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Powell gives realistic testimony to Congress; US interest rates rise; Canada CPI up more than expected; China faces new flood pressures; UST 10yr 3.15%; gold up and oil down; NZ$1 = 63 USc; TWI-5 = 70.8

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Powell gives realistic testimony to Congress; US interest rates rise; Canada CPI up more than expected; China faces new flood pressures; UST 10yr 3.15%; gold up and oil down; NZ$1 = 63 USc; TWI-5 = 70.8

Here's our summary of key economic events overnight that affect New Zealand, with news pandemics, war and now floods are compounding pressures on the global economy.

In the US, Fed Chairman Powell is giving testimony to Congress today and tomorrow, and today acknowledged that a soft landing for the giant American economy will be "challenging" and he also acknowledged that a recession is a real possibility there. That dose of realism has put a huge damper on financial markets today, but Wall Street is actually up, presumably on the basis that his comments on the outlook weren't worse.

American mortgage applications rose again last week, a second successive weekly gain after a long period of declines. They also reported that the average 30 year mortgage rate is almost touching 6% there. It was just 3% at the beginning of 2022.

In more positive news the US retail Redbook index shook off its prior week slowdown to return to its 'normal' strong recent year-on-year gain, well above what can be accounted for in inflation.

There was a US Treasury bond auctions earlier today. The 20yr one was very well supported and came in with a median yield of 3.41% compared to 3.22% at the prior event a month ago.

Canada reported May consumer price inflation earlier today at 7.7% and well above the 7.4% expected which in turn was above the 6.8% they reported in April. Fuel and food drove their sharp rises. This level is a 40 year high for them. Recall the US CPI is rose +8.6% in May, so Canada's impact is less than its southern neighbour.

In China, their southern manufacturing hub in Guangdong raised its flood warning to the highest level due to the worst rains in decades in the Pearl River basin, spurring more evacuations and threatening further supply chain disruptions in an economy reeling from Covid-related lockdowns.

And pressure, already extreme, is still rising on the Chinese property development sector. Sales have been very weak, with most of their large listed companies reporting they are only achieving less than 30% of their sales targets, and that is even after more than 200 cities have rolled out policy measures to support the struggling housing market. Nothing authorities are doing there is helping yet.

That is having a direct impact on commodity prices, like copper and iron ore.

In the EU, consumer sentiment is in the toilet and back near its early pandemic record low. Inflation's bite and the invasion to their East isn't making them feel good at all. Russia is now deliberately bombing grain terminals and infrastructure, completely insensitive to the food crisis it will worsen.

And Europe has been told to prepare for the upcoming winter without Russian gas supply.

The UK also reported their CPI inflation for May and it rose +9.1% there from a year ago (on the same basis other countries report - they have some weird local versions that are lower.) This was a fresh 40 year high too.

The UST 10yr yield starts today down -8 bps at 3.15%. The UST 2-10 rate curve is marginally steeper at +9 bps and their 1-5 curve is flatter at +41 bps. Their 30 day-10yr curve is however steeper at +215 bps. The Australian ten year bond is down a very sharp -31 bps at 3.81%, an eye-opening move reflected across all durations. The China Govt ten year bond is -1 bp lower at 2.80%. And the New Zealand Govt ten year will start today -6 bps lower at 4.17%.

On Wall Street, the S&P500 is up +0.9% in its Wednesday session so far. Overnight in Europe, yesterday's positive mood evaporated with markets down about -0.8%. Tokyo closed yesterday down -0.4%, Hong Kong was down a very sharp -2.6%, and Shanghai closed down -1.2%. The ASX200 ended its Wednesday session down -0.2% which was matched by the NZX50.

The price of gold is now at US$1841/oz in New York and up +US$5.

And oil prices are -US$1.50/bbl lower from this time yesterday at just under US$107/bbl in the US, while the international Brent price is now just over US$110/bbl.

