Here's our summary of key economic events overnight that affect New Zealand, with news there does seem to be an export-led trade recovery underway for some key Western economies, one that isn't attracting much attention from markets so far.
But first we should report that initial American jobless claims rose a very minor +12,000 last week from the week before. There are now 1.378 mln people on these benefits, and still near all-time record lows.
But reports of job cuts are rising even if they are still at low levels.
The US trade deficit of both goods and services remained at an historically high level even if it did fall in May from April. The reduction was due to stronger exports and restrained imports although both hit monthly record high levels. Their deficit with China fell. It seems that world trade is in good heart. And as we have noted before, their annual trade deficit is 'only' -4% of US economic activity, so isn't a heavy load for them especially when it is paid for by their domestic currency.
Supporting that is international air cargo data out for May, showing North America leading this recovery, and by a substantial margin.
Bulk cargo shipping rates are holding their recent lower levels. But the falls in shipping container rates we have seen since March stopped last week on stronger demand for cargoes from China to the US.
Canada's trade surplus rose in May (nothing like Australia's record-breaking surplus however), and it was on the back of stronger exports and restrained imports.
Meanwhile, China's foreign exchange reserves fell in May and are now just over US$3 tln, their lowest since the pandemic, and down to the low range since 2016. The -US$57 bln monthly fall was large for them.
German industrial production rose in May from April, but not by as much as was expected. However it is still lower than year-ago levels.
There was a big surprise in the Australian trade data reported yesterday for May for both goods and services. Most analysts expected a +AU$10.7 bln surplus, but in the end a +AU$16 bln was recorded, and a new all-time monthly record. That takes their annual surplus to AU$135 bln and also a stunning record high and +60% more than for the May 2021 year. Further, the April surplus was revised higher to +AU$13.2 bln. These are very juicy numbers for them, driven by exports, up almost +10% when a +1% rise was expected. Shipments of coal were especially strong - to China.
The Americans are easing import rules to allow foreign makers of baby formula stay on their market for the long term, in an effort to diversify the industry after the closure of their largest domestic plant sparked a nationwide shortage.
Back in China, reports suggest that their battle with the pandemic isn't easing. Shanghai (and even Beijing) may face renewed lockdowns. Patience with China's part in the global supply chain network must be wearing thin. And the endless trouble in their property development sector seems far from over. All this is prompting Beijing to promise ever higher support and stimulus activity to keep their economy from listing too badly. When their "positive" Q2-2022 GDP data is release, it will draw considerable scepticism.
The UST 10yr yield starts today back up at 3.01% and a +11 bps rise from this time yesterday. The UST 2-10 rate curve has stayed negative - just, at -3 bp. Their 1-5 curve is steeper however at +19 bps. Their 30 day-10yr curve is sharply steeper at +170 bps. The Australian ten year bond is +3 bps higher at 3.51%. The China Govt ten year bond is up +1 bp at 2.86%. However the New Zealand Govt ten year will start today down another -6 bps at 3.63%.
Wall Street has opened its Thursday session up +1.4% on the S&P500. Overnight, European markets continued the recovery with London up +1.1%, Frankfurt up +2.0% and Paris up +1.6%. Yesterday, Tokyo started the recovery, up +1.5%. Hong Kong was up +0.3, while Shanghai also closed up +0.3%. The ASX200 closed its Thursday session up +0.8% while the NZX50 was down -0.3% after a string of strong runs.
The price of gold is staying lower but up +US$3 from this time yesterday at US$1740/oz.
And oil prices have moved back up today, up +US$5 at just over US$101/bbl in the US, while the international Brent price is just over US$104/bbl. But the latest American crude oil inventory data (just released) surprised analysts, rising sharply when a fall was expected and that is starting to weigh on those oil price levels. (US petrol inventories fell however but only by a third of the rise in crude oil stocks.)
The Kiwi dollar will open today marginally firmer at 61.7 USc. Against the Australian dollar we are a little softer at 90.3 AUc. Against the euro we are +½c firmer at 60.8 euro cents. That means our TWI-5 starts today at just over 70.5 and +20 bps firmer.
The bitcoin price has risen since this time yesterday and is now at US$20,882 and up +3.1%. Volatility over the past 24 hours has been moderate at +/-2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
63 Comments
Mark Lister over at the Herald stating the obvious on shares this morning, what I have been saying for many months (my son is very grateful).
