Here's our summary of key economic events overnight that affect New Zealand, with news OPEC has sided with Russia and approved an outsized production cut of 2 mln bbd in a bid to raise oil prices sharply.
[Please note: the earlier uploaded podcast has been updated with the correct version.]
But first, the US services sector continues to expand at a healthy clip, according to the widely-watched ISM survey for September. New order flows remain strong. This was enough to cause bond yields to rise. However the ISM survey was a much more positive survey than the internationally-benchmarked Markit one which says the sector is improving but not really expanding.
We get a US non-farm payrolls report on Saturday and the expectation is that another +250,000 new jobs will have been created in September. Today the ADP Employment Report said their survey points to +208,000 new private sector jobs. They see the US services sector expanding at a moderate pace, but the manufacturing sector shedding jobs at a minor pace.
Last week, American mortgage applications resumed their downward track, mainly because mortgage interest rates continue to push higher. Their benchmark 30 year fixed rate is now up to 6.75% plus points, its highest level in sixteen years.
The US trade deficit is also on a lower track. It came in at -US$67.4 bln in August in data out today, and its lowest since May 2021. Exports are holding but imports are falling.
Interestingly, the Atlanta Fed's GDP Now real time monitoring suggests that American economic activity has been picking up to a healthy +3% pa rate over the past few weeks.
Canada reported a smaller trade surplus for August, at about half its expected level. In their case, exports fell more than imports.
But Canada also reported building permit levels for August and they were very much higher than expected, driven by multi-family units
Japan reported its September service sector activity and that improved to a good expansion after a brief dip in August.
Australia reported a small rise in retail sales in August from July, but not by enough to be more than inflation. However, year-on-year it is, with this retail activity up more than +19% on that basis. The August result would have been better if sales in Victoria and Queensland had been better, and if clothing and cars had been better. Outside of those, the August expansion was pretty good, especially for household goods and department store retailing.
And regulator ASIC is suing Harvey Norman and Latitude Finance for promoting “no deposit” and “interest-free” payment methods that saddled some customers with an extra $537 in fees.
The UST 10yr yield starts today at 3.76% and up +13 bps from this time yesterday. The UST 2-10 rate curve is less inverted at -39 bps. But their 1-5 curve is slightly more inverted at -17 bps. And their 30 day-10yr curve is more positive at +98 bps. The Australian ten year bond is +10 bps steeper at 3.81%. The China Govt ten year bond is little-changed at 2.76%. The New Zealand Govt ten year will start today at 4.06%, down another -11 bps.
On Wall Street, the S&P500 is lower by -0.2% in late Wednesday trade there after two strong rising days. Overnight, European markets were all about -1% lower except London which fell -0.5%. Yesterday Tokyo ended its Wednesday session up +0.5%. But Hong Kong raced higher by a spectacular +5.9%. And of course Shanghai remained closed for public holidays. The ASX200 ended up a strong +1.7% and the NZX50 ended up +0.8%.
The price of gold will open today at US$1715/oz. This is down -US$7 from this time yesterday.
And oil prices start today up +US$1.50 from yesterday at just under US$87.50/bbl in the US while the international Brent price has risen to be just over US$93/bbl.
OPEC+ (which includes Russia) made deep cuts to its oil output targets, double what was expected, curbing supply in an already tight market despite pressure from the United States and others to pump more. The US is especially unhappy with the size of the cut. This cut is spurring a rise in oil prices that have dropped from US$120 three months ago.
The Kiwi dollar will open today at 57.1 USc and nearly -½c lower than where we that this time yesterday. Against the Australian dollar we are soft at 88.2 AUc. Against the euro we are firm at 57.9 euro cents. That all means our TWI-5 starts today at 67.2, and little-changed since this time yesterday.
The bitcoin price is now at US$20,274 and up another +1.4% from this time yesterday. Volatility over the past 24 hours has been modest at just under +/- 1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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116 Comments
The news media for one. We're being asked to employ the same cognitive dissonance which was so effective during the pandemic; Putin is a bumbling idiot and everything he does is futile against the might of the collective West, but we still need you to be frightened enough of him to put up with freezing in the dark all winter.
