Here's our summary of key economic events overnight that affect New Zealand, with news of China stumbling and central banks fiercely focused on controlling high inflation, the chances of a global recession in 2023 seem to be building.
But last week only +156,000 Americans made jobless claims, taking the total number on these benefits to just 1.275 mln, an historic low. Whatever else might be going on, the Americans have a very tight labour market still.
And American retail sales rose more than expected in August from July, and bouncing back from the disappointing prior month. These sales are now +10.4% higher than year-ago levels, so more than keeping up with inflation.
However there were two regional Fed surveys out overnight and neither were especially positive. The Philly Fed one for September was the weakest, with new order levels no longer driving an expansion. The New York Empire State one came back from a deep August retreat with a small rise in new orders. Neither noted that businesses see a positive outlook.
In fact the Fed's national monitoring of industrial production reported a small retreat in August, one that wasn't expected. This activity is up +3.7% for the year, but to be fair the main weakness is in mining activity. Consumer goods production is lackluster. But production of business goods remains quite strong, except perhaps for construction activity.
It looks like a deal has been reached in the nationwide rail labour dispute, one that should avoid strike action. That has been a big threat hovering over near-term economic activity.
In China, their seven largest banks dropped term deposit rates in coordination. It was their first decrease in seven years and strongly hints at fast-weakening loan demand, probably led by mortgage demand. But with many economists now forecasting 2022 Chinese growth to be only about +3%, business loan demand is likely much lower too.
And China has again deferred tax payments for SMEs, the third time in 12 months they have taken this emergency action.
Japan ran its biggest single-month trade deficit on record in August as imports surged on high energy costs and a slump in the yen, exposing the economy's vulnerability to external price pressures. Imports rose +50% in a year driven almost exclusively by energy imports. Their cost in yen ballooned because the value of the yen fell. Exports rose +22%.
In Australia, the Melbourne Institute survey of year-ahead consumer inflation expectations fell to 5.4% in August from 5.9% in July.
Australia reported its August labour market data yesterday and that showed a good +59,000 expansion in full-time jobs, and a fall in part-time jobs. The AUD firmed. It also showed a small rise in their jobless rate to 3.5%. (The June NZ jobless rate was 3.3%.)
A new study by the World Bank says a recession is possible next year if monetary tightening and the focus on beating inflation remains the goal of central banks.
Container shipping costs are falling even faster now, down -8% from last week alone to be now -50% lower than year-ago levels, which were admittedly high. The key Shanghai-Los Angeles rates are collapsing, down -11% last week alone and are down by two thirds from year-ago levels. Against the grain, shipping rates for bulk cargoes are rising recently, although they are only back to pre-pandemic levels.
The UST 10yr yield starts today at 3.46% and up +5 bps from this time yesterday. The UST 2-10 rate curve is more inverted at -41 bps. Their 1-5 curve is less inverted at -33 bps. And their 30 day-10yr curve has risen to +107 bps. The Australian ten year bond is back up +4 bps at 3.70%. The China Govt ten year bond is little-changed at 2.68%. But the New Zealand Govt ten year will start today at 3.99%, and a -4 bps slip back overnight.
Wall Street in its Thursday session is down -0.7% on the S&P500 in late trade. Overnight, European markets were all lower by varying degrees ranging from -0.6% to -1.0%, except London which was little-changed. Yesterday Tokyo ended up +0.2%. Hong Kong was up +0.4% but Shanghai closed down -1.2%. The ASX200 ended its Thursday session up +0.2% while the NZX50 ended little-changed.
The price of gold will open today at US$1665/oz and dropping -US$32 from this time yesterday. That is a 2 year low.
And oil prices start today -US$4 lower at just on US$85/bbl in the US while the international Brent price is now just on US$90.50/bbl.
The Kiwi dollar will open today at just on 59.8 USc and nearly -½c lower than this time yesterday. For the week it has been a -1.2% devaluation. Since the start of the month a -2½% devaluation. And since the start of 2022 the devaluation has been -12½%. Against the Australian dollar we are marginally lower than yesterday at 89 AUc. Against the euro we are lower at 59.8 euro cents. That all means our TWI-5 starts today at 69.5 and a new two year low.
