Here's our summary of key economic events overnight that affect New Zealand, with news markets are increasingly worried about Deutsche Bank. It has been eyed for years over some long-standing shady practices often with Russia, but now, post-Credit Suisse, confidence is leaking away to a serious extent.
But first, American durable goods orders fell -1% in February from January, to be just +1.0% ahead of year-ago levels. Mainly this was because of weak aircraft orders which have been a drag for a few months now. Orders capital goods were up +3.8% if you exclude defense and aircraft orders. Including both, capital goods orders were down -4% from year-ago levels.
But perhaps the March data will be better? The latest PMIs for March are healthy in the US. The flash Markit PMI for March reports the fastest uptick in US private sector business activity for almost a year, as new orders returned to growth. Their services sector expanded faster in March, and their factory sector's February contraction was almost eliminated in March. There is nothing in this report to indicate the US labour market is pulling back, but there are indications that price inflation remains high. This will steel the US Fed for an even higher benchmark interest rate to try any take more steam out of the expansion. Certainly that was the view of Fed hawk James Bullard overnight.
Canadian retail sales grew more than expected in January from December, but the year-on-year situation sagged somewhat to be +5.0% higher. It was healthy car-buying that helped the January data.
The Japanese inflation rate fell to 3.3% in February from January's 41-year high of 4.3%. The latest figure also marked the lowest print since last September. They had serious and sudden deflation in February from January, running at an annualised -7% rate.
The inflation fall came even as the Japanese services sector expanded at a faster rate in March. And their factory sector held it own, even if it isn't back expanding yet.
As the Brazilian president visits Beijing this weekend, China has agreed to restart beef imports after trade was initially halted due to a case of mad cow disease a month ago.
Singapore reported some awful industrial production data for February, far weaker than anyone saw coming. The contraction is running more than -11%
Eurozone economic growth accelerated to a ten-month high in March according to the latest flash PMI survey data, adding to signs that their economy is reviving after falling into decline late last year. Inflationary pressures have continued to moderate, with input prices even falling sharply in manufacturing. Jobs growth has also accelerated and business confidence in the outlook has remained resilient despite concerns stemming from recent banking sector stress and higher borrowing costs. Having noted all those positives, the overall rate of expansion is still quite modest.
These gains are all very fragile however given the growing concerns about the health of the European banking sector. Eyes are now on Deutsche Bank. On March 9, its share price was €11.51. It ended on Friday at €8.54. Shareholders are nursing a -25% dive in just two weeks on growing speculation the giant German bank could be following Credit Suisse's deadly path. It has wide-ranging issues. When confidence in a bank goes, it can go suddenly. The German Government is scrambling to reassure the market. But the odour is affecting many other banks as well.
In Australia, it's election day in NSW.
Locally, it looks like the TAB is in the last stages of being sold off to one of the Aussie betting giants. They will get access to the TAB's monopoly position here, unless the law is changed. Tabcorp and Entain are being talked about as the final bidders.
The UST 10yr yield starts today at 3.37% and down another -7 bps from this time yesterday, and back to early February levels. A week ago this rate was 3.40%, so only a -3 bps slip since then. The UST 2-10 rate curve is lower at -40 bps. Their 1-5 curve inversion is less inverted at just under -92 bps. But their 30 day-10yr curve is much more inverted at +85 bps. The Australian ten year bond is down -7 bps at 3.29%. The China Govt ten year bond is unchanged at 2.89%. And the New Zealand Govt ten year is starting today down -5 bps at 4.17%. That is a large -25 bps fall in a week.
Wall Street has opened its Friday trade with the S&P500 up +0.6% in late trade and heading for a weekly rise of +1.4%. Overnight, European markets fell by about -1.5%. Yesterday Tokyo slipped -0.1% to end the week up +0.6%. Hong Kong fell -0.7% on the day but ended its week up a strong +2.9%. Shanghai fell -0.6% in Friday trade to end the week up +0.4$. The ASX200 ended its final session down -0.2% on the day and down -0.6% for the week. The NZX50 was little-changed on the day but couldn't avoid a -1.2% weekly fall.
