Here's our summary of key economic events over the weekend that affect New Zealand, with news all eyes this week will be on how equity markets react to stubborn US inflation and the expected Fed resolve.
But first, 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 changes. 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.
Separately, the central bank released a standard quarterly "implementation report" on Friday, saying it wants to avoid "flood irrigation" of new debt to support their recovering economy. But they also noted the external environment remains "severe and complex", adding that the basics of domestic economic recovery are "not solid". The report also said the property sector requires time to transition while the pressure of balancing local government fiscal revenue and expenditure persists. This report is probably the final from the current bank leadership. You have to hope the new appointments retain a sense of realism to avoid boom settings that will just make the resulting bust arrive faster.
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.
Over the weekend we got data that shows the American policy response against inflation isn't working yet. 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.
But just not yet.
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.
Warren Buffett's Berkshire Hathaway reported its 2022 results, and they are an overall -US$22.8 bln loss, and unusual result for Buffett. He is dismissive of the formal accounting result however, saying "exclusive of capital gains or losses from equity holdings, [earnings] set a record at $30.8 billion". His Annual Letter to Shareholders was unusually short this year.
Across the Atlantic, 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 a continuing cash burn and has 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 ever been a profitable business for anyone, lots of 'mystery' with no positive 'history'.
Elsewhere, 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 unchanged since Saturday but up +14 bps in a week. The UST 2-10 rate curve is little-changed at -87 bps. Their 1-5 curve inversion is a little less inverted at -83 bps. Their 30 day-10yr curve is a little more inverted at -68 bps. The Australian ten year bond is down -3 bps at 3.89%. The China Govt ten year bond is unchanged at 2.94%. And the New Zealand Govt ten year is starting today at 4.67% and also unchanged from Saturday but up +26 bps in a week.
The price of gold will open today at US$1811/oz and unchanged since Saturday. But that is a -US$30 fall in a week.
And oil prices start today up +50 USc at just over US$76.50/bbl in the US. The international Brent price is still at US$82.50/bbl. Both are unchanged in a week. Interestingly, the North American rig count is falling again in direct response to low prices. Those are down -4% since the recent peak in November when prices were over US$90/bbl.
The Kiwi dollar is at 61.6 USc, and unchanged even if it is close to a three month low. Against the Aussie we are also little-changed at 91.7 AUc. Against the euro we are holding at 58.5 euro cents. That all takes the TWI-5 to 70.2 and also very little-changed.
Bitcoin has stayed pretty much unchanged over the weekend, now at US$23,188. And volatility over the past 24 yours has been modest at +/-1.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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22 Comments
Who would have thought printing all that money would have made Inflation stick around so long. Not to worry we wont be far away from firing up the printing presses again.
Not to worry we won't be far away from firing up the chinese factories
Fixed
True yea I can’t wait to eat a nice TV with a side of tee shirt for breakfast.
Don’t forget the thinking, by the powers that be, was that inflation as it began to rise, was only transitory. Trouble is it was the thinking that was transitory, not inflation.
Transitory - a passing conservative?
I’m still a bit 50/50 whether inflation is mainly being caused by loose monetary policy or a demographic shift. I’m starting to think it’s the latter with the large boomer demographic moving from savings mode to spending mode, either investing in things before they retire (a new kitchen or car) or retiring and keeping themselves busy at cafes, vineyards, etc. I’m fairly sure the last decade of low inflation was mainly demographics too.
In your world boomers are to blame ... if the sun dont shine if the grass dont grow if the wife is grumpy
Every generation
Blames the one before
And all of their frustrations
Come beating on your door
Interesting you would take a defensive view from an observation like this.
You're confusing price rises with inflation.
Sort of, but no. The market cap moving on assets/investments as prices are set at the margins caused a whole lot of inflation (1 house sells for 10% more, 100k similar houses are now 10% more valuable) - which is a form of inflation as those who own sell down to capitalise on the movement, or use the newly gained equity to purchase more assets/toys.
But that is only a demographics thing by timing - boomers take a lot of blame because they were in the game first, but there are just as many Gen-X playing it too, and any millenials who managed to get in early!
Though, prices rose directly as the cost of credit was pushed lower and lower - now THAT may have been a generational thing (voting blocs pursuing favourable policies), but that won't be fixed by the boomers, etc, dying, but by later generations a) learning from their experience, and b) desiring to change the status quo.
It would be good to more clearly report on annual M2 money supply increase with associated commentary from the media and commentators the same way that people focus on inflation and house prices.
It takes a lot of effort to earn a buck but then Ta Da! 10% more in existence.
Nouriel roubini predicts hard landing.
He was right previously, but at the time said once in a lifetime.
Permabear?
from The Comb
Residential construction incl. section development
• Slowdown, holdback on spending, nervous business owner, and late payments from clients
• Still reasonably strong demand for small scale rural subdivision
• Staff shortages and rapid increase of paint and consumables.
• Pricing pressures from material and wage costs.
• Auckland based. Group housing/small development pipeline looking okay for 6 months but uncertain after that. Flood reinstatement hopefully will soak up potentially excess builder resources this year.
• Dramatic slow down in council residential building consents, was holding up (in terms of changing from new builds to alterations) but last 2 weeks have dropped off a cliff. Could be seasonal but seems drastically bad.
• Very low sales enquiries, but what we are getting is high quality. Lots of nervousness from clients
• Many people are no longer building.
• Huge sector contraction since just before Christmas - workloads contracted by around 75%. No good news looming after contacting all clients - we cover the design and consenting of govt housing, multi-unit and individual standalone houses
• Things are slowing down in the residential construction area.
• Residential property investment has been hammered by a successive stream of poor government policies (the worst being no interest deductibility) with the impact on the property development sector being particularly chilling. It's now extremely difficult to sell properties off the plan which is typically required in order to fund new property developments.
• As such, residential property development is falling off a cliff and there are virtually no new developments being initiated (outside of the likes of Kainga Ora) that were not already committed to a long time ago.
• Projects are being cancelled or downscaled, people reluctant to spend money.
• Architectural design for residential housing ---- lack of enquiry and forward work, quietest been for over 15 years, we see the work 6 months before builders do !
"property investment has been hammered by a successive stream of poor government policies"
It's been the decades of poor Government policy that got us to where we are today.
It's rank hypocrisy to suggest the current Government, who have at least started unpicking the imbalances in our economy, are the ones to blame for it all.
They are not. They all are. Most particularly, those who today spurn a bargepole and suggest that drifting in the currents of uncertainty is a better alternative.
If/when it all tumbles they are the ones in charge so of course they get hit in the polls.
Yep the slump is well underway and will be very ugly indeed.
Expect unemployment to ramp up for builders, tradies, contractors and all the professions hanging off the development sector.
Of course this was all telegraphed 1.5. - 2 years ago, so no surprise. So all these businesses should be prepared for it.
There are too many in this industry that have never been through a cash flow recession.
True. Although anyone older than 40 should know what it’s like from 2007-2009.
Granted, there’s plenty of naive young bucks out there. This will be their time for a lesson like some of us older heads got back in 07-09.
Telegraphed 1.5 to 2 years ago from feb 21 to aug 21. I dont think so
Whether they are prepared is a moot point
"The comb"
There is no emoji for that 🤣
Maybe a good time to build then if you can afford it?
Ridiculous blame of government policies, especially because the interest deductibility rule still works for new builds! The interest deductibility rule therefore should increase demand for new builds from investors, not reduce it. What numpty wrote that?
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