Bear market might end early 2023.
As I have said before I am getting ready for buying opportunities early 2023. That’s when I will put my KS back into a growth fund as well.
of course, that is the plan for now :) Things can change quickly for better or more likely in the current climate for worse…
For our part, we ultimately adapted to deranged Fed policies by becoming content to gauge the presence or absence of speculative psychology – based on the uniformity or divergence of market internals – without assuming that either speculation or risk-aversion have reliable limits. So yes, this time was different, but in a very dangerous way. Faced with a zero-interest rate world that combined ‘fear of missing out’ with a belief that ‘there is no alternative’ to yield-seeking speculation, investors unwittingly drove the most reliable stock market valuation measures to levels beyond the 1929 and 2000 extremes. Unfortunately, those valuations also imply dismal long-term returns in any world not permanently dominated by FOMO and TINA psychology. Measured from the recent bubble peak, the likely consequence will be a long, interesting, 10-20 year trip to nowhere for the S&P 500. There’s also a strong possibility of an interim loss in the S&P 500 in the range of 50-70% over the completion of this market cycle, or as we observed between 2000-2009, a sequence of cyclical lows punctuated by several extended recoveries.
– John P. Hussman, Ph.D., April 2022, Repricing a Market Priced for Zero
Mark Lister over at the Herald stating the obvious on shares this morning, what I have been saying for many months (my son is very grateful).
Granny Herald says so therefore it must be true
.
What you find if you bother to look.
"The Turkish Ministry of Energy and Natural Resources announced the discovery of 694m metric tonnes of rare earth elements - a 694m tonne rare earth reserve, second to China's 800m tonne reserve."
https://www.marketindex.com.au/news/turkey-discovers-worlds-second-larg…
And ? BTW, rare earths are not actually so rare, it is just that, at least in countries that care about pollution, they are very toxic to process. But of course that does not worry the PRC and, given the deep shit it is now in, Turkey either probably.
I'll remember that the next time I buy an EV. Please don't tell my friends.
Do you have any?
Nothing like a bit of fake news to try and stop your country completely collapsing.
Excellent, more magnets for EV motors.
profile,
I'm not sure what the point you are trying to make is. Greenland and Afghanistan have both been extensively researched by US geologists and have huge untapped reserves of many minerals including lithium, copper, earths etc. and crude oil. For example, according to a 2019 joint US-Afghan report, there are some 1.60bn barrels of oil, 16 trillion cubic feet of natural gas and a further 500 million barrels of natural gas liquids.
Will they ever be developed? A Sino/Russian consortium perhaps?
This is not exactly rocket science, you know?
ICBM Test Rocket Exploded Seconds After Launch, Briefly Setting Fire To California Base
US arms exports are not likely to lower US trade deficits.
I reckon in a nuclear exchange (heaven forbid) many of Russia’s ICBMs wouldn’t even launch
???
Keh?
Very early days, but I think global inflation is starting to dwindle. If I was the RBNZ governor I would be considering a pause in OCR increases.
Would absolutely destroy the NZD - I'd say the next 1% of increases is possibly already priced in.
The NZ dollar will be destroyed either way. If the OCR keeps getting hiked, and the economy destroyed, then the kiwi will be decimated by early 2023.
"destroyed". I just love how how headline culture means we just spray hyperbole and superlatives anywhere, like they mean nothing.
The value of the dollar is relative, for the NZ dollar to be "destroyed" we'd have to turn into Sri Lanka, or Turkey. You know, countries that are proper buggered.
Instead we might get a 10% drop over a short timeframe, and act like it's end of days.
Ok ok
I was being hyperbolic
How about ‘weakened considerably’?
No, you see, you can't express an opinion couched in the context of the country we actually live, because it could be worse if we lived in *spins globe* Sudan, or something, I guess?
Well, it's like anything "socialist"-y automatically equals Venezuela. Except my universal pension benefit, obviously, don't you bloody touch that! That's different.
The only way to curb inflation is to tighten up the supply of money… ocr increases are a must.
MLS - no, it isn't.
Availability of resources, availability of energy, and per-capita demand, are the real factors.
Money is just numbers; there have been orders-of-magnitude too many numbers injected into a Bounded System; inflation you will have. If that system is being depleted - and it is - the screws are permanently turning. And the Boolean flip-side is that in a depleting real world, only negative interest-rates - increasing with time - fit.
