Here's our summary of key economic events overnight that affect New Zealand, with news inflation seems to be cooling in the world's largest economies.
On Tuesday we noted the retreat of Chinese inflation, today the US is signaling a retreat as well.
The closely-watched US CPI inflation rate slowed for a ninth consecutive period to 5.0% in March from the same month a year ago, its lowest since May 2021. It was a sharpish drop from 6.0% in February on the same basis, and also came in below market forecasts of 5.2%. It was energy costs that drove the drop (-6.4%), with food prices up +8.5% from year ago levels. The core rate ran at 5.6% and little-changed from February. However if we look at the annualised rates in the recent shift from February to March, that ran at just over a +1% annualised rate overall with food showing no change. Energy costs still fell on that more recent basis and it was rent and medical care that kept the February-to-March rate from falling.
However, the minutes from the last Fed (FOMC) meeting were out saying inflation is still too high and the pressure must be kept on. They are stressing vigilence in the inflation fight. But to be fair there were some voices for a pause.
Markets liked the inflation result however, and stocks initially rose, bond yields didn't react, and the USD firmed. Perhaps they sense the transitioning to lower inflation is in place and without a hard landing? However, the S&P500 has since slipped into a small negative result with markets subsequently sensing that perhaps more rate rises are possible from the Fed.
Meanwhile, American mortgage applications rose at a good rate last week, up more than +5% from the prior week to be -31% lower than year-ago levels. The benchmark 30 year fixed rate was marginally lower at 6.26% plus points.
In Canada, they reviewed their benchmark interest rates, and as widely expected kept them at 4.5%.
In Japan, machinery orders rose +9.8% in February from a year ago in the latest data released there. That was well above the +3% expected and well above the good +4.5% rise the prior month.
Japanese producer prices were unchanged in March from February, with a fast-cooling year-on-year rise.
Indian industrial production rose at a little-changed rate in February (+5.6% from a year ago), and their consumer inflation rate slipped to 5.7% in March from +6.4% in February, and close to the top of their wide inflation target range.
The UST 10yr yield starts today at 3.41%, and down -2 bps. The UST 2-10 rate curve is less inverted at -55 bps. Their 1-5 curve inversion is now at -122 bps and marginally more inverted. And their 30 day-10yr curve is less inverted at -69 bps. The Australian ten year bond is up +1 bp at 3.28%. The China Govt ten year bond is down -1 bp at 2.83%. And the New Zealand Govt ten year is up +5 bps at 4.06%.
On Wall Street, the S&P500 is down -0.3% near the end of its Wednesday trading session. European markets were all up about +0.3% in their overnight trading sessions. Tokyo ended its Wednesday up +0.6%. Hong Kong was down -0.9%. But Shanghai rose +0.4% yesterday. The ASX200 ended its session up +0.5% and the NZX50 ended up +0.4%.
The price of gold is at US$2013/oz and up +US$8 from this time yesterday.
And oil prices are up another +US$1.50 USc at just on US$83/bbl in the US. The international Brent price is up to just over US$87/bbl.
The Kiwi dollar is firmer against the USD and now at 62.2 USc and up +¼c from this time yesterday. Against the Aussie we are have slipped to 92.8 AUc. Against the euro we have slipped -¼c, now at 56.5 euro cents. That means the TWI-5 is at 69.9 and unchanged from this time yesterday and still a one month low.
The bitcoin price is little-changed today, still at US$30,232. Volatility over the past 24 hours has been low at +/- 1.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
56 Comments
Someone on here used to publish a house price crash chart comparing us to Ireland and other bubbles bursting . Could they perhaps add recent data and a link
We are moving very fast Thanks IT Guy
other news from the guys auctioning a failed construction company asserts today
“There is definitely a need for the affairs of many many companies to be realigned to the current economic circumstances that they find themselves in, which is a polite way of saying many of them are insolvent and need to reconstruct their affairs, so they can continue to trade.”
https://i.stuff.co.nz/business/131752673/selloff-from-struggling-firm-s…
Financialisation marches on.
Blackstone may have blocked investor redemptions from its REIT fund for the fourth month in a row, but that does not mean the CRE giant and world's largest commercial landlord is sitting on its hands as the CRE crisis goes from bad to worse.
On Tuesday, Blackstone announced it had raised $30.4 billion for its latest global real estate fund - the largest private equity drawdown fund ever raised - targeting opportunistic deals across sectors such as rental housing, hospitality and data centers as the private equity behemoth looks to double down on the industry. Link
Blue: Private REITs (manipulated) price Orange: Public REITs (traded) price Private funds are not less volatile, and they don't deliver any magic alpha. They just exploit ''mark-to-magic''. H/T to Chilton REIT Strategy for the analysis and chart Link
When people are fearful, be brave. When others are brave, be fearful. Blackstone have it dead right, once again.