The Kiwi dollar will open today at just under 63 USc and -20 bps softer than this time yesterday. Against the Australian dollar we soft 90.7 AUc. Against the euro we are much lower at 59.5 euro cents. That all means our TWI-5 starts today at just under 70.8, and down -50 bps from this time yesterday.

The bitcoin price has moved up from this time yesterday and is now at US$20,235 and up +1.9%. Volatility over the past 24 hours has been high again at +/- 3.6%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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94 Comments

That is having a direct impact on commodity prices, like copper and iron ore.

Shaky grounds for our cuzzies over the ditch. 

They're also having a lot of construction sector collapses, interesting also amoung suppliers, which NZ has largely avoided so far.

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A lot of fixed price contracts by the sounds of it.

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Here in NZ we’re seeing more and more builders going under.. the high interest rates hitting demand and squeeze on product supply is a double whammy.

The fittest will survive but many will be weeded out

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Yep as I was saying from mid last year.

Talking to a development company yesterday that I do some work for, they seem ok, but said there’s a lot of trouble brewing out in the sector. More and more liquidations, and half finished projects, on the way…

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I've heard there's a lot of amateur small-time developers in South Auckland in big trouble.

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It's almost as though having a monopoly on supply allows you to manage price and therefore avoid this situation.

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Yeah, and it means Aus won’t offer much relief for the loss of jobs here resulting from the construction slump.

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"completely insensitive to the food crisis it will worsen."

They are well aware of the 'why' of their strategy.

"And Europe has been told to prepare for the upcoming winter without Russian gas supply."

Some of us have been pointing out, all along, that this was all about energy....... and that the NH winter would be 'raise you and look' time.

The underlying reason?

https://dothemath.ucsd.edu/2022/06/shedding-our-fossil-fuel-suit/

 

 

 

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https://www.breitbart.com/economy/2022/06/21/just-11-of-americans-blame…

Just heard Biden urging FF companies to produce more. While paying lip service to renewables.

It's all cognitive-dissonance, writ large (as the Murphy link points out). Note that 100% of Americans, apparently, don't think scarcity is an issue. Puts them in a league with the odd economics commentator.....

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PDK you have woken up with a lot of enthusiasm this morning!  I can see you on the parapet, "CAN I GET AN AMEN IN HERE!!!"

Breitbart?  OK.  I get that these places are the only ones (this is for you too Mr Zerohedge (Audaxes)) bothering to represent another view but they are not credible, simply the other side of the BS spectrum to the main stream media.

100% of American do not think anything, anything at all, in one homogeneous group. 

But I suspect you are right, a lot of them will not acknowledge energy scarcity as they have yet to have ever experienced it and certainly have never understood how extravagant their energy usage is.  One of my favourite memories is being entertained by the fountains at the Bellagio in 44 degree heat in the middle of the deserts of Nevada.  As a whole, the Las Vegas Strip uses about 8 Gigawatt-hours of electricity per day.

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Have you seen anything on lake Mead?

A good look at energy and water in one place, supplying both the fountains and lights but down about 60m and dropping.

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Here's a link to start

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You think the americans are extravagant?

When i was in Turkmenistan on holiday we were having tea with a lovely family hosting us.  When they took the kettle off the gas element they left the gas burning.  I asked them why they didn't turn it off? 'to save on matches' was their answer.  They get free gas you see so easier to leave the stove on 24/7 than to waste a match.

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Extracting the most possible oil needs to be a focus, whether you believe oil is running out or not.

We're going to need every drop to buy as much time as possible.

Idealistic anti-drilling and exploration policies are asking for trouble.

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Great article - worth reading - sometimes I think the climate change brigade is more about weaning us off peak oil, a sudden stop will cause starvation......    not sure how we are going to make enough fertiliser after the oil is gone, I suspect the earth will just have a lower ability to carry humans

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Bitcoin chart looking like a ball bouncing down the stairs, only to be carried back up and thrown back down again once it reaches $20k.

Just like it was at $30k.

And $40k. Three months ago.

Anyone who thinks there is anything more to this than psychological support is insane.

