Here's our summary of key economic events overnight that affect New Zealand, with news central banks clearly haven't taken strong enough action against inflation yet.
And we start today with data that shows the American policy response against inflation isn't working. Their core PCE price index, the Federal Reserve’s preferred gauge to measure inflation, rose by 4.7% annually, higher than 4.6% in December and surpassed market expectations of 4.3%. More concerning is that the annualised rise from December to January was at a rate above 7%.
"Better" or "worse" depending on your perspective, is that incomes are rising at the same rate. It is "good" that workers are not falling behind, and a tight labour market helps that. But it is "bad" because policy makers will see that wage claims are a driver, and wage-push inflation is settling in. The only way out of that is to induce a recession. But they don't look like they are anywhere near that yet.
Markets are nervous. Equity prices fell, bond yields rose, and the USD jumped. Markets are expecting the Fed will push on and do what it says it wants to go; kill off wage-push inflation. And that means tough times are ahead.
Sales of new American homes in January came in higher than expected, and a boost to housing confidence.
More generally, the widely-watched University of Michigan sentiment survey also showed rising confidence. It not only rose from the prior month, it is up strongly from a year ago. Americans seem to be tolerating higher prices when they aren't being hurt on the income side.
Japan reported CPI inflation in the year to January of 4.3%, up from 4.0% in December. This is their highest rate in 42 years, since December 1981. Food prices were up 7.3%. But generally it was driven by rises in the cost of imported raw commodities and yen weakness. The annualised rate of change between December and January was almost +5%, so the pace is quickening. There is now a greater chance the Bank of Japan will pivot away from its long-standing ultra-loose policies. Not only is there a new BofJ boss incoming, but major companies are starting to raise wages sharply, a key factor for the central bank.
Going the other way, Singapore's industrial production fell in January and by much more than expected. It was expected to dip slightly from December but the actual data was much worse and twisted the year-on-year result to a retreat.
In China, they are about to dump the respected technocrat boss of their central bank with new political appointments and giving Beijing even closer control over monetary policy. It is a shift that raises the risks of unexpected consequences in policy shifts. It is also very noticeable how little economic data is being published by China these days. It was already quite light for a major power, but the flow is drying up even more. Their push to deny international news organisations visas has tightened the flow inexorably. China is more opaque than ever.
Germany updated their interim Q4-2022 GDP result with a slightly bigger retreat than first indicated and a loss of momentum as the year ended. Weaker business investment was behind this shift
In Australia, another BNPL champion as reported continuing cash burn and been forced to retreat from more offshore markets to stem the flow. It is pulling out of Mexico, Singapore and the UK. And it will soon retreat from India, Turkey, the Czech Republic, South Africa, Poland and the Philippines. BNPL has hardly every been a profitable business for anyone, lots of 'mystery' with no positive 'history'.
It is interesting to note that the rare metal molybdenum has zoomed in price recently. It is the ingredient that hardens steel. There is a severe supply squeeze on at present. This one stands out as most other major metal prices are stable or soft.
The UST 10yr yield starts today at 3.95% and up +4 bps from yesterday and up +14 bps in a week. The UST 2-10 rate curve is more inverted at -86 bps. But their 1-5 curve inversion is less inverted at -84 bps. Their 30 day-10yr curve is little-changed at -66 bps. The Australian ten year bond is up +2 bps at 3.920%. The China Govt ten year bond is also unchanged at 2.94%. And the New Zealand Govt ten year is starting today at 4.67% and also little-changed from yesterday. But it is up +26 bps in a week.
Wall Street started its Friday session with the S&P500 down -1.3% on the US inflation data. That will make the loss -2.9% for the week as equities get repriced. Overnight, European markets were all down about -1.7% except London which closed down -0.4%. That means for the week, Paris lost -2.4%, Frankfurt lost -2.0% and London lost -1.6%. Yesterday Tokyo was closed up +1.3% for an unchanged week. Hong Kong ended down another -1.6% for a weekly drop of -3.3%. And Shanghai fell -0.6% on the day but gained +1.1% for the week. The ASX200 ended up +0.3% yesterday but for the week fell -0.5%. The NZX50 inched up +0.2% in Friday trade but had to settle for a weekly drop of -2.0%.
The price of gold will open today at US$1811/oz and down -US$9 from this time yesterday. But that is a -US$30 fall in a week.
And oil prices start today up +US$1 at just over US$76/bbl in the US. The international Brent price is now at US$82.50/bbl. Both are unchanged in a week.
The Kiwi dollar is at 61.6 USc, and down another -½c than this time yesterday. And that is almost a -1c drop in a week and taking it to a three month low. Against the Aussie we are little-changed at 91.6 AUc. Against the euro we are soft at 58.4 euro cents. That all takes the TWI-5 to 70.1 and actually very little-changed in a week.