The bitcoin price is now at US$19,833 and another -1.4% fall from this time yesterday. Volatility over the past 24 hours has been moderate at just over +/- 2.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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US Industrial Production Unexpectedly Dropped In August
Atlanta Fed Slashes Q3 GDP Estimate Despite Surge In Government-Spending
The US Productive Sector Recession
Quantitative easing was designed as a tool to provide time for governments to implement structural reforms, boost growth and strengthen the economy. However, it has become a tool to increase the size of government and take increasingly riskier levels of debt.
The United States economy has not strengthened in the period of enormous fiscal and monetary stimuli, as the latest data shows. It needs increasing units of debt to generate a new unit of GDP, productivity is extremely poor and leading indicators are negative.
The main problem of loose monetary policy is that it massively increases the size of government on the way in, through debt and deficit spending monetization, but it also expands government on the way out as rate hikes and liquidity constraints impact households and small businesses but deficit spending and rising public debt remain. This “tightening” period is particularly negative in this crowding-out effect because the government is presenting every week new spending packages while the Fed tries to contain inflation curbing demand growth. The public sector is unaffected by the normalization of monetary policy, but the private productive sector suffers the crunch.
The future can be somewhat foreseen in guessing the behaviour of politicians. When your job relies on you to be seen it is the hardest thing in the world to do nothing. Thus fiscal policy will trump monetary & wreck us all. Not that the allternative options are more palatable, what is coming is baked in......
The UST 10yr yield starts today at 3.46% and up +5 bps from this time yesterday. The UST 2-10 rate curve is more inverted at -41 bps.
Summary: Checking in on the eurodollar futures curve. Even with major moves anticipating Fed rate hikes, its shape hasn’t changed since its low point at the end of July. In fact, it become even more inverted. No matter what the market prices for Fed rate hikes, it is just as certain they won’t matter, that what’s happening will happen. And that the FOMC will figure this out sooner than later.
"The Kiwi dollar... since the start of 2022 the devaluation has been -12½%"
The omens of what's to come are displayed in the other sentence above,
"Japan ran its biggest single-month trade deficit on record in August as imports surged on high energy costs and a slump in the yen, exposing the economy's vulnerability to external price pressures."
NZ can't afford a lower currency. We are import dependent. Even our exports are dependent on the cost of imports for their production. The blunt tool of steep OCR % rises is all we really have to defend ourselves with.
Correct BW. Our Government's failure under the pressure of COVID to recognise the threat to our national resilience (actually it started well before that), and implement a plan to develop it has meant that highly flawed models of neo-liberal economics have condemned us to becoming a third world country unless something changes.
Since the 1980's we have exported our manufacturing industries and lost the required specialised skills and knowledge associated. We have neglected our economic infrastructure and that has also cost us the skilled engineers needed to build and maintain it. Skilled people all now seriously consider moving overseas to find the standard of living denied them.
Even in an information age, I'm not sure it can be argued to be "what we wanted". I'd suggest it was what we were sold by the politicians, with little or no alternatives to choose from, followed by broken promises. The political classes irrespective of which camp, are too self-interested, and fundamentally ignorant. I would also add that in government they would also be overwhelmed by filtered and distorted information that would largely make it impossible to build a clear understanding. They also tend to surround themselves with sycophants who will tell them what they want to hear rather than what they need to hear. And then there is the nature of the Westminster style of party politics that adds to that mix. The mavericks get shouted down and shoved out, and for them being proven right in the long term is no consolation when the damage has already been done.
https://insiderpaper.com/summit-with-putin-xi-will-showcase-alternative…
While we swallowed our own waffle, the inevitable has happened. Goodbye USD, hello the new Empire.
Except there is probably a war in between, as the old hegemony goes down.
