Here's our summary of key economic events overnight that affect New Zealand, with news of further chunky benchmark interest rate rises and growing market fear despite much economic data released being generally positive.
American durable goods orders slipped in August from July, but less than was anticipated by analysts (-0.4%) and the dip was very minor (-0.2%). They remain +11.2% higher than a year ago. Non-defense capital goods orders were up +6.3% on that same basis.
US retail sales as measured on a same store basis rose last week to be +11% higher than a year ago.
After declining all year, there was an unexpectedly large surge in sales of new homes in August, rising to an annual rate of 685,000 and far above the +500,000 rate expected. It was particularly notable in the South and West.
There was also a better-than-expected improvement in consumer sentiment in September, according to the widely-watched Conference Board survey.
Adding to the upbeat data, the Richmond Fed's factory survey in the Mid-Atlantic states came in better than expected too, but it really only recovered the unexpected July drop and new orders are not growing.
The US Treasury auctioned a 5 year bond today and that repeated yesterday's outsized rise in yields demanded by bidders. This one was just as large. The tender was very well supported by the median yield was 4.13% and up from 3.15% at the same event a month ago. At some point these much higher interest rates paid will weigh on the US federal deficit, but recall it has been falling at an amazing pace, down from disastrous levels in a very rapid repair.
There were a series of other consumer confidence surveys out yesterday. These have increasing importance given the background economic data is wobbling. If consumer sentiment wobbles too, a downbeat future is all-but-certain. In Australia, consumer sentiment is rising in this ANZ-Roy Morgan survey and is now at a four month high. But in the longer-term perspective 'high' might be stretching it. In Taiwan, their consumer sentiment survey slipped slightly in September. In South Korea their consumer sentiment rose and is now well off its July drop.
In China, industrial profits were unchanged in August, embedding in a small fall for the first eight months of 2022. Given the sluggish Chinese economy, a fall is consistent with other data. But that they have limited the slippage to just -2.1% is impressive, if true.
Meanwhile, the yuan is falling faster against the US dollar. An aggressive pushback by the Chinese central bank is now expected.
Hungary is in the EU but not in the eurozone. It is following a conservative populist path. Economically it is making a hash of it. It has consumer inflation running at 15.6% and far above the eurozone rate of 9.1%. Producer prices are rising even faster. It is battling inflation with economic policies that seem to make it worse, much like Turkey. And today they raised their official interest rates by more than expected, up +125 bps to 13%.
In the UK, there is a growing and significant trend of mortgage lenders withdrawing loan offers as their real estate market faces a sharp and sudden retreat. Lenders fear borrowers will go underwater quickly in this market leaving them with losses. Major lenders are among those pulling back.
And just one day after indicating it wasn't about to move its policy to protect the British Pound, an official at the Bank of England said "significant" policy moves are coming. Markets will remain sceptical until they see action.
In Australia, the Optus breach scandal is spreading. It is one that may affect over half their adult population and cause AML/CFT issues for millions.
The UST 10yr yield starts today at 3.97% and another +8 bps higher than this time yesterday in a continuing push up. It's a new 14 year high now. The UST 2-10 rate curve is again much less inverted at -36 bps. Their 1-5 curve has turned more positive at +8 bp. And their 30 day-10yr curve is also more positive +130 bps. The Australian ten year bond is higher, up +2 bps at 4.10%. The China Govt ten year bond is unchanged at 2.73%. The New Zealand Govt ten year will start today at 4.30%, up +14 bps and if the US rate rises hold, will go even higher later today. This is a new eight year high.
Wall Street started out more positively but hasn't been able to hold it and the S&P500 is down -0.7% in late trade. Overnight, European markets all fell about -0.5%. Yesterday, Tokyo ended up +0.5%. Hong Kong ended little-changed. Shanghai had a good day ending up +1.4%. The ASX200 ended its Tuesday session up +0.4%. But the NZX50 has a terrible day, losing -1.9% in a very late sharp sell-off.