There is no way out of this dilemma, bar rampant stagflation, perhaps rampant deflation, loss of belief and ultimately, collapse. Haw to avoid the latter, is something my circles discuss, but mainstream economists haven't a clue. Energy blind...
https://thegreatsimplification.libsyn.com/energy-blindness-frankly-by-n…
He was a Wall-St operator until he did some real thinking.....
Yes finally a direct point linking population to energy consumption - "per-capita demand". That MUST be the core discussion point. As you stated economists simply don't get it, but cutting to the core point, population demand for energy will only ever increase. It's fundamentally a survival/power trait. Thus the only solution that will substantially address the problem is a population reduction. This discussion while necessary at national government level, must be a global one with no exceptions. and that would essentially require a united world Government which we as a species have never ever come close to achieving. So basically as a species -we're screwed.
Your confusing price rises with inflation. Inflation is caused by increasing the money supply. If you don't increase it, some prices go up and some go down. A game of monopoly will teach you that.
Not really, a lot of it is imported. If fuel drops by 20% tomorrow then we will have deflation.
They have to look at where we are now (not what has happened) and say are prices going to keep going up as rapidly? Is fuel going to be at $3.70 next month? I’d say probably not.
At some stage they have to stop tightening the money supply.
Fuel can't 'drop'; there isn't enough energy supply to underwrite the debt NOW, and by some orders of magnitude.
Sheesh...
It's been policy to destroy the NZ$ since 1967.
Bugger I knew I was born at the wrong time the millennials have got it so good nowadays.
Isn't the job of RBNZ governor available early next year. Will you apply?
Imagine how PC you would have to be to get a job like that these days. To the extent that a pure financial expert would not even get an interview.
Still a bit more blood to give from the savers you reckon?
Perhaps the governor should make decisions based on the data rather than where people think inflation is going to head. They waited more than a year to react to high inflation because they were convinced it was transitory.
Their job is to predict ahead of time. Based on data that is 3 months old is not quick enough. If they just used data then it could be done by an algorithm.
They have to take the risks of any OCR change into account too. At this stage I feel the risk is possibly not worth it compared to pausing until the next review. They risk trying to fight inflation they have already fought, and trying to fight imported inflation that might be reversing.
At the very least I would expect a statement like "Its possible global inflation is moderating and that we may not have to increase the OCR as much". That alone could wipe 1/2 a percent off interest rates.
Given the very large Australian trade surpluses and the very large New Zealand deficits, there is considerable scope for the AUD to rise relative to the NZD. Or, alternatively put, a decline in the NZ dollar relative to the AUD. It has been heading that way for quite some months but the likelihood it has further to go. But timing thereof is never predictable as the financial reef fish beat to their own drum, darting hither and thither.
KeithW
I guess the above mentioned reduction in China's reserves ( -US$57 bln) helped to finance Aussie coal imports.
No sign of USD weakness despite ongoing deficits.
As the global reserve currency, the USD beats to its own drum.
Give that role, US trade deficits are largely to be expected.
I think it likely but not certain that the USD will further strengthen relative to the NZD
KeithW
As I have said many times before the domestic USD is a proxy for the Eurodollar which dwarfs the former in magnitude and global reach. Any foreign bank outside the US can issue $ - even our own ANZ bank in London is a big USD credit market maker in the foreign exchange environment.
As BIS pointed out the other day, Australian banks are significant lenders of USD in the FX Swap market. This usually involves our local banks borrowing Kiwi from a supranational counterparty which has issued NZ monetised Kauri bonds. Hence there is no inward flow of foreign currency into NZ borders. The foreign Supranational borrows the USD out of London in the XCCY basis swap which our local banks lend from their London branches - they will have a foreign loan liability on their offshore, off balance sheet books
FX swaps and forwards: missing global debt?
The outstanding amounts of FX swaps/forwards and currency swaps stood at $58 trillion at end-December 2016 (Graph 1, left-hand panel). For perspective, this figure approaches that of world GDP ($75 trillion), exceeds that of global portfolio stocks ($44 trillion) or international bank claims ($32 trillion), and is almost triple the value of global trade ($21 trillion).
