Here's our summary of key economic events overnight that affect New Zealand, with news energised by some key American data.
First up today, there has been a surprise improvement in the US CPI inflation rate. And that has induced some sharp market reactions. Their rise in consumer prices slowed for a 4th month to 7.7% in October, the lowest since January, and below forecasts of 8%. It is down from 8.2% in September.
Equity markets took off higher. Bond yields dived. And the US dollar retreated as risk appetites swelled. Markets are signaling a landscape change on this data, which seems a bit of an over-reaction.
However, the change between September and October is below +5%, so that indicates that recent improvements are better than the year-on-year headline numbers. "Core inflation" was up even less. Markets are betting the Fed will be pleased, and that the next rate hike from them won't have to be as high a +75 bps. Markets have now priced in a +50 bps December hike.
Meanwhile, US jobless claims rose marginally last week to +205,000 and taking the number of people on these benefits to 1.26 mln. While that is still near historic lows, it is a noticeable rise and maybe an indication the heat is going out of their tight labour market. Certainly there is now a steady stream of daily job cut announcements coming out of the tech sector. They will probably spread from there. The question is, how fast and how hard. But there are no alarming signs just yet and clearly today Wall Street is betting it will be minor.
In Canada, a liquidity crunch has hit a large private mortgage investment fund. Real estate lender Romspen Investment has halted all withdrawals and redemptions as increasing numbers of borrowers fail to make scheduled payments. It is a C$2.8 bln fund. It might be a canary moment in the Canadian housing market.
China's banks extended ¥615 bln (NZ$142 bln) in new yuan loans in October, down from ¥2.47 tln (NZ$568 bln) in September and below market expectations of ¥800 bln. It was the lowest level in new bank loans since December 2017, as credit demand weakened and the economic outlook darkened further amid persistent pandemic curbs and a deepening property sector debt crisis. Their central bank has promised aggressive policy accommodative to support growth, but capital flight and a weakening yuan could limit its moves. Household loans, including mortgages, fell by -¥18 billion in October, from ¥650 bln in September, while corporate loans dropped to ¥462 bln from ¥1.92 tln.
Things may not get any better in China. Covid cases continue to surge in Guangzhou and the daily new case count is approaching the level at which Shanghai shut down earlier this year, when the daily new cases crossed 4000. Beijing cases are also increasing, as are cases in Chongqing. So three of the China's largest and most important cities are now dealing with their worst outbreaks in months. What would happen if all three were locked down hard like Shanghai was, at the same time?
In a somewhat confusing signal, overnight China’s top leaders reinforced the need to stick with the contentious Covid-Zero policy while urging officials to be more targeted with their restrictions so as to avoid damage to the economy. But the very fact they are thinking of the economic consequences will probably cheer local markets when they open later today.
The presidents of the US and China will meet at the G20 in Bali on Monday. The leaders of the world's two largest economies will discuss issues such as tensions surrounding Taiwan, nuclear war risks and "fair trade", as they seek to manage competition that has become more fierce than ever. Australia's prime minister is also likely to meet them both.
In Australia, consumer inflation expectations rose to 6% in November, up from 5.4% where they had been anchored for the prior two months.
Global container freight costs fell faster last week, down -9% in a week, to be -70% lower than year-ago levels. And it is now well below five year averages. Rates out of China fell even faster. However, bulk cargo rates eased higher over the past week.
The UST 10yr yield started today at 3.84% and down a massive -33 bps from this time yesterday. The UST 2-10 rate curve is flatter at -48 bps. However, their 1-5 curve is more inverted at -62 bps. And their 30 day-10yr curve is little-changed at +62 bps. The Australian ten year bond is also down a massive -25 bps at 3.59%. The China Govt ten year bond is unchanged at 2.72%. And the New Zealand Govt ten year will start today down a sharp -16 bps at 4.47%.