The price of gold will open today at US$1630/oz. This is up +US$2 from this time yesterday.
And oil prices start today +US$1 firmer at just under US$78/bbl in the US while the international Brent price has risen about +US$1.50 to be just under US$84.50/bbl. A Russian gas pipeline to Europe appears to have been sabotaged overnight. Its supply disruption won't have a meaningful impact on their energy crisis however. No word yet who may be responsible, but it wasn't entirely unexpected.
The Kiwi dollar will open today at just on 56.3 USc and marginally softer than this time yesterday and still close to the pandemic low and the rate that applied in April 2009. Against the Australian dollar we are firmer at just on 87.7 AUc. Against the euro we are also slightly firmer 58.8 euro cents. That all means our TWI-5 starts today at just 67.2, and little-changed in a day.
The bitcoin price is now at US$19,160 and again up a mere +0.4% from this time yesterday. But in between it did pop up over US$20,000 but could not hold it. Volatility over the past 24 hours has been high at just on +/- 3.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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109 Comments
Mr A Orr
"He said compared to much of the world the economy was in an excellent position with the bank having started raising rates before many other countries."
"We still have some work to do but the good news is because we've done so much already the tightening cycle is very mature, it's well advanced......"
the economy was in an excellent position with the bank having started raising rates before many other countries
Low unemployment looks good on the surface but that is partly because genuinely skilled workers are not keen to move here. Most unfilled jobs belong to the lower-skilled category where pay does not cover basic living costs. This has created high welfare dependence among working-age population.
Health and education outcomes are worsening, and crime is out of control. Adding to the woes is one of the most overpriced housing markets in the world, tipped to collapse with those rising rates.
Excellent, eh?
I've been wondering about that lately - seems crime is centred around ram-raids, very petty stuff by quite down and out folk around the central suburbs, or ongoing crime in lower socio-economic areas. I wonder if 'burglaries' are down overall though? No point stealing a TV and a couple of phones from a middle class home.
Too true! Work is for mugs. The pandemic raised the value of my house by as much as I earned in 12 years of honest toil. Untold hours of work achieved financially as much as a nice old house sitting on an overvalued piece of suburban dirt. That's plainly wrong and poison for a healthy society.
RBNZ is sitting on an 8 BLN loss from FLP. Just one of the measures put in place to support the housing market in 2020. If the government had spent that to develop Crown land to build housing it could have have funded 10000 new homes easily. Enough to clear the social housing wait list and empty the motels. They would also have an asset instead of a liability.
What stats are you referring to because it is contrary to the stats from NZ Police.
Overall crime in 2021-22 has increased in almost every region compared to 2017-19, mostly thefts and physical/sexual abuse; other types of crime have fallen.
What is this Unemployment Benefit you speak of?
Can you point out which one you mean? https://www.workandincome.govt.nz/products/a-z-benefits/index.html
And oil prices start today +US$1 firmer at just under US$78/bbl in the US while the international Brent price has risen about +US$1.50 to be just under US$84.50/bbl. A Russian gas pipeline to Europe appears to have been sabotaged overnight. Its supply disruption won't have a meaningful impact on their energy crisis however. No word yet who may be responsible, but it wasn't entirely unexpected.
Indeed: surface liquid energy laden ships next?
No, Former President Trump Did Not Fill The Strategic Petroleum Reserve
The SPR levels have never fallen below 500,000 thousand (i.e., 500 million) barrels of crude oil since the 1980s.
In fact, the highest level ever for the SPR was in 2010, when Barack Obama was president. Further, there was actually a net decline in the SPR when President Trump was in office. When he took office in January 2017, the SPR contained 695 million barrels. When he left office four years later, the SPR contained 638 million barrels. So not only is the claim of filling it untrue, but the level of the SPR actually declined while President Trump was in office.
https://www.reuters.com/article/us-global-oil-usa-reserves-idUSKCN2251QU
"Trump announced his intention to fill the U.S. Strategic Petroleum Reserve “to the top” on March 13 as global oil prices went into freefall amid the coronavirus outbreak as governments issued stay-at-home orders that have obliterated fuel demand."