I don't think cognitive dissonance is required here. Russia is dangerous as they are a nuclear power, but clearly their conventional military power has been massively overestimated and is only decaying further as Ukraine grind them down.
A Russian ground invasion of any NATO country is not a fearful prospect any more - they would be destroyed. The nuclear risk remains.
The refusal to buy gas will be causing significant damage to the Russian gas industry - they are all gassed up with nowhere to go. They simply don't have the pipelines or LNG terminals to get that product anywhere else in the globe. Oil is a different story.
Hey, can you remind me when was the last time the USA, a nuclear power, won a war?
By the way, can you tell me how Russia is selling gas to China if according to you Russia is “all gassed up with nowhere to go."
Europeans are committing economic suicide. Their economies were possible because of cheap Russian gas. Good luck to them finding a cheap, reliable alternative source. Meanwhile they’re desperately signing deals with tyrannies whilst claiming they stand for democracy, human rights.
Yeah, you'd think Russia would have seen that even the USA's overwhelming force doesn't translate into an easy win.
Russia is selling some gas to China. Gas can be delivered by pipe or compressed to LNG and shipped. To do the former you need a pipe in the right place, for the latter you need substantial investment in compression facilities at the export terminal and corresponding facilities at the import terminal. Russia was primarily set up to deliver their gas by the pipe network to Europe, and they don't have the pipes or LNG facilities to simply redirect this to China or anywhere else. Some can be redirected, but not most. The remained will be flared or wells sealed which is damaging and potentially fatal to the well.
https://www.bbc.com/news/science-environment-62652133
Like I said, oil is different as it doesn't need compressing to ship - just pump it into an oil tanker which are abundant. Russian oil has redirected to China and India etc, but the gas just can't get there in quantity.
You can see the same issue with both the US and Europe spending big to build the import/export LNG terminals to allow the US to supply Europe. This is a difficult task even with the capital available to the two largest economic blocks in the world.
Russia has pipelines to China, but they are maxxed out, and they don't connect to all fields. No way they can ship all the gas they were shipping to Europe to Asia. They are working on it, but new transcontinental gas pipelines aren't something you can do in a couple months.
Russia is dangerous as they are a nuclear power, but clearly their conventional military power has been massively overestimated and is only decaying further as Ukrainians fighting an invasion of their homeland, supplied by a Western military industry that needs to cycle through old stock, field-test new weapons, and obtain greater funding, grind them down.
Fixed.
The way that 'live pictures' are viewed/understood/comprehended depends upon the narrative that is associated with them and the paradigm through which the receiving party (the viewer) processes them.
Sure some things are black and white (like a tsunami or a hurricane), but other issues (like wars) can very much be swayed by the message that is delivered, or what selection of 'live pictures' is delivered to the audience.
Having watched/listened to a few of Putins' recent speeches, I'd give him a 10/10 for his understanding of macro economics and I would give Biden, Powell, Lagarde, Truss etc (i.e. the leaders of the west and its economic policies) a 2/10 for their understanding of the same topic
(based upon their recent public announcements and policies).
I don't think Putin is a good person, no is he doing a good thing right now, but he appears to have a far better grip on the economic reality that is facing us than our own leaders do.
Scary times.
Regardless of the reality of your second sentence, your first statement flies wildly in the face of reality. If he cared about his people he wouldn't have invaded Ukraine - he is directly responsible for tens of thousands of deaths and hundreds of thousands of injuries.
Hard to see many positives for Russia right now, falling back on multiple fronts in various states of disarray and no sign of the hastily assembled group of poorly trained freshly mobilized troops making a difference.
"Ukrainian sources have rightly observed that the partial mobilization is not a major threat in the short term because the Ukrainian counteroffensive is moving faster than the mobilization can generate effects.[3] Ukrainian Intelligence Chief Kyrylo Budanov even stated that mobilization in Russia is a “gift” to Ukraine because the Kremlin is finding itself in a “dead end,” caught between its failures and its determination to hold what it has seized.[4] The controversies surrounding the poorly executed partial mobilization, coupled with significant Russian defeats in Kharkiv Oblast and around Lyman, have intensified infighting between pro-Putin Russian nationalist factions and are creating new fractures among voices who speak to Putin’s core constituencies"
https://www.understandingwar.org/backgrounder/russian-offensive-campaig…
I'm curious; why do you think it'd be different if he'd done it two years earlier? Zelensky was still the president then.