In New York, the topping out of inflation has energised Wall Street with the S&P500 up a remarkable +4.5% late in their Thursday session. Overnight, European markets finished with strong gains in all markets led by Frankfurt's +3.6% and lagged by London's +1.3%. Yesterday Tokyo ended its Thursday session down -1.0%, Hong Kong fell another -1.7%, and Shanghai ended down another -0.4%. The ASX200 closed down -0.6% and the NZX50 ended down -0.4%, all of course ending before the US CPI was known.
The price of gold will open today at US$1750/oz. This is up +US$36 from this time yesterday and back near its early October levels.
And oil prices start today a marginal +50 USc firmer than this time yesterday at just on US$86.50/bbl in the US while the international Brent price is just over US$93.50/bbl.
The Kiwi dollar will open today at 60 USc and back up +1c since this time yesterday. Against the Australian dollar we have slipped slightly to 91.2 AUc. Against the euro we are a bit firmer at 59 euro cents. That all means our TWI-5 starts today at 69.5 and +30 bps higher than this time yesterday.
The bitcoin price is now at US$17,802 and has recovered a net +4.6% since this time yesterday. But in between it got down as low as US$15,554 before making something of a comeback. And volatility over the past 24 hours has been extreme again at just on +/- 7.7% with continuing instability.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
75 Comments
Putin taking care of business elsewhere.
I've recently posed this question to a pretty well informed Russian friend in NZ and he is confident the nuke forces are, unfortunately, in pretty good repair.
It seems likely the pilfering and poor maintenance of military equipment and degradation of capability that has plagued the invasion of Ukraine has not worked all the way through.
Russia can inflict damage with imported material. The drones are Iranian, the comms systems all appear to be Chinese, the soldiers are mercs.
The missiles are Russian, but they appear to be in short supply and for the most part are not precision/guided ones. The vehicles are Russian as well, but they are old and not even road-worthy, let alone battle-worthy.
One would assume the ICBMs have been looked after a little bit better, but the delivery systems (subs, mobile launchers, bunkers....) are likely to be in the same condition as the tanks.
So, the question is - can Russia risk pressing the big red button given their likely success rate vs the likely success rate of any response?
Putin may be willing to sacrifice Mother Russia to save himself, but I doubt the rest of the populace hold that view.
Work it out the strengths pro rata. The USA, UK, France have near to 100 between them. All modern, maintained. The US continues to produce more and more sophistication, USS Delaware for instance. Russia & China between them, number about 33. So it’s 3 to I then. No new ones for the former in any great numbers for quite some time, the fleet outmoded & the latter, of unknown quantity. It’s all moot anyway, any offence will obviously be met with retaliation, both of which will catastrophic to the not just the players. Of course they all know that but the danger is if one megalomaniac decides if they are going down, they will do it like Adolf and take everything down with them, including their own country.
Meanwhile, land-based version of 3M22 Zircon has been created (in Russian), so feel free to speculate how this thing changes the balance in Europe, especially once they will be deployed to Kaliningrad. Yet another Kilo-class (pr. 636) sub Ufa is getting ready for transfer to Russia's Pacific Fleet this month and it will be the fourth one of this class for Pacific, with fifth and sixth hulls being built as I type this. In related news it was decided to de-Kalibrize modernized Oscar II (pr. 949A) Irkutsk and arm her only with P-800 Onyx and 3M22 Zircon missiles thus preserving her dedicated anti-shipping role, with land attack being a secondary mode, and that means hunting big fat targets (CBGs) all over the world ocean. Classic Sea Denial. Together with already afloat and upcoming Yasen class SSGNs. I thought you need to keep this in mind. Link
Storm warning: almost a trillion in global reserves gone, a quarter 'missing' from Swiss.
The storm warnings are up in Florida, and have been up across the monetary system for some time. Massive and unprecedented curve inversions point to some as-yet unidentified economic and financial hurricane. Conducting a survey of global foreign currency reserves, there's already been huge destruction closing in on a trillion. And if what curves are pricing is accurate, worse to come, what does that look like when a trillion dollars destroyed is the prelude?
My reading of the talking heads is that many countries are running down USD denominated reserves to try and defend the value of their own currencies, and they are running out of them.
Should not be too many months before we see what that unidentified hurricane looks like.