The outstanding amount has quadrupled since the early 2000s but has grown unevenly (Graph 1, left-hand panel). After tripling in the five years to 2007, it fell back sharply during the GFC, even more than international bank credit. This most likely reflected a reduction in hedging needs, as both trade and asset prices collapsed.
I thought that it was amusing when Xi pleaded for the US not to increase its interest rates. As if the US would take Chinas' position into account!
Hmmmm...
NASA admits climate change occurs because of changes in Earth's solar orbit, not because of SUVs and fossil fuels. Link
Climate scientists know about Milankovitch cycles. They are incorporated in the models. Yes, the sun is the biggest factor when it comes to the climate, but solar irradiance is going down, and Earth keeps getting warmer and warmer. If you have a system in approximate equilibrium and change a single factor, it changes the equilibrium. That is what CO2 is doing. That is why we are getting warmer. The rate of energy coming in is changing less than the rate going out is being reduced.
There are many experts and politicians who paint a gloomy picture of Germany’s near future. But they're not the only ones full of pessimism. Despite government measures to relieve the strain, such as the abolishment of the Renewable Energy Sources Act (EEG), a tax to subsidize the expansion of green energy in Germany, and one-off payments, almost a quarter of all Germans say they are "extremely heavily" or "heavily" burdened by their financial situation, according to a representative survey by the Hans Böckler Foundation, a think tank closely aligned with trade unions. Many Germans are already going without vacations, new clothing or even food. Link
Audaxes - if you're going to post stuff, please check it's authenticity.
This is like Te K yesterday, top5 thread.
https://www.dailykos.com/stories/2019/10/18/1893345/-Ethan-Huff-is-a-Pr…
Get it together, eh? The Western (First) World was peddling a false narrative. The pigeons are coming home, to wit both hegemonic empires-du-jour throwing up leaders unfamiliar with 'the truth'. Be very careful what you put up - self-justification via rabbit-hole is a dead-end trip.
Can someone explain to me the difference between a V6 or V8 SUV as opposed to the same engines in a sedan? The point of the question why are SUVs targeted predominantly as the no no machines?
For one thing, the SUV is usually heavier (more rolling resistance) and almost always less aerodynamic (higher CD, and more frontal area) so the motor is working harder burning more gas, pumping out more emissions.
Oh, and they are #$%^s of thing to try to see past at a T junction, and the drivers are often tailgating morons because they sit higher and can see over other cars so they thing they can safely sit on your bumper.
So a combination of worse efficiency, and the owners often being complete tossers.
SUVs should have been banned from the start. On a planet that should have been focused on smaller and lighter the car market continues to go in the wrong direction to this day.
Relax. Electric SUVs are in production
Funny thing is from up high you can also clearly see the terrible driving from others on the road.
Driving slowly in the right lane while not passing.
Changing lanes in front of another car then slowing down.
Mobile phones...
Taking too long at the lights so you screw the people waiting behind.
Rat running to bypass a queue who you then expect to allow you to merge ahead of them.
Driving 20kph or more below the posted limit for no reason.
Best one from yesterday who managed to pull off most of the above in one go:
Mobile phone use while driving, swerving, on the motorway at 80kph in 100kph zone, in the right lane holding everyone up, and twirling hair...
Thanks, understood. Must have been interesting in the old days, virtually that same shape, those models that Capone for example drove around, side valves and all. Can remember our farm pre war a Hudson straight 8 & a Ford Zephyr V12. Blimey then!
"Aerodynamics are for people who can't build engines" Enzo Ferrari
Must be why he decided to build mostly slab-sided vans?
The world is flat.
Same kind of dated comment.
He operated in a time where there was perceived plenty.
We don't.
You're therefor spinning. To help yourself? Or to peddle to others?
Also the Wags that drive them seem to insist on parking as close to the schools gate as possible to pick up the little precious.
A three box sedan is much more aerodynamic and lighter than the equivalent two box SUV (even if it has swoopy lines) = greater resource consumption - wheels, fuel, steel, lives
Cool! A tweet. The source of all good science. ROFLMAO
and even following the labyrinth of links, at no point do you get to an actual NASA reference where they state that.
It is all inferred from random excerpts that NASA have released at various points in time.
+1. I wasted 60 seconds of my life reading that link thinking I would learn something.
"stronger demand for cargoes from China to the US." Must be all that onshoring of manufacturing plant.
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