the earlier stages of Euro$ #4, now taken to new extremes for reasons that I think relate to Japan’s own increasingly perilous situation (see: paying 40% more for 10% fewer imports of food and fuel).
Japan has its own serious problems in addition to its major financial institutions being so closely linked to risky, unrewarding China by redistributing much toward the Chinese dollar short. For April TIC data, registered UST holdings in Tokyo fell again after March’s big plunge.
What's this all about? So Japanese banks can borrow collateral (JGS, or JGB) from the BoJ so that the banks can then pledge the very same JGS collateral *back to the BoJ* to then back US$ swaps from FRBNY.
It sounds like I'm making this up, but no.https://t.co/Ll8vCoF2XU pic.twitter.com/YnQN4GMZF8
— Jeffrey P. Snider (@JeffSnider_AIP) April 29, 2022
What's the point of this ridiculousness? Because BoJ knew back in '16 Japanese banks could (and did) get caught in a collateral squeeze impeded their activities and operations in Euro$ redistribution. https://t.co/Ll8vCoF2XU
— Jeffrey P. Snider (@JeffSnider_AIP) April 29, 2022
Because of this rather unique situation, eurodollars via Tokyo on their way to Shanghai, and the potential (though hidden therefore unable to be confirmed yet easily and reasonably suspected) for widespread, tortuous use of collateral-for-collateral swaps underpinning much of it, the last few years have seen a close(r) correlation between implied collateral availability (repo fails) and JPY’s own fate.
lol indeed but he was a pretty light investor in BTC to be fair.
I would say he is much more focused on howto, or if he should, complete with Twitter. A significant devaluation in his wealth recently would be enough for him to re-value the deal at least.
I would also say he is pressing the red button marked "pre-recession headcount reduction" (its a big button) to ensure he gets lighter, earlier.
Tesla bought $1.5bil in BTC now facing losses of $530mil, not insignificant.
It would seem a good portion of his Tesla stock is pledged against loans. He will be hoping the stock doesn't fall to the point of a margin call.
I enjoyed this one on Musk buying Twitter.
It's not that people "hate" crypto, it's that they are sceptical about it and they have good reason to be. Too many fortunes lost. Sure early adopters and those that bought at the lows and held will be evangelical about it but to others it just seems like greater fool farming...over and over again.
If you're in the NZ Property Investors FB group, get on there and check out the big thread going from the guy complaining about nobody coming through his open homes. Some good "real world" observations starting to creep in.
On another note, went car shopping with a relative on the weekend (they aren't too hot on cars and wanted some help). Main dealership had a number of clearance vehicles, and was still able to negotiate a sizeable discount on top of the clearance price. Place was as dead as a dodo despite the big "sales event", although admittedly the weather wasn't pleasant.
Last time I'd been past that dealer - a few months prior, to look at a car for myself - was told there would be zero discount or incentive of any description available. The price was the price was the price.
This aligns with what a close friend (in the car repair business) told me the other day; business has never been quieter, particularly because car dealers are feeling squeezed and not wanting to pay to have their stock tweaked up before sale.
Haha, nope what you do is pull over when it gets hot instead of just carrying on!
Started running hot recently, turned out it was the water pump.
Also there are crap clone parts out there. When i bought it there was a brand new radiator in it which exploded. Both of those looked like head gasket issues but were not.
I know aaaalllll about clone parts as I had a BMW E36 328i project/track car. The irony is there are some "clone parts" that are better than OEM. For example:
- Swap plastic to metallic thermostat housing
- Swap plastic to metallic waterpump
- Swap plastic to metallic expansion tank
- Swap plastic to metallic radiator brackets
- Swap plastic to metallic end tanks radiator
Place was as dead as a dodo despite the big "sales event", although admittedly the weather wasn't pleasant.
The weather is always stated as a key factor for bad turnouts at house auctions. With Auckland's fickle weather, it's surprising anything sells. Should be done online.
I have seen two properties where I live effectively disappear overnight. The sales board outside the house goes. As does the listing on trademe and the real estate companies website. There is no sold sticker anywhwere. I "enquired" about both of them feigning interest and was informed that they had both sold and they could not disclose the sale price.
I think in 3 months time which I believe is the legal maximum that an agent can withhold sales price info we should see some really interesting numbers coming through.
Do you think they sold for a particularly low price? You would have to wonder why an agent would want to hide a low price as they could use that to pressure other sellers to accept lower offers too. The price doesn't make much difference to an agent as long as they get sales.
Someone was suggesting that the banks should start offering 35 year loan terms to help out first home buyers.
Clicked on their profile, "Mobile Mortgage Manager with ANZ".
They didn't like being called out for trying to line their own pockets, by maintaining higher lending amounts across a longer term.
For the record I bought some BTC at $19.6k, $19k and $18.1k. I had another buy at $17.6k but it missed that mark by $60. Also converted into ETH yesterday which is up 21% today
Feels painful to buy I must say.
We'll see how these do. I think lower is likely, but these are 3 year holds.
I cashed out my original crypto (bought since 2017) a while back. Most of my money is in term deposits and rental property now.
Its not much different to stocks right now.
I've seen intense fear and selling cascades enough to know when the risk / reward is favourable
Pure speculative... there's no backing from govts for crypto, regulatory risk is high, what's to say one coin is better than another and where's the limit on coin creation.
Also, govts from major economies that matter will never give up control of the money supply. A centralized global currency backed by the IMF and govts is more likely.
Interesting discussion I heard the other day: Is crypto an asset, currency or commodity? It definitely does not generate a return in the traditional sense.
But yea its like a casino for sure, you can win big but also lose big so good luck out there!
On the weekend , 7 members of a family were killed when their vehicle hit head on a truck south of Picton ...
