Here's our summary of key economic events overnight that affect New Zealand, with news energy stress is spreading everywhere now.
Remember in the US it is their Labor Day long weekend holiday, essentially signaling the end of their summer holiday season. Markets will return to regular mode tomorrow when volumes traded will be more regular.
But even though they are on holiday, the heat wave in the West is unrelenting, spiking electricity demand and pushing their grid systems to the limit. The California grid operator has declared an emergency today, pleading for users to turn off appliances to avoid uncontrolled blackouts.
In China, their central bank cut its FX reserve ratio by -200 bps from 8% to 6% to try and stem the losses of their plunging currency which hit a 2 year low overnight. But these moves to protect the yuan are unlikely to stop its slide. Even their huge FX reserves can't do that. China’s financial institutions held US$954 bln of foreign-currency deposits as of July, down from a record US$1.1 tln in February, a -13% fall.
The lockdown in Chengdu is tightening. Now that region has been hit with an big earthquake, compounding the misery. And another large city in the west, Guiyang is under lockdown orders too.
The Caixin China Services PMI fell to 55.0 in August from July’s 15-month high of 55.5 amid the recent pandemic wave and the impact of adverse weather. Still, the latest result was the third straight month of growth in services activity, as new orders grew solidly with the rate of increase the second-steepest since October 2021 while broadly in line with the series average. Meantime, new export orders fell for the eighth straight month, down at a steeper rate than that in July; while employment declined for the second month running.
The sagging demand, especially from China, has seen OPEC agree to a small oil output cut of about -100,000 bbls/day. This reverses their increase of the same size a month ago. Even though the practical impact is tiny - less than -0.1% - it is intended to show OPEC will defend a price level of about US$100/bbl. Prices rose after the news.
In Europe there is plenty of planning, and an equal amount of angst after Russia has blocked energy supplies from flowing their way. The price of coal hit a new all-time record high. Oil and gas prices rose too. But overall, Europeans seem stoic in the face of the threats, pushing back against the Russian actions. When this whole crisis calms down, Europe will unlikely ever be a buyer of Russian energy again.
Turkey released its August CPI inflation rate and it ticked up over 80%, a 40 year high for them. It does seem to have topped out however.
In Australia, corporate profits rose by +7.6% in Q2 from Q1, easily beating market expectations of a 4% gain. But this follows a downward revision of the Q1 gain from 9.8%. Listed company results are very transparent, so I suppose the downward drift is because unlisted companies aren't doing so well.
Aussie job ads data came in stronger than expected, rising +2%. Given other recent weakish Aussie data, it was expected this job ad metric will have fallen - but not yet, at least.
All eyes are now on the Reserve Bank of Australia's rate review which will come at 4:30pm this afternoon (NZT). They are widely expected to raise their 1.85% cash rate target by +50 bps to 2.35%. (The next RBNZ OCR review doesn't come for another 4 weeks, on October 5, 2022.)
The UST 10yr yield starts today at 3.20% and unchanged. The UST 2-10 rate curve is also unchanged at -20 bps. Their 1-5 curve is still at -16 bps. Their 30 day-10yr curve remains at +73 bps. The Australian ten year bond is +5 bps higher at 3.70%. The China Govt ten year bond is little-changed at 2.65%. And the New Zealand Govt ten year will start today at 4.02%, and up +1 bp.
Wall Street is closed for their holiday weekend of course. The S&P500 futures suggest it will open tomorrow up +0.3%. Overnight European markets London closed flat, Frankfurt however lost a sharp -2.2%, and the others fell about -1.4%. Tokyo closed yesterday down a minor -0.1%. Hong Kong was down -1.2%. Shanghai closed up +0.4%. All remained open as the typhoon is mainly affecting Korea. The ASX200 ended up +0.3% and the NZX50 ended down -0.1%.
The price of gold will open today at US$1711/oz and down -US$2 from this time yesterday.
And oil prices start today +US$1.50 firmer at just on US$88.50/bbl in the US while the international Brent price is now just under US$95/bbl.
The Kiwi dollar will open today just under 61 USc and little-changed. Against the Australian dollar we are softish at 89.6 AUc. Against the euro we are unchanged at 61.4 euro cents. That all means our TWI-5 starts today at 70.6 and very little different to this time yesterday.
The bitcoin price is now at US$19,826 and very little-changed from this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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45 Comments
Pay your debts. Looks like some investors are getting the hard word. Leverage does indeed work in reverse.
About time.
https://i.stuff.co.nz/business/money/300679492/property-investors-told-…
Perhaps you misunderstand, you take mortgages across different banks and have different businesses for groups of investments.
Forced sales are very rare indeed. What is being talked about here is when an investor sells and they have additional loans with that bank, the bank can call on those loans if the sale of the property reduces the required loan to value ratios.