Bitcoin has dipped -3.2 % since this time yesterday and is now at US$23,103. And that is down -5.4% from a week ago. However, volatility over the past 24 yours has again been moderate at +/-2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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42 Comments
Germany updated their interim Q4-2022 GDP result with a slightly bigger retreat than first indicated and a loss of momentum as the year ended. Weaker business investment was behind this shift
Good Morning from Germany where economy fared worse than exp. GDP shrank 0.4% in Q422 vs prev reading of -0.2%. Private consumption plunges 1% QoQ, cap investment crashed 2.5% QoQ. Public spending rose 0.6% QoQ. Economists predict another neg quarter, would tip GER into recession Link
Massive drop in domestic demand in Q4 in Germany. Last time we got such bad readings: - Lockdowns - Great Financial Crisis Link
Here's Where The Surge In January Spending And Inflation Came From: Biggest Tax Drop In History
The bottom line, however, is that just like JPM raged about seasonal adjustments overnight, hinting that underlying data no longer makes any sense, so today's personal income/spending data should be taken with a giant grain of salt, and that the "numbers" resulting from the combination of various historical revisions, seasonal adjustments, and approximations which have magically doubled the amount of money Americans have allegedly saved, boosting both headline and core PCE, are at best a one-month adjustment, one which will promptly revert to the "higher for much longer" tax trendline, which in turn will translate into lower spending, savings and, of course, consumption in the coming months.
Lies, damned lies and statistics.
“with news central banks clearly haven’t taken strong enough action against inflation yet.” Guess with quite some degree of authenticity this time, New Zealand can claim that used to be favourite slogan of this government as being a world leader.
They stab it with their steely knives but they just can't kill the beast.
Top song!
Inflation 1980’s solution – Trim bloated govt spending, reduce taxes, alleviate supply constraints (shortages) with deregulation, free trade, all combined with interest rate rises. Interest rate rises will not do alone without severely crushing demand in the economy, back in the Volker years upon a rebound inflation returned until they implement the other measures as well.
Public services employ nowhere near as many people as in the 80s and globalisation already happened. Also in the 80s we had more workers every year, now we have more pensioners every year.
Plus every time they "deregulate" it just causes another issue further down the line (leaky buildings, ..). Classic false economies :)
Key economic events that affect NZ.
"...There's so much cleaning up to be done before people can replant and fertilise it will take years to get back even close to normal.
In that time we'll see massive shortages of all the above, affecting almost all food items you can think of.
Employment: Job losses will be huge. Hipkins stated they're looking into business support payments to assist in wages but without trees to plant, prune or pick we'll see massive job losses across the entire region. Secondary food production will also take a huge hit here. Without being able to source ingredients in their usual supply at their usual price, many food producers will really suffer here. Adding to the hurt, insurance companies will take literally years to pay out those primary producers affected and not nearly to the value of what is lost either. Secondary producers don't have these protections at all so we'll likely see a lot of these businesses on both sides really struggle to get back up to speed if not close completely.
Food supplies and price increases: As mentioned earlier supplies in the supermarket will be massively affected by this. Many growers around NZ source their plants from seedbanks & nurseries in the Hawkes Bay. These folk have to order these seedlings a year in advance at least and now that they're gone - they're gone for a very long time. Strawberries, tomatoes, chillies, blueberries, broccoli, cabbages as well as leafy greens could be in short supply for at least a year. Food producers will be needing to import their raw ingredients to keep up with demand and with already shockingly high prices due to shipping - the end user ie. us will be paying significantly more for all grocery items."
https://freenz.substack.com/p/update-from-a-food-producer-in-hawkes
Really grim.
Australia looks a pretty appealing option right now
" I love a sunburnt country. A land of sweeping plains. Of ragged mountain ranges. Of droughts and flooding plains ..." (Dorothea Mackellar)
Floods, today - http://www.bom.gov.au/qld/warnings/flood/index.shtml
Fires, today - https://myfirewatch.landgate.wa.gov.au/map.html
Yeah, but no earthquakes, well not really.
And it’s the whole package I am talking about, most especially cost of living.
Spose' that's a fair view, so long as you ignore Australian news.
Meridian Energy informs me my power bill will rise by 6% in March.
The new abnormal.
I miss one part of the American Dream story: Total credit card debt passed the 1 trillion.
Interesting to learn the $ billions in compounding interest raked off that which assumedly more than covers the unrecoverable defaults.
That isn't news. According to the Fed's G19 series, revolving debt for consumers (mainly credit card debt) reached US$1 tln in 2017 and fell back below US$1 tln in 2020. It's back up to US$1.196 tln at December 2022 (latest). So pretty stable over the past five years. On a per population basis that averages US$3,557 per person.
For perspective, NZ credit card debt is NZ$6.38 bln and averages NZ$1,195 per person.