... why is the NZTA wasting money advertising " road to zero " .. . We will never ever get to zero deaths on our roads ....
If some money , a decent amount was set to constructing median barriers , fewer deaths would occur ... less freaking flapping of gums , NZTA ... more actual doing something...
Bollocks - anyone driving for 10 hours straight with a van full of family is pushing it. A medium barrier may have saved them but probably bounced off down a cliff. People need to learn to pull over and take a nape..Ive seen a ute in front of me swerve across 2 lanes and luckily hit wall and stop..no one was killed but driver asleep.
Nailed it!
Indeed i suggest the NZTA has bought into the Government BS, and Governments have sold the public a BS line for years. For economics to work properly and fully the transport infrastructure must be first class. By that i mean multi-lane highways for all designated state highways. Instead we get sold crap roads, varied speed limits for different types of vehicles all using just two lane roads, a highly subsidised heavy transport industry and a mindless policing attitude.
You can be driving unsafe doing 30 kph and driving safely doing 130 . (European highways have 130 KPH limits in places). That's mostly about the attitude of the drivers and the circumstances. NZTA are still in the "speed kills" mode, even though they got caught out driving Helen Clark at over 100 KPH. The biggest issue in NZ is the quality of our roads.
The biggest issue in NZ is the quality of our roads.
No, it's the quality of our drivers. I have had a couple of accidents, none in which anyone was harmed thankfully, and in every single case it's been because one driver or the other was driving unsafely - the quality of the road we were on was not a factor.
If we're comparing NZ to Europe, in Germany it costs thousands of Euros and you have to sit a number of lessons with a qualified instructor before you're even eligible to attempt the test. Lots of European countries are like this. Compare that with NZ where you can just apply for the test and sit it with zero training, only costing $100. If we actually wanted to take road safety seriously, we would start with driver education and actively take people off the road who were unsafe.
No Murray. It is not about the attitude of the drivers. It is about how the whole system is designed. Infrastructure, driver training, licensing, enforcement technology, fines and penalties, insurance requirements, vehicle safety requirements and testing.
Saying people can drive on German Autobanhs because drivers have better attitudes is a gross under-simplification.
I respect a lot of your thinking about the current Ukraine crisis which shows you have a good understanding of complex situations. I'll put your oversimplification down to a lack of specific innowlwdge about transport systems rather than a lack of intellectual horse power :)
I've driven in Europe in recent years and observed some pretty interesting behaviour on their roads. Behaviour that would've led to grief if not for the quality of the roads. There are plenty of crazy drivers there, but the roads are fantastic compared to ours, even the secondary two lane ones.
... absolutely ! ... " road to zero " is never gonna happen , neither is John Key's " predator free NZ " ...
Less BS ideology ... and more tangible efforts : compulsory defensive driver courses ; median barriers ; dedicated overtaking zones ; 4 laning of SH1 ....
... NZTA are wasting our money ... and people are getting hurt ... crazy !
never gonna happen? This is what road to zero looks like in sweeden
https://www.statista.com/statistics/438009/number-of-road-deaths-in-swe…
In new zealand we have the opposite trend
https://en.wikipedia.org/wiki/Road_toll_(Australia_and_New_Zealand)#Dea…
we may never hit zero but i'd rather be on the road to zero like sweeden and see half and declining number of deaths.
4 laning SH1
How much you reckon it would cost to rebuilt all of SH1 to european dual carridgeway standard?
Road to zero is doing all those things you asked for, it's not just an advertising campagin. I reckon if you redirected the road to zero advertising funds into 4 laning SH1 you might get twenty meters.
puhoi to wellsford. cost $877M, length 18.5km. $47M/km
SH1 2003km * 47M = $94 billion. Actually not as bad as i thought it would be, though construction costs are probably triple what they were when puhoi to wellsford was started and no doubt there will be far more challanging terrain. So my ballpark figure would be $400 billion. Current debt is $50b, so shouldn't be a problem to increase that to $450b so that some lightly travelled roads can be four laned right? (the busy bits are already 4 or 6 lanes.)
transmission gully. $1.25B, 27km (2017 construction start) = $46M/km
Bayfair to Baypark upgrade on SH2 (2017 construction start) = $70M/km
ok maybe just $200B in extra debt.
You could have achieved the same safety outcomes without building a 4 lane highway through some pretty inhospitable terrain.
There are two things here:
1 Safety - can be designed into our existing roads without a huge capital investment but you're not going to get a German Autobanh
2 a German Autobanh driving experience - unfortunately that is not feasible unless, as like someone else says below, you bankrupt the country.
The analogy is stupid. Vehicles have utility both economically and socially. With everything a risk/reward analysis is important to do, even if it's just in your head.
With COVID, the risk of 3-5% of a population being wiped out, with no real reward and a hell of a lot of negative economic/social outcomes. Hence we had lockdowns.
With vehicles, the risk of dying is 0.007% per year. With positive economic and social outcomes.
To claim some sort of equivalence is the height of stupidity. Also you are going off last years data. I suspect this year, COVID deaths will far outstrip vehicle deaths.
You do not need to ban vehicles to avoid deaths on the road. You just need to change the way some parts of the system are designed which is what road to zero is all about.
Allowing us all to continue to use cars but reducing the chances that we or or our loved ones will die horrible deaths when someone makes a mistake.
Well you'll be pleased to know the current government has massively increased the funding for safety projects such as median barriers, after National redirected the safety and policing budget into their RoNS motorway spend up.
New motorways are certainly safe, but they are so expensive that you can only build a tiny amount of them and the cost per life saved is an order of magnitude greater than safety improvements to existing roads. So if you want to save lives, you fix existing roads.
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