"But after Democratic lawmakers blocked funding for the program in last month’s stimulus package..."
From the same article above
Drillers, meanwhile, say they are balking at the government’s offer to take their oil because it is hard for them to move it from inland fields to the SPR delivery sites on the Gulf Coast, and because they worry placing it in the reserve could compromise the oil’s quality.
Very much so. In the '87 crash an awful lot got very badly burnt because they had been borrowing to fund their lifestyles. You'd think/hope they learnt? The US population is particularly bad for people living on credit, but that is a big linchpin of their banking system isn't - trapping people into debt. The closet government of the world - banks!
Do you think part of the problem is that there are an awful lot of people who were kids or not born in '87 and so don't have recollections of it. I was alive then, but at school, and I remember seeing people jumping off buildings after living lifestyles that looked movie like to this farm kid - it wasn't my world. I do remember my parents discussing interest rates at the time. Now I know why I couldn't find a job for love nor money in the '92. Anyway, my point is I think humans have short memories and tend to think that they are immune from what has come before. They are wrong but there you are.
The mass unemployment of the eighties engendered by the supposedly worker friendly Labour Government topped off by the ‘87 stock market crash created a generation of poor, desperate and dependant people from which they have never recovered. These were terrible times to live through. So many people were looking for the next meal for their family. Businesses previously dependant on subsidies were overnight left to their own devices. Farmers walking off farms all over the country. I was lucky that I was working in good old oil and gas from ‘85 onwards so managed to avoid the worst of it.
I will never forget the national mood of gloom and doom. Lasted well into the nineties. Good old national introduced the ECA (Employment Contract Act) in ‘91 via Ruth Richardson if I remember correctly. Destroyed the unions overnight. Wages have really stagnated since with the neo-liberal dogma in play. There was a huge proliferation of self-employed people all of a sudden. Most of them at the mercy of their employers in terms of working conditions and protections they previously enjoyed were suddenly gone in the new regime. A dark time for a large part of the population. As you say Gracey those times were tough. With the development of an underclass that persists today.
My spouse and I were in that pool of jumpers who took off overseas in 1989, worked and travelled globally for 4 years, returned to NZ in 1993 at height of employment contracts act. Completely appalled at economic state of country we left for Japan six months later, 3 years there on 4x salaries in NZ plus subsidised housing to tune of 95%. Jumped again to Aus in 1998. Been here ever since. Love NZ and plan to retire back there in a couple of years, but wouldn’t dream of returning whilst still working……..no brainer for us.
Short memories is very much a species issue. I was military and aside from lagging pays was lucky through this. But I watched a lot get burnt, and a few colleagues lost all their savings in poor investment portfolios.
I watched one marriage break up as the wife suddenly realised the level of debt/value of the house and decided to bail. She had been the driver to mortgage for lifestyle. Her husband was sweating until I suggested to him the debt was matrimonial property too, and that a wee chat to his lawyer would see he get to carry her share. He found that was true and was somewhat happier after that.
Outrageouus fake news is being fed to us over Ukraine.
The only people who wanted this pipeline destroyed are the Americans. They have ranted about it for years.
https://i.stuff.co.nz/world/europe/300699327/dramatic-video-shows-gas-b…
No - but it could be that a bloke who realised his country was being 'paid' in unreconcilable keystroke-issued debt, who realised that having energy is better than holding worthless proxy, might have tried to retain a buffer from what Nuland & Co were trying to set up in Ukraine.
And he might have worked out that the proxies of the West - used to extract resources from 'everywhere else' via the IMF and World Bank etc - were vulnerable to being replaced. Who wins that game of poker is moot; as is who wins on the ground. The real winner is whoever controls the energy stocks - as I've been pointing out for years. Europe cannot survive ex imported energy, and the global stocks are over-contended and depleting. It's choices are: go to war over access to energy, or disintegrate.