The actual affect of this is less sales not more for this reason.
When this whole crisis calms down, Europe will unlikely ever be a buyer of Russian energy again.
They will buy it via Japan, India and China
Kyodo: Oil supplied to Japan from Sakhalin-2 (reserves: 150 million tonnes & 500 billion cu mtr gas] which meets 9% of Japan’s LNG needs, exempted from price cap on Russian oil decided by G7 finance ministers! Mitsui & Mitsubishi are shareholders (12.5% and 10%) in Sakhalin-2 Link
Economic reality strikes once again 28 Estonian companies are seeking exemption from sanctions against Russia so that they can continue to import Russian oil products. Link
Yep. Its just like when China blocks one country eg Oz, from selling into its market. China then buys from another and some other country substitutes Oz product for wherever it originally purchased product from.
Overall it makes no difference except for maybe a bit more shipping costs..
It might make no significant difference for oil, or iron ore, or milk powder. Russian gas sent to Europe is a different beast - the majority can only be sold in Europe because that is where the pipes go to, and they don't have sufficient infrastructure to liquify and export it by another route.
Russia has already had to increase flaring because there is nowhere for the gas to go. If this becomes a long term thing, they could be forced to shut in wells possibly damaging their capacity forever.
Yes, Europe is only 6 months into weaning itself off of Russian gas. Short of a dramatic change in Russia, e.g. regime change, I don't see them deviating from this path. Russia will then have significant gas production with nowhere to go.
Maybe they can use some of it to power the industry they need to build to fill in for sanctioned goods they used to get from the West? Apparently their railways and vehicle production are currently struggling because they can't get enough bearings, of all things...
Yes, I'd guess they're saving that eventuality for when there's no hope of success and/or the EU abandons them to Russia. Blow the entire pipeline as a giant finger to Europe and Russia. Blowing it now would hurt Ukraine more than Russia.
In which case if Ukraine is winning somehow, Russian saboteurs blow the pipeline and blame Ukraine.
I hope you're wrong as Ukraine do seem to be on the front foot these days:
"The Ukrainian counteroffensive is making verifiable progress in the south and the east. Ukrainian forces are advancing along several axes in western Kherson Oblast and have secured territory across the Siverskyi Donets River in Donetsk Oblast."
https://understandingwar.org/backgrounder/russian-offensive-campaign-as…
It's not the Russians shelling the Nuclear power plant. Why would they? They control it completely and the land territory around for quite a long way.
What is strange to me, and only obscurely reported is, apparently, that the plant still supplies the Ukrainian national grid (including Kiev ? !!). Not the way you would think it would be. Does anybody know anything of that ?
The plant supplies the Ukrainian grid because the plant is in Ukraine. It's not trivial to build transmission lines to take up to 5700MW of power somewhere else. In NZ such a feat would be a multi decade effort.
That's more than half of NZs entire power generation in one plant.
Also, from what i understand, the plant needs to be connected to the grid to run. Whenever you hear about a nuclear plant being disconnected from the grid you also hear about backup diesel generators kicking in to run it's cooling systems. Not sure why an electric power station can't power itself.
Absolutely Audaxes. When it comes to national interest, especially involving things like energy supplies, there is no contest, Real Politic wins. I was a consultant for the Mitsui Group for 10 years being based in their headquartered in Hamamatsu-cho, Tokyo. Among other things I did was a study of the Russian Arctic; its resources and their amazing cold weather capabilities, something they are really interested in and have the engineering capabilities to exploit. While I was there they were one of , if not the leading designers and manufacturers of LNG rangers, amongst other things, a nifty bit if kit. It might pay to also remember who supplies most of the world's pipes for gas and oil pipelines, th requisite tooling and, ask the Aussies, finance.
Indeed, up to a point
https://theconversation.com/solar-curtailment-is-emerging-as-a-new-chal…
No, what they need is passive-solar houses. (or to passive-solarise the existing fleet, which is the low-hanging fruit).
PV panels are the wrong answer to the right question (AC-wise).
EVs are the wrong answer to the right question (transport-wise).
We need to be clear about what needs to be achieved, long term.
:)
This problem will be solved as soon as it becomes an election issue. Much as it was for Telecommunications, once the regulatory controls are modified to allow private equity to take some stake in the problem it will be solved. Control of EV chargers is not difficult as they are largely smart devices.
Yep, those luddites have got a lot to answer for. Shutting down California's nuclear power plants then blaming a drought for electricity shortages. The economic and environmental damage wrought by do gooding greens is epic.
August 24: California bans sale of new ICE cars -35% of sales by 2026. Current the fleet is 1.4% and they are already out of juice.