Three years earlier and their president was Poroshenko who was pretty much a Moscow patsy. Under him they wouldn't have had to invade, they would have been welcomed with open arms by the Government. The people though, clearly would have had a different view because they voted Zelensky in when he clearly had a pro-western perspective.
They or many of them are the legacy of a Soviet program to resettle ethnic Russians in satellite states to maintain their grip on them. They clearly do not accept the power of the people (an interesting contradiction to what they think communism is) to choose their own destiny peacefully, so decided to take what they wanted by force. I have little sympathy for them. If they couldn't accept the election result, perhaps they should have just moved back to Russia?
It's not so black and white in places like Europe though, as there was always someone there before the people that were there before the people that are currently there.
Like Crimea, Musk thinks it should go to Russia because they had it before 1954, but what about Turkey? On the basis of who got their first shouldn't it go back to them? And Russia should go back to Lithuania. As KH says madness to fight wars on this basis.
If Russian and Ukraine really are 'one nation' as Putin says, then how about Ukraine annexes all of Russia?
"less than 100 years legacy there". You are lost in that madness Murray.
If you wanted to carry that on Murray the tens of thousands in Donetsk with Welsh ancestry should be shipped back to Wales. Or maybe just burn your neighbours house down. After all their ancestors only came there 150 years ago.
Donetsk was founded by John Hughes and his band of Welsh. Place was called "Hughesovka.
Google: ""The overall number of estimated deaths in the War in Donbas, which started on 6 April 2014, was 14,200–14,400 through 31 December 2021, including non-combat military deaths. Most of the deaths took place in the first two years of the war between 2014 and 2015, when major combat took place before the Minsk agreements.""
The US organises the overthrow of the legitimate Ukrainian government and usher in a government that ice pro-Western, said government passes laws that outlaw the language and culture of people in the eastern regions. These regions rebel and so the Ukrainian military bombs them and has been doing so for over 8 years. Ukraine and Russia reach a peace deal that grants the separatist regions autonomy and guarantees Ukrainian territorial sovereignty; both sides sign up but Ukraine seems it a way to prepare for war. Meanwhile the Ukrainian military continues to bomb civilians in the eastern regions. Russia invades and Putin makes clear his objective, meanwhile Western media go into overdrive to propagandise us. If the Russians had wanted to, they could have gone in with a scorched earth policy but they haven’t because they want to minimise civilian casualties. Meanwhile the West claims to be on the side of Ukraine and provides them with as little weapons as possible. Not that Ukraine can actually defeat Russia. Oh and when Ukraine and Russia yet again reach a peace deal, what does the US order the Ukrainians to do? To keep the war going. After all, the US wants to fight Russia to the last Ukrainian.
Meanwhile the overstretched US government is turning its attention to China. Can’t wait for that conflict and for our own economy to be sacrificed in the name of American geostrategic interests.
Was Poroshenko a Kremlin man? I thought he was the man after the Kremlin man, Yanukovich? Like all ex Soviet states the endemic corruption continued however. Enter Zelinsky. Incidentally before war broke out Zelenskys star was on the wane also. Russia's plan was to reinstall Yanukovich, who is currently in exile in Russia.
Poroshenko has burnt any bridges with Moscow judging by his public statements since war began.
Before Russia started the SMO Zelenskyy was rated incredibly low in public polling. He had not deliver on the promises he made to the country. in fact he had undertaken a program of the complete opposite.
"In October 2021, over 28 percent of the Ukrainian population approved of the activities of Volodymyr Zelensky as the president of the country. The approval rating saw a decrease in recent months." https://www.statista.com/statistics/1100076/volodymyr-zelensky-s-approval-rating-ukraine/
The Red Army in WW2 was indeed a formidable beast, but not initially. For instance the Wehrmacht with an enormously long supply line took Kharkov, as it was then, twice. Each time only in a matter of weeks. From right next door, the Russian army of today failed in their attempt. In WW2 after Pearl Harbour had freed up the Siberian Army, and Zhukov, the Soviets were then both on the offensive and unbeatable. But they did rely markedly on vastly superior numbers and an extremely economical attitude towards casualties of the same. Remains to be seen if Putin will revert to those same tactics.