The price of gold will open today at US$1977/oz and down -US$18 from this time yesterday. A week ago the gold price was US$1975/oz, so very little net change here.
And oil prices start today -US$1 softer from yesterday at just over US$69/bbl in the US. The international Brent price is now just over US$74.50/bbl. At these levels we are up +US$2 in a week.
The Kiwi dollar is down almost -1c against the USD and now at 62 USc. A week ago it was at 62.7 USc. Against the Aussie we are little-changed at 93.4 AUc. Against the euro we are also little-changed at 57.6 euro cents. That puts the TWI-5 down -50 bps at 70.1, which compares with the week-ago level of 70.9.
The bitcoin price is lower again today, now at US$27,705 and down -2.9% from this time yesterday. But it is up +4.4% from a week ago. Volatility over the past 24 hours has been modest at +/-1.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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43 Comments
Huka Falls. Beautiful shot. Impressive force. Certainly. Prompted me with sudden urge to visit the little room.
Head in hands
In case you're wondering, that's a double meaning!
And on things economic:
More than 77,000 overseas student loan borrowers have overdue repayments.
Hardly new, how has that changed from pre-covid?
Part of the indoctrination process. Get the young in debt early and Wall Street can profit nicely, as a student cannot declare bankruptcy on student debt.
Where did you get that? You have to do the full bankruptcy (not no asset procedure) to get it included, but I know people who chose bankruptcy over paying their student loan (and regretted it later, mind you). Even considered it myself during the lows of early 2009.
Unless things have changed, or you're not referring to a NZ context?
I know people that got married just to get student allowance. Which is the worst option?
I think he was referring to the USA student loans..
Yes, USA student loan debt.
And Wall Street has made it clear, 5% is all we will tolerate. Wall Street controls the FED. Blackrock - Powell?
Recall heavy talk in London 2002, financial circles that Deutsche was on the brink, a very slippery slope. Not alone in dubious Russian connections either. The Drednser Bank was up to the eyeballs in those circles too. Commerzbank eventually absorbed them. Drednser had been the bank of choice for much of the Nazi Party hierarchy and operations.
The Fed are talking out of their mouths here.
From Reuters today: "In separate appearances, three regional Fed bank presidents said they ultimately concluded that the March 10 collapse of Silicon Valley Bank along with other developments did not undermine confidence in the strength of the U.S. banking system as a whole, with one dismissing the California-based lender's failure as not relevant to how other banks are managed."
And yet the systemic risk argument was invoked to save SVB?
When it gets serious, you just have to lie.
Article on the construction downturn in Christchurch:
https://i.stuff.co.nz/business/131587399/layoffs-liquidations-predicted…
Haven’t seen much journalistic coverage on Auckland, where the slump is further advanced than other centres. Resource consent applications down massively, a key leading indicator.
Just as an anecdote, while it looked like the tender desk was getting quite, the last 3-4 weeks has seen a fairly sizeable chunk of new projects getting priced.
Then again I know some trades that are mostly centred around new housing that reckon things are definitely quieting for them.
So mixed bag all round.
The Stuff article is painting a very grim forward picture. This train wreck could be seen coming more than 1.5 years ago. Perhaps an on to it government could have been preparing for it, or perhaps not - maybe it’s just the boom/bust nature of these things.
Things are going to get very ugly this year.
Btw it directly affects government house building. The major Kainga Ora development areas are reliant on one third of all housing being delivered by the market, to help fund the state house building. Not to mention the big loss of GST revenue that’s coming.
All I can say is good luck to developers trying to sell two bedroom townhouse in state housing heartlands for 900k:
Pretty sure in Tamaki it's two thirds sold to open market and one third to state providers . But that balance might have to change now if they want the pipeline to continue.
One third market, one third affordable (community housing providers), one third state housing.
The model is in trouble
The model is in trouble
The developers have rocks in their head. Those price tags look like something cooked up peak bubble. Delusional.