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Thank you for your in depth analysis..sending it off now for peer review.

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I concur, value is totally arbitrary.

At least video games get cheaper over time, despite having ongoing support.

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Shocked to check my kiwisaver balance last night ..stopped payinto into it for now, don't see the point.

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Dollar cost averaging, buting cheaper now so more gains when the market recovers.

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Agree...but question on when the "market recovers" and also the ability of fund managers?

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Do you prefer buying things when they are expensive? Cheap share prices are great news for anyone in the accumulation phase.

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So you think shares are cheap now..or just retuning to fair value? 

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I personally think that shares have returned to fair value now. Therefore it is not a bad time to buy. Maybe they will go down a bit more in the short term, but the market has already priced significantly higher interest rates as well as a reasonable chance of a recession, so I think we are not far from an equilibrium point. In any case, trying to time the market is something that is terribly difficult to do.

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I am buying shares right now and think that many companies are cheap. I also suspect that they will get cheaper, and the broader market could easily fall significantly further.

My inability to predict the future of the wider market means the best thing for me is to keep on buying out of saved income. Keep on chugging away unless you have reason to think you know more than other market participants or have some other edge. 

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Baywatch,

Come on, start thinking. It's absolutely in your interests for  market to fall and preferably for some time yet to get the full benefit of dollar-cost averaging. I am assuming that you are not on the verge of retirement. If you are concerned about the ability of the fund managers, either move to others or to index funds.

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You should increase your contributions not stop them. 

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Will restart when the carnarge is over...who knows when that is, ...maybe early next year (fingers crossed)

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Trying to time the market is a dangerous game. 

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Cash in hand is worth two in the bush

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If inflation is lower than the losses in your portfolio, fine. But time in the market, not timing the market is the long game. You're thinking short game.

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I get the logic but is there any value putting extra into KiwiSaver once you've got the employer contribution?  Can't you get the same product on the open market but without the KiwiSaver constraints of only being able to access at retirement?  

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The point Baywatch is your Kiwisaver owns real companies, supported with real activity. 

As versus BC, which is dots on a screen, supported with speculation fever. 

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Hard money is the point KH

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What type of fund where you in and what % drawdown was there?

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Balanced - Conservative - down 15% YTD

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Literally the worst thing you could do other than sell your shares.

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Really?- maybe I pay down my mortgage quickly at 2.99%, or do some research and invest privately - geez the "experts" on this site make me laugh sometimes.

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As long as you've factored in the loss of employer contributions.  

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If you mortgage is at 2.99% you could putting spare cash into a short term deposit - depending on your tax rate and the term, the return can be higher than saving 2.99%

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Structural changes to BRICS have implications for NZ's markets. Maybe shaking the pom-poms for the Biden Team and mooning China were not the brightest geopolitical actions to have been taken.  Amateur hour.....

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Waterboys! They sang, “you saw the whole of the moon.” Finally got the gist.

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PDK I bet this is your ringtone...Am I right?

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Chuckle.

In hindsight, he was dead right, as were the authors of the Limits to Growth. Don't make the mistake of dissing the messenger - it doesn't do anything to the message (that requires research, honesty and facts). Your 'Russia' denigration downthread is a classic shoot the messenger. Try being dispassionate, standing back and seeing the biggest picture possible, remove self bias, optimism/pessimism bias, and mesh the facts so they fit. There will only be one way they do; Systems appraisals are like that.

Thus Biden (and Murray86) blaming Putin, and Putin blaming the west (google: Nuland Kagan Ukraine 2014, neo-nazis) have to be appraised with the backdrop (that Murphy link) in place. As does the current economic (growth forever) belief-system. Very few folk bother, fewer use logic properly, even fewer remain after fear and denial take their toll. Doesn't bode well given what is breaking over us....

Go well

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I'm completely on board with your assessment of energy and materials scarcity but I agree with Murray on the Russia analysis.  

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Mistake in today's article with the Bitcoin price?  It's at $20,235, but apparently up from this time yesterday which was $21,226?

