Here's our summary of key economic events overnight that affect New Zealand, with news China seems to be shaking off its pandemic handbrake faster than many expected.
China said both its factory sector, and its services sector, each expanded at a moderate rate in February, a key set of improvements. Both were outcomes better than expected. The services sector result was a two year high; the factory result was a ten year high. And backing that up was the private Caixin PMI survey which reported similar good improvements.
Meanwhile, there are some indications that local incentives are in fact luring more buyers back into their housing markets.
Those much better China PMI results mean that globally, the factory sector returned to an expansion mode. Output rose for the first time in seven months amid improving supply chains and China's re-opening. Business optimism also revived, rising to its highest level in a year. This expansion and mood is being led by India, China and South East Asia. Now Europe, Japan and the US are the laggards.
The hoped-for turnaround in the American mortgage market has been a mirage. After a brief revival in application activity in January when mortgage rates dropped to 6.2%, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month. Those applications fell -5.7% last week and the benchmark mortgage rate rose to 6.71% plus points. Those applications are now running a spectacular -70% lower than year-ago levels.
The ISM manufacturing PMI edged higher to 47.7 in February from 47.4 in January, which was the lowest since May 2020, but fell short of expectations of 48. The reading pointed to a fourth consecutive month of falling factory activity with companies continuing to slow outputs to better match demand for the first half of 2023. It's not much, but the contraction in new orders eased off, if there is a bright spot in this data.
American construction spending isn't coming to the rescue, although to be fair it isn't a drag either.
The price pressures within the PMI data has markets raising their expectations on where the US Fed will have to go to with its policy interest rate. Now bond market pricing indicates a 5.5% Fed rate by September, from its current 4.5%. The next review is on March 23 (NZT) and it is expected to rise to 4.75% then.
German inflation isn't moderating. It came in at 8.7% in February, not far from a peak of 8.8% seen in October and November and above market expectations of 8.5%, its preliminary estimate showed. On an EU harmonised basis, prices rose +9.3%. Food prices are the driver as oil and gas prices ease off. This data is sure to steel the ECB for more rate hikes.
Australia reported its Q4-2022 GDP growth yesterday, coming it as expected at +2.7% from the same quarter a year ago. In Q3-2022 it was +5.9% so the rate more than halved. This was the fifth straight quarter of growth in their economy but the softest pace in the sequence, as household consumption grew the least in five quarters amid intense cost pressures and rising interest rates. The consumer was the key surprise, according to Westpac analysts, with only a tepid +0.3% rise in overall spending. Services were the key disappointment, with only a modest rise. Also, income growth was weaker than anticipated and the decline in the household saving ratio was more pronounced they noted. While nominal gross household income grew by +1.6% which is unusually benign, real household disposable income contracted by a hefty -2.2%.
Like New Zealand, Australia also reports its formal CPI on a quarterly basis, and for Q4, 2022 that was +7.8%. But they also have a monthly CPI indicator series and for December that came in at 8.4%. However that monthly measure fell back to 7.4% in January, their second highest level since this monthly CPI series started in 2018. Analysts had expected it to retreat to 8% so this is a bigger fall than expected.
We have noted this before but it is worth updating: coal prices seem to be in freefall after their recent surge. They are back to September 2021 levels now although even at these levels they are three times higher than pre-pandemic levels.
The UST 10yr yield starts today at 3.99% and up +6 bps. The UST 2-10 rate curve is more inverted at -90 bps. Their 1-5 curve inversion is less inverted at -82 bps. Their 30 day-10yr curve is also less inverted at -62 bps. The Australian ten year bond is down -7 bps at 3.82%. The China Govt ten year bond is little-changed at 2.93%. And the New Zealand Govt ten year is starting today at 4.59% and down -4 bps from this time yesterday.
Wall Street is in its Wednesday session with the S&P500 down -0.3% in late trade. Overnight, European markets all fell about -0.5%, except London which rose +0.5%. Yesterday, Tokyo closed up +0.3%. But Hong Kong roared back, up a spectacular +4.2% on the day and Shanghai rose a full +1.0%. The ASX200 ended its Wednesday session down a minor -0.1% while the NZX50 moved a bit more, down -0.2%.
The price of gold will open today at US$1841/oz and up +US$13 since yesterday and building on yesterday's move up.
And oil prices start today down -50 USc at just under US$77/bbl in the US. The international Brent price is now just under US$83.50/bbl.
The Kiwi dollar is up another +½c at just under 62.6 USc. Against the Aussie we are up +¾c at 92.5 AUc and a six week high. Against the euro we are firmish at 58.6 euro cents. That all takes the TWI-5 to 70.8 and up +50 bps.
The bitcoin price is now at the upper end of its recent range, now at US$23,719, up +1.1% from this time yesterday. And volatility over the past 24 yours has moderate at +/-2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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34 Comments
When do we get our own month on month spending data?
The release on consumer debt yesterday reinforces my opinion that we are in a steep slide down and the crash at the bottom of the hill is going to be very big.
That's an inevitability.
The question is when
My money is on bleh for the forthcoming decades
We get a decent proxy monthly - electronic card transactions. RBNZ also publish the same data split by overseas and domestic issued credit cards.