The Stuff article is painting a very grim forward picture. This train wreck could be seen coming more than 1.5 years ago. Perhaps an on to it government could have been preparing for it, or perhaps not
By doing what perhaps?
You're probably not super aware of the rather large project, currently barely out the gates that will be doing total retrofits of 10s of thousands of 50s-70s state houses. Floor to ceiling gutting, insulate, re-line, re-wire, re-plumb, new kitchens bathrooms, double glaze etc etc, it's close to a couple hundred grand retrofit per house, to get them to healthy homes standard.
Fairly obviously the Greenfields subdivison rackets' in for a pretty quiet time, but that sector isn't the entire market.
on my cycle round in NP this morning called in at a 85% complete single storey residential new build. A tiler who only works for franchises. He is OK until Nov/Dec this year. Says consents have dropped off in the last three months. He has had three lows in his 20 odd tiling years and weathered them all. He doesn't have a fancy ute or speedboat that needs selling off when the low hits.
So far this year, the city council has received 3.4% fewer residential building consent applications than it forecast, and 11.7% fewer than in the same period last year. As a result, it now expects to receive 15.6% fewer applications in the next six months than the same period last year.
Total collapse. Yeah nah
Locally, it looks like the TAB is in the last stages of being sold off to one of the Aussie betting giants.
As night follows day.
DB is a very big domino
DB rumours have been circulating for many years. You would think they should have got their act together by now.
Tom Luongo argues that the CS/UBS 'merger' and the concomitant marking to market of the former's AT1 at zero, was done to negate the possibility of the AT1 holders becoming a major owner of the latter. But the side effect is that all AT1/CoCo instruments, everywhere, are now suspect. As Izabella Kaminska notes, this is yuuge... From Tom:
entire idea of CoCo bonds has been undermined by the Swiss and, I think, by extension, the Fed.On two major fronts, limited insurance for bank deposits and terminally impaired capital structures for European banks, the Fed just positioned the US to be the recipient of major capital inflows as all of the interest rate and credit risk is transferred back to Europe.
Indeed who wants to buy these as they roll over...... Its work about 75bps of tightening i think...... Good to see some understanding of risk re enter the market though. Game theory says GET OUT NOW.
The response to COVID caused a recession as it naturally would. Things stopped, people didn't work and spending was drastically reduced, just like what happens in a recession. The recession should have happened then however the government printed money and reduced the cost of credit to make it appear like there wasn't a recession. The simple fact is you cannot have a lockdown without having a recession. Sooner or later the recession will come. Delaying it by printing money and making credit almost free, making the rich richer and the poor poorer, will just make it much worse when it eventually arrives.
Only took six lines to sum it all up. Appreciated. Nice work!
How about, "The Covid scamdemic was a tool used to kick the can down the road?
DB is TBTF, more likely it would be wound down.
It'll be interesting if Russia halts exports of grain to increase prices. Another round of inflation? https://youtu.be/ZYxGGuog8NQ
If America sneezes the World gets cold.
If there is a problem in American banking, European Banks fail.
Suisse, Deutsche...
Swiss banks are taking a hammering because CS did a poor job of risk assessment. USB took a look at those toxic, heavy, bags and were pretty much forced to pick them up by the Swiss Govt. UBS referred to a "specific portfolio" being the problem. I'm guessing Archegos.
15 years ago Deutsche Bank shares were ~€90. Today they are ~ €9.
So all the QE and negative interest rates in Germany achieved what?
A productive game of Russian Roulette ?
Been yo-yoing the last 5 years, six months ago was 7 euros went to 13 euros before being sold off again
I worked for DB once, they flew my to Tokyo and New York from London first class.....
QE helped only the US Banks. The US rammed it down Europe's throat, because of the dominance of the USD.
Europe had no alternative but to follow with QE, with all the unintended consequences. Many Pension Funds lost their wealth and no one has been held to account, 15 years have passed. The cycle is repeating now, once again, there will be massive loss of wealth, with the final concentration increasing with the US.
Blue sky thinking 🤣
If you look really closely at the Huka falls on the RHS you can actually climb down here and get behind the falls, I have done it, you need a climbing harness.
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