Yesterday's article:

The bitcoin price has moved up strongly from this time yesterday and is now at US$21,226 and a gain of +6.8%. Volatility over the past 24 hours has been very high again at +/- 4.7%

Today:

The bitcoin price has moved up from this time yesterday and is now at US$20,235 and up +1.9%. Volatility over the past 24 hours has been high again at +/- 3.6%.

 

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It's transitory.

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Will this settle the debate once and for all?

Chief Forecaster Gareth Kiernan. “Our analysis shows that even with mortgage rates below 5%, the average home’s million-dollar price means that today’s first-home buyers face much less favourable financial outcomes than a buyer in 1987 did with interest rates of 20%.”

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It's beyond me how some boomers still try and debate this... 

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The data is clear and depressing.

There can be no argument that it has never been harder to buy a house.  In addition therefore it has never been harder to create a stable environment for starting a family.

Just as well we can import families.

Also big ups to Labour for addressing the income disparity between the sexes, with woman no longer able to afford to have children this pay gap will reduce markedly.  So innovative.

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'Just as well we can import families'

Wrong, 100%.

We are overpopulated already (see the graph in the Murphy thread link up-thread (you haven't yet, or you wouldn't make such a comment).

:)

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Comments section is all over the place today?  

We are not over populated otherwise we would be starving.  I have lived in India and let me tell you, we are not even close to being overpopulated.

If you are talking about the extravagant privilege of fossil fuelled life styles I acknowledge that.

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What a perverse way of measuring over population!

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Triggered much?  What right-on measure would use per chance?

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No draw-down of finite resources. No reduction of renewable resources, below replenishment capabilities. No reduction of sinks, ditto.

Then do what you want.

Except that it's 'per capita', so less of us will mean more wealth per head.

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OK that's fair, at least it is a clear position.

Personally I will keep trying to innovate my way through to better and better uses of renewable energy to avoid living in the 1800's and the vastly reduced quality and span of life that would result in.

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Still plenty of space to grow our already chart-topping ecological footprints ...

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We can only support our population on a just in time basis at the moment and we are well past peak oil, I am not confident we are not over populated.....

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Just in time alright. Not that long ago, any whiff of Covid in the air and the toilet paper would disappear at the supermarkets and we were being told to be nice and not stockpile the groceries.

 

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JAO - with respect, that's an oxymoron. It is fossil fuels which provide the food (several calories of the former, to one of the latter), so our current 'would be starving' overpopulation is not starving simply because of FF being injected into the food system (it makes sense; both are energy).

India - like everywhere else, is drawing-down its support capability. Put another way, India is overpopulated.

https://www.chelseagreen.com/2019/overshoot-collapse-creating-better-fu…

' For instance, you can cut more trees per year than what will grow back, as long as you start with a full forest. You can harvest more fish per year than will replenish, as long as you start with a big stock of fish. You can eat more food per year than is grown, as long as you start with a full storehouse of grain. But only for a while. The consumptive parts of the human footprint can only remain in unsustainable territory for a finite period of time, until whatever buffer that existed has been absorbed.'

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A small difference, you say due to fossil fuels the population can be this big, therefore it is overpopulated in relation to what it could support without fossil fuels.  I am simply saying at this time, with fossil fuels it is not over-populated.  I agree that when we run out of fossil fuels we will need to reduce the population, just not at this time in the trajectory.

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Sen Bill Hagerty (R-TN) addressed the Biden narrative, noting that "the problem [of inflation] hasn't sprung out of nowhere," before asking Chair Powell the following question:

"Would you say that the war in Ukraine is the primary driver of inflation in America?"

Fed Chair Powell's response - which we note was completely ignored by many mainstream media outlets who were writing real-time transcripts of the hearing - was shocking in its frankness:

"No. Inflation was high, certainly before the war in Ukraine broke out." Link

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The Everything Data’s (Z1) Verdict: Not Inflation, Only More Of The Same

The entire credit market, both lending in loans and borrowing via securities, is stuck in a too-low-growth state which drags on economic growth globally at the same time it keeps the vicious deflationary cycle cycling: lack of liquidity means risk aversion which means no balance sheet expansion which means no money/credit growth which means lack of liquidity confirming further risk aversion.