The west is betting all on the belief that Russia–its leaders, its government bureaucracy and its economy–is a paper tiger that will crumble if only enough pressure is applied. That is a dangerous and risky wager. While Russia is not a utopia, it has invested its capital over the last 20 years in building up its infrastructure, developing modern, cost effective weapons systems and educating its population to a standard that surpasses anything offered by the United States or Europe. Most importantly, it has vast natural resources and minerals and the industrial capability to extract them and manufacture what it needs to fight.
The United States, by contrast, has burned up billions of U.S. taxpayer dollars in fruitless military adventures in Iraq and Afghanistan while American infrastructure deteriorates, its industrial capacity is hollowed out, it is dependent on foreign imports of critical materials to produce key weapon systems and its educational system is in shambles. More time is devoted in U.S. schools, it appears, to learning proper pronouns rather than learning math, biology, chemistry, physics and foreign languages. The recently announced failure of the U.S. Army to meet its recruitment goals (25% below the target) is not an aberration. It is a symptom of societal failure in the west.
So what is Russia waiting for? On paper, it has the full capability to crush Ukraine. I am certain that the events of the last seven months have convinced the Russian leaders and civilians that they face an existential crisis from the west. I believe that Putin’s decision to return the four Ukrainian oblasts to the Russian Federation was not made in desperation. Putin, so far, has shown no sign of panic or alarm. I have seen no evidence to suggest that he is out of touch with reality. Instead, he has worked methodically to shore up relations with China, India and the Gulf States. He realizes he can no longer rely on any hope of a working relationship with the United States and Europe. it appears that the referenda process, which culminated on Tuesday with the acceptance of Luhansk, Donetsk, Kherson and Zaporhyzhia as new members of the Russian Federation, now paves the way for Russia to invoke the defense protocols of the CSTO. That means additional troops from allied countries like Belarusia can join the fight if needed.
It very much reminds me of a game of chess. Russia is now sacrificing pawns in the form of strategically useless territory, while Ukraine is rushing forward to seize symbolic territory without having the necessary reserves in terms of trained soldiers and equipment to sustain the attack and defeat Russia. Russia, meanwhile, is moving its Knights, Rooks and Bishops into position for checkmate. The question remains–what is Putin’s gambit? Link
Larry C. Johnson is a blogger and former analyst at the U.S. Central Intelligence Agency. He is the co-owner and CEO of BERG Associates, LLC (Business Exposure Reduction Group). He is best known for spreading a hoax in 2008 that Republican operatives had a videotape of Michelle Obama complaining about "whitey".[1]
I agree. Our extensive western narrative makers are going to fail in their endeavours unless the actually resort to using nukes again, which I fully expect they could. Hegemonic power is a nasty blinding drug.
Quick...run for the bunkers rich folk...https://aspr.hhs.gov/newsroom/Pages/ARS-Oct2022.aspx#:~:text=To%20reduce%20radiation%2Dinduced%20bleeding,resulting%20in%20low%20platelet%20counts
Solid source that
Larry C. Johnson is a blogger and former analyst at the U.S. Central Intelligence Agency. He is the co-owner and CEO of BERG Associates, LLC (Business Exposure Reduction Group). He is best known for spreading a hoax in 2008 that Republican operatives had a videotape of Michelle Obama complaining about "whitey".[1]
https://en.m.wikipedia.org/wiki/Larry_C._Johnson
Yes & there is quite some irony in that too. Those hard fought convoys from the West, to Murmansk, supplying munitions & other war effort essentials played a great part in keeping Russia up to the fight. Now that same process of supply, is benefiting Ukraine in the same manner, against Russia.
War is bad irrespective who has a upper hand as everyone is a loser.
What is the gurantee that in desperation and frustration Russia my not retaliate with weapons of mass destruction, though will be targeted towards Ukraine but effect will be felt all over the world as is now.
There is no guarantee. But, the alternative of Ukraine rolling over and letting Putin grab what he wants is not exactly a long term strategy for peace either.
The US has made it quite clear there will be significant consequences if Russia resorts to WMDs, hopefully Putin doesn't lose all logic.