I believe Miguel was generating those very sobering graphs. It was also my first thought when the QV article appeared yesterday...
Inflation going down, interest rates going up. I still think they are going to overcook it, pretty sure we’ll get burnt.
The rate of inflation increase is declining, I.e. it’s still increasing at above 2-3% target but by only double the amount, as opposed to triple. That’s how I read it. Therefore interest rates have a long way to go.
No they don't. It's about momentum. You could literally do nothing this month and inflation would still decrease. This is why they say it takes a while to see the outcome of policy changes; an iceberg doesn't turn on a dime.
Saying interest rates need to rise because we look at a 12 month metric, even though that is largely skewed by months 1-6 and nothing much has changed in the most recent half-year, makes as much sense as when a house agent hypes annual price gains 6 months into a slump.
The train is slowing down and should come to a halt soon. No need to pull the emergency brake.
Judging by the number of likes to any comment that says rates still need to go up, many commentators have not seen a central bank arrive too late to the party before. They certainly like to put an added downer on the situation. I really can't see the logic that a recession is better than slowly falling inflation.
The train is full steam ahead. Grocery prices are climbing as are just about everything. I do agree that interest rates are a blunt tool and the RB are acting on historical data and will overshoot…they always do /will. The fact is like it or not rates will be increasing.
Interest rates are a blunt tool, and inflation is a blunt problem.
an iceberg doesn't turn on a dime
That's an interesting idiom....?
Wordplay has a role in the comments section ;-)
Thought it might have been a Japanese saying given your moniker, but can't find it anywhere...(plus not many icebergs round Japan).
The original of course was "a tanker doesn't turn on a dime"
It refers to sunk costs
:)
an iceberg doesn't turn on a dime
What's with the lettuce reference? ;)
If you believe it is about positive real rates (i.e. Taylor Rule) then we do have more tightening to go (with lags).
If you believe in the Taylor rule, then why is inflation going down in the US?
US economy inflation figures are famous for being dodgy.
I thought RBNZ had done enough but then Labour announced 7% benefits and super lift. If they throw lollies around Orr is going to raise rates GOING into election
Spot on. Behaviour of govt and the banks is to try to swim against the tide. Everyone seems to thnk this was just a few months of pause in the party and that orr will soon pause and then drop ocr and we can carry on spending and driving the housing market up again. Its the habits that are far from changed.
Its a tough ship to turn. I reckon we are a couple of years from a rate drop.
Boom and bust (especially bust) is not in Banks interest...... they would rather have steady growth.
NZ has the 2nd highest minimum wage in the world. Only Australia is higher.
But Michael Wood assured us that increasing the minimum wage doesn’t impact inflation.
Given that most of our inflation is either 'supply side' or greedflation I expect he's not far off the truth.
The Annual General Adjustment is a statutory requirement to adjust rates of social assistance on 1 April each year. Either by rate of inflation or wage rises. It’s not a lolly scramble and the Gnats would have been required to do the same. But you knew that, didn’t you.
It's obvious that they are going to overcook it now though. They over cooked it on the way down for the past decade and during COVID. They are the same people using the same decision making framework now and get to mark their own homework and give themselves awards with how "amazing" they are. So they will simply over cook it on the way up as well, its virtually guaranteed.
That overcooking will create heaps of opportunities, as happened every other time the Reserve Bank overcooked things.
The closely-watched US CPI inflation rate slowed for a ninth consecutive period to 5.0% in March from the same month a year ago, its lowest since May 2021.
Additionally, we note that real wages continue their declining streak - now at 24 months...
Have you seen the CPI breakdown though... oil -17%... pretty confident that could very well be reversed throughout this qtr.
We have compound inflation. I seem to be paying 20%-40% for basic items I purchase. It is 6% on the inputs and wages at the manufacturer, 6% on transport of the items. 6% from any middle man and 6% added on from the retailer.
If all the components of a price increase by 6%, the change in the final price is 6%.
Err, surely the final price is set by the enterprise selling the product?
Well yes, but their margin is just one of the components. The point is that you can't just sum each component's inflation rate to calculate the total increase. 10+10=20, if I increase the two inputs by 10% then 11+11=22, a 10% increase on the total. Not a 20% increase.
10 + 11 = 21
I agree, but not sure of the relevance.
Yes, but that means not all the components went up by 6%, the profit margin component went up by a different percentage.
Where did you study economics mfd? Input 100 +6% = 106. Next layer of input, 106 + 6% =112.36. Next layer, 112.36 + 6% = 119.10. Now the product leaves China. NZ importer, 119.10 + 6% = 126.25. To wholesaler, 126.25 +6% = 133.82. Retailer 133.82 + 6% = 141.85. That is how 6% increases across the board work.