Yes Pa1nter, do not be surprised to see a rapid about turn in the Ukranian War, for the following reasons;
- On October2, 1941 with Wehrmacht recon units actually in the outer suburbs of Moscow in sight of the domes of the Kremlin, STAVKA unleashed a massive counter attack with fresh, newly raised armies from the Siberian and Eastern Military districts, taking OHW, OKH and Hitler completely by surprise. With Wehrmacht supply lines already overstretched, front line combat units in bad shape after constant fighting and the associated attrition of men and materiel AND the onset of a winter the army and airforce were not equipped for, the Wehrmacht fell back into the cruel Russian Winter. Although the Germans were to go on and achieve tactically spectacular victories right up to the disaster of Fall Blau and the fall of Stalingrad and STAVKA's wildly successful Operation Uranus, strategically that was itfor Nazi Germany. My sources now tell that there are signs of activity in the Russian Eastern Military Districts of rapidly growing reserves being formed.
`- The supposedly "wildly successful" Ukranian advances in recent weeks, as widely reported by Western MSM are, on closer examination, somewhat more sobering in that the ground gained is largely just that, largely ground and stretching Ukranian stretched supply lines even further. Even the Ukrainian General Staff has admitted significant casualties in what was already a depleted force which has lost most of its trained, experienced conventional warfare units. BTW, you do to create armoured combat units by putting untrained personnel in a tank/MICV and tell them to "go there and kill them. " Life and death are more complicated.
- Stories circulating of a possible removal of Putin may be true - time will tell. While the assumption seems to be that his replacement(s) will be someone more inclined to do a deal with Ukraine and the West are fanciful at best and I am more likely to believe that if it were to happen it is more likely to be by hard liners who want to stop stuffing around with a "special operation" , declare war, mobilise and get on with it. All they need is a provocation and that may not be too difficult to find/engineer.
Although much of the western media is telling us that the Russian people are about to bring this ill conceived adventure to an end, I beg to differ, as having spent a considerable time of my life in the intelligence/ foreign policy world, both in NZ and Japan, that such a supposition may be wishful thinking. As a student of history, especially that to do with airfare, I am mind full of, in the Russian case, the importance of the "Rodina" in the minds, hearts and memories of the Russian people. The Rodina can be translated at the concept of Mother Russia which transcends politics. In a country which sustained such horrible casualties in WWII to the extent that there are very few Russian and other families in the former Soviet Union that did not suffer casualties in The Great patriotic War as they call WWII where the war was won. In my last two years in Japan I employed quite a lot of Russians/Siberians most of whom are not Putin fans, but all of them now feel The Rodina is under threat from The West, especially from a Germany that is doubling its defence spending and the Americans who want to deal a coup de grace.
Russians/Siberians and keep in contact with them and although the majority are not Putin fans
Well put. A common mistake militiaries make is not being able to get into the heads of their opponents. Russia made it with their expectations of a quick victory. But the west and Ukraine also need to understand the mindset of the Russian people. They like strongmen governments. The trip wire might be if Ukrainian force cross into Russia in force, though. The Russia would be able to sell as an invasion of the 'Rodina' and that would get the response.
I do have an issue with the west's restraints though. Russia is launching attacks on Ukraine from Russian bases in Russia and Belarus, but the west won't let Ukraine attack those bases. It is clearly fear of the conflict spreading, but Russia is largely acting with impunity.
Controlled or influenced? I'm an analyst, so I tend to use multiple sources. China and Russia (amongst others) both endeavour to control the information sources inside their borders. In the rest of the world there are many who try to influence the news. Media is very guilty in allowing bias and influence to get in. What is the 'truth'; who really knows in some things?
I do have an issue with the west's restraints though. Russia is launching attacks on Ukraine from Russian bases in Russia and Belarus, but the west won't let Ukraine attack those bases.
And
https://www.pravda.com.ua/eng/news/2022/09/13/7367258/
https://www.reuters.com/world/russia-is-buying-artillery-ammunition-nkorea-report-2022-09-06/
https://www.nytimes.com/2022/08/29/world/europe/iran-military-drones.html
Seems everyone is running low?
Recruiting murderers and rapists.
https://www.youtube.com/watch?v=_jSi6BbsoRo&ab_channel=FAKEOFF
Interesting and enlightening viewpoint.
I tend to agree with most of your conclusions. In my experience the "Rodina' you mention, operates very much like a brothers. Like all brothers they have their disagreements, but when push comes to shove they will defend their "Brothers" (the people), and their "Mothers" (the land) from any and all threats - including their "father".
Putin is big on History, he will have a fair idea of where is fate lies now. As the self appointed "Father", he is now fighting the inevitable conclusion.