The wisdom of crowds.
"“Values of coastal properties have gone in the exact opposite direction to where they should be going,” Storey said. “And it’s happening around the world, not just here.”
https://www.bloomberg.com/news/articles/2022-11-09/sea-level-rise-new-z…
A fair bet for an insurer.
"The application of an automated shoreline detection method to the sandy shorelines thus identified resulted in a global dataset of shoreline change rates for the 33 year period 1984–2016. Analysis of the satellite derived shoreline data indicates that 24% of the world’s sandy beaches are eroding at rates exceeding 0.5 m/yr, while 28% are accreting and 48% are stable."
https://www.nature.com/articles/s41598-018-24630-6
Sea level rise will take centuries to play out in a significant way for most parts of the world. That's why nobody cares.
In the coming decades, if it matters enough, humans will develop the tech and the infrastructure to resolve the climate issues.
Our lousy houses are only built to last 50 years anyhow.
Just wait for all the headlines of the shoreline millionaires whinging at their doubled insurance premiums or lack of ability to get insurance, as well as how someone else should be paying to sort out nature for them and tell it to go elsewhere. I'm sure the public will feel so sorry for them (sarc)
The long term value of something should be baked into the present value. Sure there will be an element of "why do I care I will be dead by then", but when the "average millionaire" who buys it now has to sell it in 20 years to go into a rest home, at that time the next "average millionaire" will pay a lot less as now the sea level has risen 7cm. The cumulative effect of that should be baked into todays prices, but I doubt it is due to ignorance.
It is way more boring than that. Our ancestors had put up with it - I'm sure we can cope. The Aborigines have had worse things happen to them than not being able to walk to Tasmania any more. "The VLM corrected RSL rates gives our best estimate absolute sea level of +1.45 ± 0.28 mm/year (1891−2013) ...which is consistent with global estimates."
Tropical Storm Nicole topples Florida beachfront homes...be quick
Real power = energy and weapons. Changing political landscape:
Iran Develops Hypersonic Ballistic Missile Able to Overcome All Air Defense Shields
Some say that it is the Fed which is artificially inflating demand for Treasuries (and other asset classes) due to its own bond buying programs. This latest LSAP, or large scale asset purchase, otherwise known as QE6, has seen the central bank’s SOMA holdings of notes and bonds (though, curiously, very few bills) explode upward by $2.5 trillion since last March.
Yet, even the central bankers know this isn’t the reason for stubbornly low yields on these securities. As I’ve endeavored to point out as often as I possibly can, the academic literature, most of which has been sponsored and written by central bank staffs, is conclusive. I still love the way the Reserve Bank of New Zealand just comes right out with it:
Studies found the government bond purchases worth 10 percent of GDP have, on average, lowered 10-year government bond yields by around 50 basis points.
Underwhelming, isn’t it? Pitiful, actually.
The Federal Reserve’s purchases over the last thirteen months are only a bit larger than 10% of GDP, thus, best case, bond yields are just 50 bps lower than perhaps where they otherwise would have been – if you take this average view at face value. Arguably, and there’s much data to support significantly less than this, the reason why most of these papers use “term premiums” as a standard for measuring QE impacts, the effect on yields is negligible.
Even if we account for somewhere between zero and 50 or so bps, that still means US Treasury rates are ridiculously low otherwise; demand easily sustained (as the auctions results demonstrate, one after another with the single exception).
What is this demand?
As usual, we’ll leave it for Richard Fisher (of all ex-FOMC officials) to explain:
MR. FISHER. In summary, I want to mention that, as I said earlier, most of these variations that have been suggested are very un-Bagehot-like. And what I mean by that is, twisting [or QE and yield caps] entails purchasing assets that investors are fleeing toward, not assets that they are fleeing from. [emphasis added]
This is why the studies show only limited effects directly on yields – because the market has reduced them far, far more than QE ever would, will, or can by itself. The questions, therefore, are who and for what purpose(s) are doing the “fleeing toward.” Link
BL - Techno-optimism is not fact. Nor should it be counted-upon, to base agendas; either mass or individual.
https://www.growthbusters.org/the-influence-of-donella-meadows-and-limi…
Hi Murray,
Better than being stuck in an eternal doom loop because one spends too much time obsessing over fringe science websites.