That's irrespective of who heads Russia.
I don't think Putin's strategy was due to his understanding of the energy equation, but I certainly do believe he is becoming aware of it. I am considering, as i believe most others are, that the Nordstream pipelines were blown by Russian special forces as a part of his strategy to push back against Europe. It won't hurt as bad as he hopes, but it will hurt. What I expect will happen now is the move to new nuclear power plants will accelerate, but they take time to build, and this is compounded by the issue that the European leadership is still in denial about nuclear power. There is still a while to go yet before that collapse happens, but it is getting closer.
I agree Carlos, and said as much in a response to KH below. No one wins. The pipes didn't need to get blown by either side as the end result could have been achieved by other means. One of the pipes that was blown wasn't even in use. It was too new. So whoever did it, and I'm leaning towards the Russians, is following some weird strategy.
If you want to follow a conspiracy theory about the US, what would they achieve now? As it stands they will be shipping gas to Europe for the foreseeable future, but the added cost puts the EuroDollar economies at risk even more. Could it have been some private act, big banks destroying a piece of infrastructure they couldn't control?
The USA achieves an expensive market for their abundant gas supplies. Your conspiracy theory of the Russians blowing up their own pipeline makes no sense. Critical thinking points to the USA. I am sure the US would have satellite images of the Russian 'terrorists'.
The gas was all but shut off and soon, it would be completely closed down unless Putin falls from a window, and is replaced with someone more amenable. The US had no need to blow the pipes either, as they'll be shipping gas to Europe for quite a while. What a lot of people are forgetting or ignoring is that Putin has made Russia a pariah state and being dependent on Russia for anything only exposes you to the opportunity for blackmail. Europe has realised this, and is moving to create alternate avenues. But they take time to set up. By blowing the pipes Putin puts them in a crack quicker and harder than they would have been. The US didn't need to blow the pipes as the supply contracts had already been set up, all they needed was the infrastructure to be able to take all they need.
Critical thinking leads you to more than the gas itself. This puts Europe in a bad position and more ready to accept a war. Even the UK uses a percentage of Russian gas and oil so the whole region is pushed closer to a war. Basically now the gas cannot be simply "Turned back on" so its a one way ticket. You also have to ask yourself who has the tech to get down there and blow it up undetected. The USA is starting to get very desperate to stay on top, they would be at the top of my list of suspects.
Disagree Carlos, I'd suggest the Russian special forces would be well capable of doing this. If the US had done it I suggest it would have been a lot more covert - like the explosions wouldn't have been so easily detected. I suggest Putin is pushing Europe harder. He is waving the nuke threat around and now needs to be able to justify an escalation. By making Europe push back harder against him, he gets closer to that justification. The question is, if Europe/NATO/UK/US show restraint will he jump anyway? A nuke detonation in Ukraine would be wasted other than proof he is prepared to deploy them, and I don't think he needs that. I think he has proven that Europe/NATO/UK/US are terrified he will escalate, and will take almost any measure to avoid it. So a nuke detonation in Ukraine will not change much other than dig his own hole deeper. But if he targets a major military (NATO) base in Germany/Denmark/Netherlands, what then....? I think he is getting desperate and the cracks in his BS are showing in Russia, even for the true believers. That is why so many are trying to dodge his conscription call-up. If he spurs that attack on Russia that he tells his people is happening, what will they do then?
its not assured HM. MAD was a specifically expressed policy during the cold war. But since the demise of the USSR, that has been backed off from. During the cold war the US maintained bombers and fighters on nuclear alert, preloaded with weapons and predetermined SIOP plans and targets. Those have been put aside and the aircraft no longer stand those alerts. The reliance has fallen back on ballistic missile subs and a vastly reduced ICBM stock (START treaty). The question is will a US or European response be proportionate? Putin appears to be betting it won't be. That Europe and the US no longer have the courage to use the weapons it has.