Agreed, Putin has clearly made a mistake and is in a tough position now. None of this means that Ukraine should not defend and reclaim its territory as vigorously as they see fit. Perhaps the pressure will help bring in a new, more realistic, regime in Russia. One that is more aware of their dwindling capabilities.
So true.
Neither country's politicians seemed to have learned that lesson though. Certainly senior military with experience from Viet Nam (all retired now) or who listened to those vets remember the lessons. It was a often repeated story that when Norman SchwarzKopf was tapped to lead the 91 Gulf War, he predicated his acceptance on the requirement that the pollies at home (including in the Pentagon) kept their fingers out of it! He became a Major in the Viet Nam war and well remembered being screwed by the politicians.
Last time I checked it was impossible to win against someone else with nukes if you had none. The best the world can hope for is that Putin doesn't start using them because what's the international game plan then ? Has anyone actually bothered to think that far ahead.
Depends how you define 'win'.
Nukes will stop anyone taking over Russia, but i don't think that's Ukraines plan, they just want their country back, i don't see them heading for Moscow. With those limited aims, and the Russian armys limited competency, it's perfectly possible to win against a Nuclear armed adversary.
Just take a look at Afganistan, Vietnam, Afganistan again.
Suggest they think they are thinking about it, and that is no more meaningful than that. If Russia does resort to nuking some place, then if there is to be a massive retaliation, probably with conventional hardware, comprehensive missile strikes at key targets, then that would need to be launched from beyond Ukraine territory, so thus enters NATO. Then all the gloves are off. The danger is Putin and how far he is able to go. Cannot escape remembering Adolf himself. When he realised all was lost he was more than happy to strategise that all of Germany should go down with him.
https://www.macrobusiness.com.au/2022/10/new-zealand-plunges-into-reces…
Now check real estate message that market is changing and in a subtle way trying to influence buyer - lobbying. They never give up.....
https://i.stuff.co.nz/life-style/homed/real-estate/300705240/the-endgam…
On the other hand...
U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases
https://www.google.com/amp/s/www.wsj.com/amp/articles/u-n-calls-on-fed-…
Comically they are both US led institutions.
The amount of debt in the world at this time will mean that a) we are likely to be near the top of RB interest rate rises and b) this is absolutely a catch the knife moment where the tipping point between taking the steam out of the economy and the start of an unstoppable nuclear reaction that will cause compete economic destruction is hard to judge.
This whole issue is an interesting quandary. OPEC is to all intents blackmailing the world, risking perhaps a total economic collapse. With global warming we have realised we need to move away from fossil fuels, and that information was in many respects suppressed by the oil industry for decades, impeding and delaying the development of technology that would at least lessen the total impact or at least slow it. At the same time they are signalling to the world that we seriously need to shift our dependency on fossil fuels away from them, sooner. This could get very ugly very quickly, but the very best outcomes would be the rapid embracing of other technologies, especially modern nuclear. But as PDK is so wont to point out, outside of fossil fuels, there is simply not enough energy to replace it all.
Agreed except for your last point which is ridiculous. There is so much energy in our natural ecosystem we will be able to easily replace oil if we had the will. Even without a war-like call to the challenge the economics of this sweeping change will see us move from oil for energy (it is still needed as a chemical seed in many products) within the next 15-20 years.
Doom-laden thinking is a privilege of the lazy and frankly a waste of time.
JaO - bollocks.
EROEI, sorry. Entropy, sorry.
There is no equivalent to the concentrated energy of FF; not by some margin. Which is why the proportion of FF even in electricity generation, is climbing.
I live on renewables, but they don't scale, and you don't build their infrastructure ex FF.
Nothing to do with gloom - that's classic shoot-the-messenger-to-shoot-the-message - it's just about facing physical facts.
What solutions are you working on? Reducing the amount of energy you consume?
I think PDK is right on this one. There is no energy equivalent to FF, and we will need to severely reduce the amount of energy used. There are not enough raw materials to scale up renewables to current global energy usage.