A hundred years ago the steam engine was high technology. A hundred years from now there will be technology and industry that we cannot fathom. Guaranteed.
In between the doom and the techno-optimism there's a balanced mid-point.
I read Neal Stephenson's book Seveneves a month or two back. It's not about climate change, but it's a surprisingly optimistic sci-fi novel given the start where 7 billion or so people die.
On a more relevant read, How to Spend a Trillion Dollars is a worthwhile read on how a trillion dollars could have been applied to major contemporary issues - from climate, to energy, to medicine, to loss of biosphere - rather than on handouts to companies and asset owners (written in the USA, so related to the handouts to corporations during 2020).
Wow. An "IQ of 125" and you still can't figure out the difference between your and you're.
Elon has outlined his vision for Twitter with the following statement:
"Twitter needs to become by far the most accurate source of information about the world. That's our mission."
Therefore it's a probably blessing that you aren't on the platform idolising Putin, sulking about missing the crypto boat, or repeating that Australia will be uninhabitable in 9.3 years.
Now put on your Mensa hat and ask what are the possibilities if you have total control and total access to by far the most accurate source of real-time information in the world? It's all just a 44 billion dollar ego trip right? Right?
FYI my IQ is 125.0001, so statistically, I am smarter than you.
More austerity?
Rishi Sunak presides over a country with a palpable sense of worry about what lies ahead and anger that once again people are carrying the economic can for problems not of their creation.
It is already clear that austerity is coming back with a vengeance. The PM and his chancellor, Jeremy Hunt, are discussing the balance of spending cuts against tax rises.
It may be 50/50, it might be some other split. Whatever it is, spending is set to be cut further after a decade of cuts following the financial crash of 2008. Link
If 0.90% fall in OCR is equal is to 71 billion of money printing, can understand how strong the OCR as a tool is and if rising OCR by as much as 3.25% has not helped can imagine the money in the system and damage done by RBNZ and government in fear of least regret.
https://www.nzherald.co.nz/business/reserve-banks-71b-of-money-printing…
First up today, there has been a surprise improvement in the US CPI inflation rate.
There are plenty of economists who forecast the slower CPI rise and the increase in joblessness - Blanchflower (ex BoE MPC), Claudia Sahm (ex Fed) etc. It is obvious to anyone not salivating at the thought of a Volcker moment that the Fed has overcooked the rate hikes.
The same is true in NZ of course - the recent 'shock and Orr' rate increases and the sugar rush of monetary stimulus in late 2020 and early 2021 are both monumentally stupid.
"the recent... rate increases and sugar rush of monetary stimulus in late 2020 and early 2021 are both monumentally stupid. "
Without doubt. But arguably, one is a consequence of the other.
And whilst it's only important to now focus on where we go from here, there's that nagging question of "What will he (or whoever) do if they are presented with that same situation again?". I doubt it's as simple as "Not make the same mistakes again" because that's not what they were seen as at the time. And the howls from all and sundry had 'nothing' been done would still be echoing in the streets today. Will 'standing back' be the answer? Let nature and the markets take their course? Because given all the reports we see about us at the moment, that's likely to be the instinctive reaction.
Let's hope we're up for it.
Fair challenge. I would argue strongly that the rate hikes are not the result of the monetary policy (credit) stimulus. What did that credit stimulus actually do? It encouraged households to take on extra debt - around $20bn of net mortgage lending over and above the trends in previous years. Businesses did not borrow to expand as per monetary policy theory - they actually paid down debt!
The cheap credit frenzy pumped house prices up significantly. Alongside this, Govt spent a net $40bn or so into the economy (having spent net zero in the previous few years). It was this fiscal stimulus, coupled with much reduced outgoings for many families due to lockdowns etc, that maintained domestic consumer demand, saved jobs, lowered unemployment, etc. I would argue that this fiscal stimulus had 10 times more impact than the 'feeling rich because my house is worth more' factor.