I'm not sure about the pipeline but I think if Putin uses nukes then it will be in Ukraine and a military means to an end. I think Russia is lacking in military power and needs to win and they may use nukes to make this happen.
I don't the objective is to antagonize the west, Russia cannot handle more of a fight (in the short term). I would believe they want peace in the short term.
Also not stated here I believe their invasion is due to the imminent rise in Ukrainian gas exports. No other nation in the vicinity has enough gas to displace Russia as a supplier but I understand Ukraine has found enough. But that is a war zone or nearby now.
An expeditionary detachment of US Navy ships led by the universal amphibious assault ship USS Kearsarge days ago was in the Baltic Sea It was 30 km from the site of the alleged sabotage on the Nord Stream-1 gas pipeline and 50 km from the threads of Nord Stream-2 gas pipeline Link
Blinken claims:
While there are “clear challenges in the months ahead” in terms of Europe’s energy supply, “there is also a very significant opportunity to do two things,” Blinken pointed out. The first is to “finally end the dependence of Europe on Russian energy” and the second is to “accelerate the transition to renewables” so the West can address the “climate challenge.” Link
Could it have been this bloke GV?
Or this guy GV? Makes it quite official. And Murray, have you considered who actually gets what they want from the destruction.
https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/23…
Makes what quite official? What do you think this definitively proves that doesn't require me to abandon some degree of objectivity?
You're the one asserting fake news here, I kind of expected more than' US bad' and then just totally glossing over any motivation Russia may have for this. But maybe that's my mistake.
White house press release is quite official as to their wishes GV. Added to their many threats about this pipe over years.
As for Russian motivation, why would they blow up their own pipeline which might become future useful in the next chapter.
Recall of course the Russians only reluctantly mothballed it when the USA seized the dollars that Europe paid for the gas.
why would they blow up their own pipeline
Putin needs a bogeyman. He's drafting his citizens now who aren't very happy about it. More men have fled Russia then the 300K he claimed he is drafting. If someone blows up the the pipelines, he doesn't have to keep making up stories about why the gas is turned off, and he can claim that Russia is under attack and that's why everyone has to send their sons to die.
I don't think there is any real winners KH. I try to view the evidence dispassionately, but suspect that Putin might be trying to ensure Europe suffers for their support of Ukraine. But he didn't need to blow the pipes to make that happen. I doubt the EU or Americans did it, as the release indicates they too, didn't have to to stop the gas flowing. Its a bit like cutting off the nose to spite the face. Europe is in some respects it's own worst enemy. The political hubris is coming back to bite them, but then that is also true for the UN too and other areas of the world. In the end Russia's gas reserves will just last a bit longer. Could Putin be trying to engineer a final collapse of Europe? How would that look?
Exactly right Murray. No winners at all. Just like the Ukraine war. Brothers and cousins murdering each other. Not a geopolitical episode but a nasty ethnic conflict. Senseless and shocking. Dead people. But almost universal throughout history.
My concern is for the fake news which has blossomed in the last week or two. To reinforce PM Arderns headlong dive into toadying to the world leaders at last weeks visit to the UN. She has jumped onto that bandwagon and drags New Zealand into it.
My view is NZ should have none of it. If we do need to have a cause there are more relevant ones. Solomons perhaps?
The US Treasury auctioned a 5 year bond today and that repeated yesterday's outsized rise in yields demanded by bidders.
One day after a dismal 2Y auction, moments ago the Treasury held another dismal auction , this time for 5Y paper, which just like yesterday immediately sent yields to session highs.
Today's sale of $44BN in 5Y paper priced at a high yield of 4.228%, some 100bps higher than August's 3.220%, and the highest since the global financial crisis. The auction was also a 2.6bps tail to the 4.202% When Issued, one of the biggest tails on record.