FBI director turns conspiracy theorist …..
A position that should be as uncorrupted as caesar’s wife has had its fair share of highly questionable occupants. From Hoover’s wardrobe habits to Comey’s volubility.
For anyone wondering:
https://www.rnz.co.nz/news/world/485087/covid-19-fbi-chief-christopher-…
We need to start censoring these COVID-denying extremists.
No one is denying it, its a debate about origins, though that might go over your head.
I think my sarcasm went over your head. Poe's Law in action!
Sarcasm doe not work on a site such as this. Better to stick to telling it straight.
... ha ha haaaa , Keith , that's great ... oh , hang on , you were playing a straight bat to that one ? ... my bad , sorry ...
"The FBI has for quite some time now assessed that the origins of the pandemic are most likely a potential lab incident,"
Can we all admit that the wet market was just propaganda and the MSM lied about it for 3 years, yet?
Be careful or Stuff.co.nz journalists will start trying to expose you for having dangerous ideas (when they aren't too busy sticking out the begging bowl)
It would be so simple for the chinese to close this down by presenting a sequenced animal origin like they did for original sars or mers etc etc.... but they cant because it was evolved in ACE2 genetically engineered mice in the lab situation.
the missing database from the lab is also somewhat of an inconveniance for them.....
Nothing will ever be proven , and even if it was, nothing will ever be admitted. Wouldn’t even have the same significance as Basil Fawlty’s exposure of who started WW2.
Yep. China had months during which it denied everything. In that period their records clerks and It specialists would have been really busy!
Not just China lied. WHO, CIA, FBI, that Fauci guy all lied through their teeth about all sorts of stuff concerning Covid. The source, the vaccines, the masks, the lockdowns. Our own government repeated these lies to us. Non mainstream media reported the truth for years, but were banned, threatened, and shutdown. Now people like the FBI guy are saying they knew about the truth for some time. Actually right from the start. A few agendas have been, and are, being put into place, using Covid as the excuse. The tussle all around the world between these people and their opponents over the next few years won't be dull.
Chris Hipkins did not lie ! ... we were indeed at the front of the queue ... it's just that everyone else in the queue was facing the other way , looking towards Pfizer ...
Aye, and those in the know will likely be in places unknown.
... or have recently been assisted out the window of a room on the 67'th floor of the Hotel Shanghai ...
Deadly enemy, gravity!
No.
The US National Institute of Health is not even close to admitting the truth.
Read the piece in Foreign Affairs magazine. An interview with the head of the Lancet Commission investigating the source of Covid 19. Why the Chair of the Lancet’s COVID-19 Commission Thinks The US Government Is Preventing a Real Investigation Into the Pandemic ❧ Current Affairs
Nearly 50,000 Grants are handed out per year to Universities and Think Tanks by the NIH and they have their hands on the necks of any Scientists ready to speak out. Money and power throttles the truth.
Americas Hyper-Financialized Economic System Is No Match for China's Government-Directed Investment Model. Regrettably, China's Explosive Growth Is Pushing a Desperate Washington Closer to War.
The same was said about Russia's Communist system versus Western Europe's democratic governments. A pack of self interested lies. Check to see who benefits from preparing for such a war. The usual suspects.
Funny how many of the supposed conspiracies are being shown to be true.
The price pressures within the PMI data has markets raising their expectations on where the US Fed will have to go to with its policy interest rate. Now bond market pricing indicates a 5.5% Fed rate by September, from its current 4.5%. The next review is on March 23 (NZT) and it is expected to rise to 4.75% then.
David - just FYI its already 4.75%
Why doesn't the FOMC care about all these things like inventory cycle, the oil market, house prices which impact future CPIs? Because they're only focused on current CPIs unable to understand how the whole thing works. They really believe it has to do with the unemployment rate. Link
Home prices continue to drop which means around the middle of this year we'll start seeing OER in the CPI (or deflator) back off even reverse and lower the CPI into next year. Link
Russian factory activity expands at quickest rate in six years in Feb -PMI
The S&P Global Purchasing Managers' Index (PMI) rose in February to 53.6 from 52.6 in January, moving further above the 50 mark that separates expansion from contraction.
you missed this bit,,
Input costs increased further, the survey showed, with the rate of inflation accelerating.
"The pace of increase in input prices was sharp and the fastest since May 2022," S&P Global said. "Hikes in supplier charges, alongside unfavourable exchange rate movements, reportedly drove prices higher."
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
by Carinaz | 1st Nov 22, 8:55am
HW2, you are 100% correct that confidence is cementing
Just as I was saying earlier this week, Chinese factories underway should be good for holding inflation
Chinese factory recovery could bring down imported inflation but NZ (along with many other countries around the world) still has to deal with domestic inflation.
NZ does still have to deal with local inflation but has ignored doing so for years so why change now?.
The likely outcome is that RB Guv will use a drop in imported inflation to cover for not doing his job properly as will Finance Minister
WCC proposed 12.8% rates increase helps show where some of the problems lie - will make more than 20% increase in 2 years -still with little to show for it
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