The price increases have occured globally with the difference in inflation by country being directly related to their energy security and how state-controlled their markets are (Switzerland has price controls over 30% of the economy for eg). NZ would have seen significant inflation from oil price increases alone because of their flow on impact on the price of fuel, fertiliser, plastics, chemicals. Of the other factors driving our CPI (rent, local govt rates, insurance, and construction costs), only construction costs could reasonably be attributed to the monetary (credit) stimulus.
So, in short, the credit stimulus was stupid and did more harm than good, and hiking rates to attempt to calm predominantly supply-side driven inflation is just as stupid!
As a saver I find the increases monumentally inadequate, I'm still losing heaps of money in real terms - whilst borrowers are winning big time, paying interest at rates well below inflation.
Even with the recent rises, the appearance is still that borrowing will be protected more vigorously than saving - so long as people continue to believe this, they will continue to borrow recklessly with expectation of socialising bad outcomes, and thus risk and instability in our economy will remain heightened.
The only lasting fix is to make borrowers carry their own weight, by setting interest rates appropriately at or slightly above inflation rates. In the short term this will be disruptive to consumption, as the artificially inflated purchasing power of borrowers is transferred back to people who have actually earned it. But the end result will be a fairer, more efficient, more stable economy.
What's stupid about that?
Maybe not stupid, but falsely assuming.
'Earned' is the false assumption. As is 'money is a store of wealth'.
Actually, you only 'earn' proxy, issued in a proportion we've agreed on via striking, monopolising, lobbying, commandeering. Recently it has gotten more removed, via forward-betting on top of that already forward-betting. 'Finance' has levered/magnified the bets exponentially.
And all those bets line up for a portion of the supply of processed parts of the planet (resources) delivered by a processed part of the planet (fossil energy). Both, by definition, are limited. Not so, money-supply. So inflation is inevitable as the end-game approaches, but deflation oscillations (and maybe singular) are possible. And either the value of money decreases hugely - vis-a-vis real purchasing - or we must be looking as mass defaulting.
The problem is that the system was set up to cater for growth (from small beginnings, it could be no other way) but is haemorrhaging as we go past the physical growth-inflection (heading for de-growth). Yes, as a saver you are getting poorer, purchasing-power-wise. But those betting further ahead, are more so. The past trend of things getting ever-cheaper, is inverting; they will now get ever-more-expensive (because of the ever-increasing energy cost) and that is only temporarily-ignorable by issuing ever-more unrepayable debt.
Due to sustained mismanagement of our economy, we have private sector debt running at 150% of GDP. If rates were hiked above inflation, we would have the mother of all recessions, and we would all be in dire straits for many, many years. You might still have your depreciated savings, but you would live in a destroyed country.
HGWR
1) "whilst borrowers are winning big time", yes I have mentioned this previously on Interest and I keep getting told "I'm wrong"
2) "The only lasting fix is to make borrowers carry their own weight". Have you ever considered that borrowers borrow to setup or run businesses, manufacture goods or provide services, employ and pay people? Why should a depositor, who contributes nothing with his deposit to the economy, be rewarded and the borrower punished for taking risks and providing goods, services and jobs?
Not all all. Should I get a bit worried about some of my digital asset holding, I remember that thanks to my cash out, I traded a seven figure mortgage for a seven figure bank account and that I'm still 80% cash in term deposits ready to deploy early next year (perhaps once the Ukraine war shifts a bit more).
My crypto holdings are tiny but today's gain was still more than some people earn in a year.
Plus I never trade or use margin, ever.
If anything keeps me up its my tax bill
One good way to think about the safety of your money is to ask yourself: whose liability is my money? T-Bills: liability of the US govt Bank deposit < $250k: implicitly liability of the US govt (FDIC) Bank deposit > $250k: liability of the bank Money on FTX: ……Link
C'mon NZ, time to bite the bullet and instigate deposit insurance since banks are pocketing all the profits.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.