QEs were supposed to break the feedback loop, in theory.

In practice, anywhere and everywhere it has been tried, central banks ultimately fail to leave any distinct impression in any of the proposed channels (sentiment, portfolio effects, interest rates).

Bank reserves are not money, and the market prefers only safe and liquid, so that only leaves sentiment which, as you can plainly see, fairy tales about money printing don’t help, either. They are, in the end, actually harmful (see: Crytpo Winter).

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lol comically bad Russian propaganda, obviously now they are using spell checkers makes it more readable than the old nonsense but still low-brow stuff, thanks for the laugh Audaxes.

<note - this comment related to another comment and a link to another site - not this one and not sure where the original comment went>

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Dalio offers a commonsense view without redefining what inflation is ( ie. the global consensus view that it is measured as changes in the CPI ).

As a simple man.... I need things explained to me in a straightforward way.... (Which Dalio always does).

https://www.linkedin.com/pulse/reducing-inflation-come-great-cost-stagf…

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That all means our TWI-5 starts today at just under 70.8, and down -50 bps from this time yesterday.

That's not ideal for RBNZs effort to deal with inflation. Fly little Kiwi, fly!

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Thanks for that - democracy as we knew it is further diminished.

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People are morons in the main.  Undermine confidence?  Hardly.

We have "official" "statistics" we live by that are farcical already, CPI (ho ho), Covid Deaths (ho ho ho), Census data (you get the idea).

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For people interested in renewable energy/geothermal. I think posters have made reference to this before but this is a really good explainer for the MIT innovation in drilling that could dramatically increase role of geothermal. And for the EROI fanatics - yes there is functionally unlimited energy at the core of the earth. 
 

https://youtu.be/g8sjdOjNxIE

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I have no problem with geothermal - indeed, every time I cover the outside-parked car in anticipation of a frosty night, I'm tapping into it (using ground temp vs radiant loss).

But it is not functionally unlimited. The physics of it is that we don't just have a problem with the greenhouse effect (doing with CO2 what I do with a cover on a frosty night), we also have a resultant-low-grade-heat dissipation problem. This wee layer we occupy - between trapped geothermal heat and space - needs to let go as much heat as it takes in. Too little out and/or too much in, we fry. And vice-versa.

If you add geothermal heat (at any rate approaching out FF blip) to our slice (our habitat) you're warming it up. At current rates of increase, even this entropic heat would be enough to boil the oceans away within 400 years. It's as if I left the engine running under the cover, not realising it would be seized by morning. Boiling won't happen; we'd be gone well before that stage - but you need to think through the ramifications of any option before grasping at the straw.

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OK, bowing to your knowledge here, but I don't understand what you are saying.  Geothermal releases steam as the byproduct, H2O which I had presumed would simply enter the water cycle.  Where is the additional low-grade heat you are talking about come from?  Surely not the transport pipes as this would be a very minimal footprint?

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No more heat than a few new volcanoes appearing Id imagine.

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I think the point is that you're transferring heat to the surface that would otherwise have mostly stayed there, converting some of that heat into electricity (much of which will be converted into heat again eventually through friction, oil heaters, braking etc). Some of the rest of the heat is retained in the reinjection fluid, but the steam? That's all lost heat energy.

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Thanks - I was trying to explain where it ends up (it is hard to anticipate other's understandings - there was a comment re steam; I've yet to see steam created ex heat), so your 'lost' in my terms, is 'taken from being trapped underground' and 'released into the space between surface and outer atmosphere, wherein we evolved.

Energy cannot be destroyed, only altered, but every move is in the direction of entropy - low grade heat. But - pump enough low-grade heat into a confined arena........

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Entropy into the vacuum of space has been the process for heat dissipation on earth since the atmosphere became a thing, so I am still a bit lost as to where the problem is.