August 30: California asks Californians to avoid charging electric vehicles due to electricity shortages.
Sept 1: Extends license on jet fuelled Oakland plant to keep the lights on.
It is like Kiwibuild for EV's - with about the same level of journalistic scrutiny.
and in other news "California has been a pioneer in pushing for rooftop solar power, building up the largest solar market in the U.S. More than 20 years and 1.3 million rooftops later, the bill is coming due.
Beginning in 2006, the state, focused on how to incentivize people to take up solar power, showered subsidies on homeowners who installed photovoltaic panels but had no comprehensive plan to dispose of them.
...“The industry is supposed to be green,” Vanderhoof said. “But in reality, it’s all about the money.”
https://www.latimes.com/business/story/2022-07-14/california-rooftop-so…
Tax is entirely neutral, economic-growth-wise. Same proxy, different spender.
But it's only a debt-issued proxy - for future energy and resources.
The supply of which is the issue.
No matter how much proxy you issue, you cannot solve that issue :)
She's arguing for the rich to be relatively richer, given that the socialisation of health etc. tends to alleviate poverty whereas privatisation does the reverse. I don't give a rodent's backside about that yin/yang tussle; I watch the lid. And that lid is sinking.
Indeed! Symptoms of limits slapping humanity in the face all over the planet, and the answer from these yeastie people? Why, more growth of course. The stupid runs unbelievably strong in human leadership. I often wonder how humanity got past the '60s, when global self annihilation first became a viable option? Planet Earths buffering capacity for stupidity is running out of, well, capacity!
If these guys are correct, investing in zinc and copper is a one way bet up to 2050
https://www.newsroom.co.nz/ideasroom/locking-in-our-high-priced-depende…
"it is intended to show OPEC will defend a price level of about US$100/bbl. Prices rose after the news".
With Russia only selling to their mates, OPEC are in complete control of the price of oil. They will hold it around $100 because they can make a load of cash at that price and the price is not quite high enough to trigger the significant expansion of alternative supply, which would take ages anyway. If investors do decide to support expanded supply, OPEC will drop the price to $65 for a while and those investors will lose billions (and they know it).
What is the West's answer to this absolute powerplay, which is driving higher prices throughout the economy? Central banks heroically hiking interest rates to punish workers and reduce demand. This strategy completely fails to recognise that OPEC will happily reduce supply to keep the price where they want it. OPEC can play this game for decades.
Interesting challenge, for once I think the western governments do have a role to play in adding an agreed percentage to the cost of fuel to ensure cost competitiveness of alternate solutions.
I think this is a fair market action as the true price of fuel is not being apportioned and this is simply making the product carry its true cost.
Carbon credits on the other hand...
OPEC always do this and it never works out very well. They always get greedy and crash the world economy. One day the price is $100 the next month it's $20. You can raise oil prices incrementally on the way up but once the damage is done it's done.
You'll see the same thing happen with interest rates. They'll increase the rates incrementally and then at a certain point everything will fall off a cliff. Credit will freeze and nothing incremental will work anymore.
Look at the Chinese. They don't seem to be able to reverse themselves. Zero Covid isn't working but either out of fear of losing face or of being refused the vaccines they aren't doing a rollout of Pfizer vaccines to inoculate their elderly against the worst of Omicron's effects, so that they can open up without an unbearable death toll. Or it is the opinion of one man that is preventing the correct actions from being taken.
Likewise the Chinese govt has not stepped in to set up a centrally backed bad bank containment mechanism because it wants to see if it can foist the costs of this onto local govt and developers. By the time it becomes apparent that this route is a false economy they will be even further in the hole and the costs of doing what needs to be done will be far higher.
It reminds me of our own govt who are so busy trying to foist the costs of doing stuff that needs to be done onto anyone else that they can get hold of that they have forgotten that the responsibility for governing the country is that of the govt, and that the funds for doing stuff are ultimately only available to central govt.
Turkey released its August CPI inflation rate and it ticked up over 80%, a 40 year high for them. It does seem to have topped out however.
Yes, a 1.46% inflation rise for the month, probably about the same as the UK. Funny that you didn't mention that the Turkish economy is growing quickly now - over 7% annual rate, exceeding the expectations of all the reckonomists.
GDP is measured in US dollars - they have had a big boom in tourism, and household consumption is tracking up. I would not say everything is rosey in Turkey by any stretch, only that what Erdogan is trying to do (pretty clumsily) is not guaranteed to be a disaster.
I admire Turkey for trying to get out of the trap that many developed countries fall into - paying out billions in interest payments on bonds owned by foreign investors to maintain the value of their currency so that they can afford imported goods like fuel and food. It's a trap so often sprung by the IMF - see the conditions attached to the loan being provided to Pakistan right now for a great example.
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