David
Can you clarify for me.
When reference is made to credit card debit; Is that the total amount on all credit cards at one time, or is it the amount that attracts interest (i.e. the credit card hasn’t been cleared in that month).
Edit: Investopedia defines it as the accumulated debt of the outstanding balance.
Interest rates to keep rising, dashing recent hopes of falls.. so I assume the next round will be longer ends going up again..
major companies [in Japan] are starting to raise wages sharply, a key factor for the central bank
You might have missed the Japanese central bank calling for firms to increases wages above the rate of inflation. That is what they want to happen!
The impotence of the Fed is something to behold. They are hiking rates to the moon but that is only cooling their construction market and new housing purchases (existing mortgages are on 30 year fixes) - meanwhile people are still employed and they have money to spend.
It is quite possible that the inflationary impact of the billions of dollars of interest the US is paying on trillions of dollars of bank reserves is overwhelming the pathetic deflationary impact of the rate rises. That's not the case here of course - we are happily wondering into a central bank driven crash..
Maybe it’s a crash we need to have. My view has started to shift a bit on this.
The crash will affect most those speculative and unsustainable parts of the economy - real estate, property investment, speculation and development etc. There will be some collateral damage in other areas, but many of those other areas are pretty low value - hospo, retail etc. Some professions associated with property development will be hit, but those professions are filled with leeches, so perhaps good riddance.
There will be downsides but maybe the upsides in terms of economic reset outweigh them.
Btw, for those interested, resource consent applications in Auckland in February are less than half the volume they were in February 2022. Resource consent applications are a leading indicator of building consents and development.
I see where you're coming from - but a crash is a catastrophically clumsy tool to use to tackle rentiers and speculative investors. The collateral (human) damage will be huge - and all of those damaged people (and their damaged children) will cost us dearly in the future (socially and financially). And, for what? What is waiting for us at the other side of this crash? The reinflation of the same bubbles, and economic growth based almost entirely on extractive industries and ever-higher private sector debt.
My view is that we have to change the gearing in the NZ economy so that bank created credit money doesn't continue to flow from banks to mortgagors and into the accounts and investment portfolios of the top 1% of the population. If we could keep more of that money circulating in the economy, and control specualtive credit, we could keep our high employment and start plotting a better path forward.
Great plan....if all economies adopted it in unison, sadly what would (potentially) be effective if implemented in total would have the opposite (and catastophic) impact if adopted in isolation.
Fair points, but it’s reversing the dumb decision making of the RBNZ, and unfortunately that is going to be the big down side to the big up side.
The whole system is totally f#%^ed.
You are right that the whole nonsense will just start up again in 2-3 years. Without significant reform (which won’t happen)
My view is that we have to change the gearing in the NZ economy so that bank created credit money doesn't continue to flow from banks to mortgagors and into the accounts and investment portfolios of the top 1% of the population.
Easier said than done Jfoe. Imagine if one day the ruling elite decided that rugby was not the national sport anymore and we're going to transition all energy and reosurces in to croquet. You're suggesting that we tear down the fabric of the social and economic structures and the associated attitudes / behavior. Good luck with that. It would be better if the ponzi collapsed under its own weight for any meaningful change.
Yeah, but I guess we can dare to dream…
Interesting post Jfoe, who is/are the recipient(s) "of the billions of dollars of interest the US is paying on trillions of dollars of bank reserves" ?
The Kiwi dollar is at 61.6 USc, and down another -½c than this time yesterday. And that is almost a -1c drop in a week and taking it to a three month low.
That's most unfortunate, a falling kiwi might cause inflation to jump again next quarter.
And that's at a time when NZD forward interest rates are depicted as being higher than the US.
Dire current account deficits hardly help a downward imported inflation spiral.
Isn't it more the US$ going up against most major currencies due to the recent expectation their interest rates are going up higher, for longer? I'm not saying our current account isn't crap, just, that isn't the reason the NZ$ is lower against the US$.
article photo "A broken stopbank, Whirikino" Can't locate Whirikino on Gmaps. Is this a new name and Gmaps hasn't caught up yet?
It looks like this is from 2004 floods. It's a bridge across the Manawatu River, south of Foxton.
Whirikino Road.
Interested to what the readers would say..
Why can't the home loan rates be set for 30 years or for the term of the loan? Solve most of the fluctuations, negative equity and defaults And the reserve bank to stop fiddling with the OCR and tie it to the CPI. Percent for percent.. so it moves as soon as the inflation data is in..
Haven't thought this through completely so happy to what others would say.
That's the way it is in the USA
So, I settle down to binge watch DFA to make myself feel worse and, POW!, Martin North is heading back to the UK and the channel will go quiet for a while:
(201) So Long, And Thanks For All The Fish! - YouTube
Is the universe telling me to cheer up? If so, this is NOT how to do it.
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