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Rates thereof

:)

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I'd like to see the modelling on that :).

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Water vapor is a potent greenhouse gas.

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Yeah, Nah, can't tax that so... moving along.

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As an offshore sailor who has tootled along at a mere 4-5 knots an hour to get between countries, I can assure you that the earth is much smaller then most think it is.    The liveable breathable atmosphere only goes up 8000m before it becomes the death zone, and we continue to pump pollution into this atmosphere as if its unlimited. 

I see a huge reckoning coming around energy, food, clean water.   Democracy and political systems don't count for much if the basic requirements for life are unobtainable.   NZ is lucky, we should mostly make it through, though we rely on imported medicines.

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NZ would mostly make it through?

But in a small world, why wouldn't we be swamped with any mobile refugee populations that are able to get themselves here?

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And well-armed military.

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Water vapour is not pollution unless you think every cloud in the sky is pollution?

The end of times trope is well worn now surely, it has been in action since biblical times...

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You cannot make such a statement, and call others morons.

Sorry, but linear thinking is the silliest thinking of all.

Just how it is.

I challenge you - buy (it doesn't download) a copy of Clugston's Blip. Get back to me when you've (a) read it and (b) managed to assimilate it's content, and your comment.

And I promise to fund your first consultation (for your cognitive dissonance problem).

:)

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I am comfortable with what I said and also comfortable with Systems Thinking, in fact have used complex multi-variant, multi-model functions to design solutions to complex problems.

Suggesting I read obscure tomes to qualify for an opinion sounds like amateur gate-keeping to me, of the type academia has been hiding behind for too long.

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Your claim, and your 'biblical' comment are at complete odds.

Sorry, it's just logic you seem to lack. We were south of 1/2 billion back then, no fossil energy. It's been exponential (as per the graph in the link I provided upthread). Given that it was linear, your comment is therefore invalidated.

Same with entropic low-grade heat. We are ALREADY adding more to the system, than it can jettison fast enough to balance inputs - that is why we are ALREADY forcing the climate. We are ADDING fossil fuels which were absent our environment, for ALL of our evolution. Yet you are comfortable adding more, from another ex-habitat source?

Whatever systems you are talking about, ain't the way to clear thinking, that's for sure. And - as one who has Richardson, Prebble, Douglas, Easton, Bollard, Rand, Wishart, Samuelson, etc along my bookshelves - can I suggest you read everything, not just affirmation-biased material? What you did was to choose ignorance, First insult to self, I reckon. 

Go well

 

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My biblical claim related to the end of times nature of the previous post not the specifics of the discussion regarding entropic heat dissipation. 

This thread relates to the use of more geo-thermal energy, this is not about adding more fossil fuels and has not been though out the thread, perhaps there is a scratch in your record?

You have made unfounded claims and I am calling it.  You have claimed the heat caused due to increased geo-thermal electricity generation is damaging due to the heat released into the atmosphere.  

The process is described here at high level, you will see that using Flash or Binary steam plants that emissions are close to zero.

https://www.nrel.gov/research/re-geo-elec-production.htm

Wide reading is all well and good but let's keep on topic.

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Bollocks - both fossil energy and geothermal - are 'extractions', from ex-our habitat, to our habitat. And ALL energy ends as low-grade heat, emtropically.

I don't care how many vested interests just confine their studies to this or that factor - I study the cumulative effects. And that says that if you extract work from altering energy, you end up with heat. Much of that, we do purposely - every time a sparkplug turns ff into work and releases heat, for instance. Geothermal energy is no different; if the heat is buried 100% back underground, it will deliver zero available work.

Sheesh

By the way, your link didn't work.

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well CO2 isnt pollution either, quite the opposite, its the food of life

No CO2 = No Plants = No Humans

 

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Too much CO2 = dead everything = no humans.

You need to read the post upthread one....

:)

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So the surface of Venus must be a super habitable environment for life to flourish, right? Right?

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