Indeed, they are asking for trouble. Are they forgetting the US tends to invade anyone that doesn't play dice with their energy demands? The US are literally pulling oil out of their reserves to lower prices while OPEC is cutting to increase prices. Expect some rather harsh words from the US and if nothing changes, some action based on hurting (likely) Saudi Arabia's wider interests. Maybe cancelling upcoming arms deals and/or some support for Yemen or Iran or similar support of Shias somewhere. Or worse some direct action against the leadership.
The rapid change requires a LOT of fossil fuels at a reasonable price to build the required power supplies to replace fossil fuels. It's an EROEI problem with geo politics mixed in.
Agree. The geo-politics will be where it falls down. I'm not certain but aren't the US maintaining a military presence in Saudi at their request?
I'm not sure on the balance in OPEC, but what would the response be if the US decided to pull out of the ME, if they could?
US would never pull out of the ME as long as it's a source of energy. They need a presence there if only to remind those nations about who is in charge militarily.
This will be a real test for Biden. He will have the other branches of the US government screaming at him to lower oil prices, but their strategic reserves will be gone before too long and he will have to act. Which way he goes will shape the situation, but he has a military that is always eager to act. OPEC have fired a shot across America's bow here saying they will decide the worlds energy policies, not the US as it has done for the past 70 years, minus a few interruptions from OPEC members before being bought into line again. The US might just remind them what happens when you don't play the game their way.
Doing nothing would be political suicide obviously, doing not enough would be the same.
It's interesting to surmise the convoluted factors in play? Maybe these cuts in production are just a smoke screen for not physically being able to produce more oil? Deliberately crushing demand ultimately seems counter productive, if it means destroying sales for an extended period. At the end of the day most OPEC countries are one trick ponies when it comes to earning foreign exchange.
Sleepy Joe has screwed his own oil and gas industry in favour of the mystical Green New Deal proposed by a few including AOC (Alexandria Occassional Cortex).
No doubt after Sleepy Joe maligned the Saudi King during the Presidential election campaign he suddenly had to go begging. I'm sure the Saudi King told him in polite terms what to do. Even if you are the leader of the Western World it doesn't pay in going too far in maligning others. It might just jump up and bite you in the bum.
The obsession with AOC for being an attractive female with a reasonable profile is hilarious. She's too pricey for the Dems to engage with on a substantive policy level but people get so angry about the fact she exists.
Consider her a hotter version of Bernie and it starts to make a bit more sense.
Did you not 'feel the Bern' GV?
https://th.bing.com/th/id/OIP.fH38xdp9r3n5p3P1MpONrwHaJQ?pid=ImgDet&rs=1
If you look at what was actually signed into law, the Democrats only pay lip service to renewable energy but their commitment is to fossil fuels, just like the Republicans.
MbS is not the king of KSA, by the way. And he shouldn’t get too confident or his country might experience a colour revolution.
OPEC has sided with Russia and approved an outsized production cut of 2 mln bbd in a bid to raise oil prices sharply.
Biden Blasts "Short-Sighted" OPEC+ Cut, Blames US Energy Firms For Surging Pump Prices
Berlin denounces Washington’s ‘astronomical’ profiteering
“Friendly” gas suppliers, particularly the US, have been charging enormous prices for their exports, German economy minister claims
I don't recall where i read it but a German politician or Chamber of Commerce type said why are we sacrificing German industry for Ukraine. A little anecdote I read in a recently published Stalin biography that in the 1850s or so Ukraine was called Little Russia. Of course then part of Ukraine was "owned" by Poland or Hungary I think and another part Russia.
Ukraine is now a proxy for the US in the USs general stoush with Russia and the US coming out economically better off than the EU. EU and specifically Germany now sucking the hind teat.
This is beginning to look like a replay of the 1970's.
Then, reduced petroleum spurred the refinery development at Marsden Point to ease energy supply and to make a transition to a degree of self sufficiency.
That’s now been closed to make fast gains in diminishing carbon, and while we do need to get away from oil, there is no government plan for what we are going to transition to, to replace it, other than importing finished product until "something" happens.
And this time, with diminishing supply, we are going to be importing inflation and we may not be able to import anything at all, once winter comes in Europe.
The lack of risk management in NZ’s strategic planning would give a pre-87 futures trader pause.
> here is no government plan for what we are going to transition to
https://environment.govt.nz/what-government-is-doing/areas-of-work/clim…
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