“All members of the SCO stand for a just world order,” (Kremlin Foreign Policy spokesman) and they identify that the SCO represents "half the worlds population". Obviously came from the same school Trump went to, where truth is an impediment to power and control. So yes PDK, the west increasingly must get itself prepared to fight for the freedoms we hold so dear. Ukraine will just be an early domino in an escalating slide if the threat is not recognised and responded to.
What the Federal Government Has
Assets $5.95 Trillion
What the Federal Government Owes
Unfunded Medicare promises -$55.12 trillion
Unfunded Social Security promises - $41.20 trillion
Publicly held debt -$21.08 trillion
Pension & retiree health care liabilities -$9.41 trillion
Other liabilities $-2.25 trillion
-$129.06 trillion
Assets - Bills* = -$123.11 trillion
PDK, would you please advise as to what/who the New Empire is ? If you are thinking along the lines of a nexus between Russia and China, and their currencies perhaps, I would be interested in how you think this is going to happen given China's historical animosity towards Russia and the latter's fear of loosing their Far East to an expansionist China. This of course assumes that there is a strong, cohesive and expansionist CCP dominated China in our future. And the same for Russia as well.
The west has two problems; one is that it doesn't DO anything any more. It offshored all that. The second is that it went increasingly into debt to 'pay' others to Do stuff. And hid behind the pretense that selling each other houses or 'financial instruments' could justify the 'buying'. Not unsurprisingly, others have worked out that they were being 'had'. And they're getting organised to bypass us. What use are we to them?
Oh, I know, let's close them off from our banking system; that'll send them crashing to their knees. Not. The Ruble is worth more now than before - because they deal in REAL STUFF; their money is backed. Ours isn't.
Pigeons - home - roost.
Capitulation!
yikes...not looking good when the banks & real estate industry are throwing in the towel.
https://www.stuff.co.nz/business/property/129866429/of-course-the-guy-s…
mainstream media...double yikes
throwing their customers to the wolves it would seem.got to keep the cashflow going around I guess
the banks have so screwed up.lending ever increasing amounts of money based on the increased value of similarly mortgaged houses.madness
I follow the rate for converting swiss francs into NZD and this comparison of safety vs risk currency last signaled economic doom in March 2020 when it jumped to about 1.73 as we all began to believe that COVID would send us into economic collapse.
But the good governments of the world stepped in and gave us all a free pass, that exchange rate returned quickly towards a more familiar level of 1.5-1.6
And here we are at last we've seen that the economic support has run out, the price we avoided paying in 2020 has now come due (with interest) and today we are through to 1.74 on the forex, presumably with further to go.
Guess who has much higher interest rates Simon? You guessed it, us. Orr is about to Death Star our economy and standard of living and increasing interest rates from here is going to weaken the NZD further.
I cannot believe we are relying on his team to get us out of the mess they created.
I long learned that trading is a fool's game, especially USD pairs.
Defi / farming / passive income is the better play long term (with compounding or auto-compounding vaults). With my new portfolio I'm getting between 20% and 300% yield. Average around 100%. (Liquidity pool farming that is, not degen stuff or ponzi schemes like Celsius)
Anyone else watch "J Bravo" on YouTube here ? its getting borderline apocalyptic. Its usually worth watching the first few minutes at least to get a heads up summary of whats happening in the USA.
The dollar has continued to slide. This could get really bad. It's bounced around a bit for the past few weeks against the Yen, which is structurally broken, but now we are losing ground against it.
I seriously think we are seeing the markets pricing in the fact that we cannot hike the OCR enough to counter inflation without bringing the economy to its knees.
Yep, I think it’s the big factor that hasn’t been seriously considered by the local gurus. There is nothing to support the NZD. A giant air pocket sits beneath it. There’s an expectation that it will continue to trade in a recent-historical range, but that expectation is the only thing holding it up. And a recessionary impulse from falling house prices won’t save us from inflation generated by a collapsing NZD. This is why I don’t think predictions of say 7% OCR are as wild as they seem. The people who scoff at the idea of serious NZD weakness are the same people who were sure deflation was the big risk we faced until about six months ago.
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