The bid to cover was 2.26, the lowest since Feb 2021, and down from the already dire 2.30 last month. Link
And yet the US one month Treasury bill trades at ~2.59%, roughly 45 bps below the Fed determined short term RRP rate floor.
Monetary tension is building if pristine collateral is in such high demand to meet margin call losses on other leveraged lower rated assets.
Local media is just pushing whatever barrow it can to reinforce that workers shouldn't have any expectation of increased wages, so don't bother asking or be surprised we tell you 'no' when you ask for a pay increase to meet the increased living costs you're already actually incurring.
Just like when they try to tell us the dollar cratering is actually good and we're all super lucky to pay through the nose for the same stuff that used to cost 2/3rds of what it does now.
You're only meant to be outraged by certain things - your constantly unwinding living standards are not one of them. And if you are annoyed about that, you're clearly wrong.
The NZ government raised ~$74.47 billion in deposits via sovereign debt issuance over calendar years 20, 21 and 22. $50.035 billion was created in 2020 and probably spent into the banking system by way of transfer payments to authorised beneficiaries.
Rates follow nominal growth, which was boosted dramatically & artificially by massive money creation for consumption in 2020, on purpose, by policy makers, causing the present massive inflation. Rates follow, they aren't leading indicator. For latter, need to see credit creation. Link
For the year ending Mar 22 NZ nominal annual GDPE growth was recorded at 8.1778%. Jun 22 recorded at 5.0643%.
In Australia, the Optus breach scandal is spreading.
Meanwhile, back in NZ, we're in the process of compiling a firearms register which will contain details of firearms types, numbers, owners names, and storage locations.
Apparently we don't have to worry about this being used as a Christmas wish list for gangs and criminals, however, as the data will be stored in one of those magical systems which make leaks and breaches impossible (probably similar to the Optus one).
Yeah, that'll work...Security Breach Endangers Auckland Firearms Owners - COLFO | Scoop News
A 24% year-to-date drop for the broad Russell 3000 RUA, -0.18%, which aims to track the 3,000 largest U.S. traded stocks, wiped out $13 trillion in market capitalization, the analysts said, with several former high flyers down more than 60% from their 52-week highs. They also found the average stock was down 41.7% from its 52-week high as of Monday’s close. That means the average stock would need to see a rally of 71.5% to get back to its high.
https://www.shareandstocks.com/true-carnage-stock-market-selloff-wipes-…
And yet, we still haven't seen capitulation.
Incredible that the US 10 year yield was 2.6 at the start of Aug and now looks almost certain to push through 4% in the coming days.
Watching this, and currency markets, it looks like the world is moving into yet another financial crisis.
When will it end?
(surely we need to learn from our past mistakes.....)
(surely we need to learn from our past mistakes.....)
Just like the last crisis, I'm sure we will reflect on where we went wrong, do some soulsearching and address the root cause rather the easy route of applying more duct tape to the already battle worn can and punting it down the road.
Its all going to be ok :)
Seeing where we went wrong since the GFC is actually not that hard. Trying to avoid a deep correction at all cost was wrong, namely propping up companies that were insolvent, and flooding the market with QE. Then we did the same again in response to Covid. Recessions are natural cycles of the economy, when governments and central banks do silly things to avoid them, the recessions just get more severe at a later date. This date is now approaching fast.
That's right, they all seem to forget a recession is a feature of capitalism, economics 101. You can't wish away that fact by ridiculous monetary or fiscal policy because you don't want it to happen on your watch. Something I have been talking about for the past 6 years or so since its been abundantly clear we need one to clear out the dead wood and refocus investments back into productive enterprise.
Now it's hard to know what the hell is productive because free gubbminted money is continually propping up all and sundry, whether through welfare payments (WFF/accom supplements etc) or direct transfers (FLP and other bad RBNZ policy, or the business/wage support during the pandemic which wasn't means tested and pocketed by most businesses).
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