Why are you compounding the increases onto inputs that have already presumably increased? Product made in China $100 cost. Assume It has 3 inputs: Fuel, Labour, Raw Materials (each $25) and 25% GP for the manufacturer.
- Costs $100 to ship so landed cost is $200. The wholesaler adds 20% GP = $250 cost to retailer (excl local freight).
- Costs $20 to ship to retailer ($270 landed) and they put on 20%. It's a $337.50 item.
But then each input goes up 6%.
- Manufacturing $25 + 6% = $26.50 each (x 3). New cost = $79.50 + 25% GP = $106.
- Wholesale/Shipping $100 + 6% = $106 freight = $212 (Goods + Freight) + 20% GP = $265 to retailer
- Retailer $20 + 6% = $21.20 freight + $265 + 20% GP = $357.75 new sell price. 6% more than the $337.50 price tag.
You've correctly done the maths for adding a 6% margin a few times to an item, but that's not what inflation is.
Now apply 6% inflation to that 100 starting price and repeat the exercise. Everyone else's margin will automatically increase by 6%, and the final price will also increase by 6%.
Basic maths says that is in overall increase of 6%.
Not if the stages are sequential, and each is tacking their own increase to the input-increase.
That's compound.
Gets a of of people into trouble, does the assumption that all else will stay - or is - equal.
Only if the stages increase their margin percentage which isn’t really input cost inflation. If I am the wholesaler and I charge cost + 20% and my costs go up by 6%, then my price goes up by 6% (and my profit goes up by 6% inline with inflation). Compound that down the chain and the total price goes up 6%.
The compound is already taken care of in the original sell price. Any price changes to supply chain components will only impact the end price by whatever fraction of cost they last made up.
If one component that's 10% of the cost of goods increases 6%, then that's a 0.6% increase in sell price all being equal. If only that component increases 6% again, it's now 10.5% COGs so the sell price increase is 0.63%.
Holy shit...10 upvotes for pdks dodgy maths v 2 upvotes for people who do understand the maths of inflation that we are talking about.
Makes you wonder, doesn't it? Telling a good story seems to be more important than basic facts - a common theme in the comments section.
Buffet announces he's doubled down on Japanese trading trading houses - Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo.
Mention that around the water cooler and you'll get those non-descript looks as if you're barking mad.
https://www.channelnewsasia.com/business/buffett-boosts-stakes-japanese…
Its great to be famous isn't it! Invest in something, tell everyone you are doing it, everyone else piles in, get your money out quick. Elon Musk would be proud.
Its great to be famous isn't it! Invest in something, tell everyone you are doing it, everyone else piles in, get your money out quick. Elon Musk would be proud.
The point is that Buffet's rationale for doing so is based around different principles that most people in the West seem to have lost touch with. These companies are cash rich, have multiple verticals, have huge buying power, exercise strong loyalty internally and externally. Old school. Budgets for woke virtue signaling are likely to be small compared to most stocks in your portfolio.
Also Jimbo, Warren Buffet is famous for holding on to decent companies for years and decades. He is famous for not ducking in and out of share positions because of his fame. He is famous for doing basic analysis of companies, and acting accordingly.
Agree Jimbo, and do people still hang around the "water cooler"..., coffee machine would seem more important these days?
Berkshire Hathaway's portfolio's five largest positions are in Apple Inc. (AAPL), Bank of America Corp (BAC), Chevron (CVX), The Coca-Cola Company (KO), and American Express Company (AXP).
He used to love insurance, was a great gig.
Insurance companies collect fees before providing their service -- paying insurance claims. Because they collect premiums up front, they will have a pile of cash -- their "float" -- that is theirs to deploy until it is depleted by policyholders claims. As Buffett notes, it's "money we hold and can invest but that does not belong to us." Link
It was energy costs that drove the drop (-6.4%), with food prices up +8.5% from year ago levels.
The average price of WTI was $73 last month but has climbed to $83 currently. If US inflation dropped predominantly on energy I would be concerned that low energy prices may not be sustained this month.
Needs to be seen in a Systems perspective.
Currently, it is taking well north of $1 of debt, to produce $1 of GDP. And we know that it takes energy to do work (including labour), and that it's a 100% underwrite, at that.
https://surplusenergyeconomics.wordpress.com/
So attempting to 'value' energy in $ terms - given the widening debt-GDP gap - is invalid; mere teal-leaf-reading. What that debt-GDP ratio tells us, is that society already cannot afford itself - and that is using the best of what remains, fossil-energy-wise. Turned upside down, we can no longer 'afford' the next-best energy Capex proposition. What we do with the now-unrepayable debt, ex rampant inflation, is a good question? But to try and predict trends based on the 'price' being 'paid' by a society-at-large that would be wound up if the receivers were called in?
Hmmmmmm
A good explanation of the above
Spot on here. Oil artificially low with Biden SPR releases.
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.