Here's our summary of key economic events overnight that affect New Zealand, with news commodity prices are weak today as global factory activity slows. And some banks have run out of places to invest their excess cash holdings.
But first in the US there were two factory PMIs out for June today and this sector is back at its lowest level since May 2020. The widely-watched ISM one was quite downbeat. It contracted again and by more than expected as softness continues and optimism about the second half of 2023 is sharply weakening. In this survey new orders contracted less in June than in May, but they still contracted. In the internationally-benchmarked Markit factory PMI, the story was similar but new orders fell in that one although to be fair they were recorded higher in May and the decline in June is to a level that matches the ISM version. In both, price and cost pressures are easing quickly now.
American petrol prices are quite stable again ahead of their holidays and summer driving season. They currently average US$3.53/US gallon which is very similar to month-ago levels, but -26% lower than year-ago levels which is a key restraining factor in the lower CPI. US$3.53/US gallon is equivalent to NZ$1.52/L including all taxes. In some places like California, taxes are high. Their pump price is currently US$4.54/US gallon - or NZ$2.08/L.
And we should note that reinsurers raised premium costs for their cover by +50% in many cases on July 1, reflecting the claims cost of climate-related events.
Janet Yellen isn't on holiday. She is off to China later this week to keep up efforts to try and normalise relations between the two superpowers.
In China, again less negative than the official measure, the Caixin factory PMI for China did not contract in the way the official survey suggested. But it isn't really an expansion either. But this 'good news' is enough to help Kong Kong and Shanghai equities maintain their rise, although the yuan remains under severe pressure.
Factory PMIs in Taiwan and South Korea are contracting although not at faster rates than previously in 2023. In Japan they are like China, neither expanding nor contracting.
India is the stand-out factory hub at present, recording surging demand and clearly benefiting from 'de-risking' strategies away from China.
Hong Kong retail sales were virtually unchanged in May from April in data released overnight. But because the base was so low, they have recorded very large year-on-year gains, especially in luxury goods. A year ago, their tourism sector was in the doldrums.
And Hong Kong is trying to extend its national security reach overseas by issuing arrest warrants for eight democracy activists who live outside the city now. Two are in Australia, setting up a new confrontation front.
The EU factory PMIs are weak with demand and production sinking further in June.
In Singapore, their largest bank, DBS, said that deposits are flowing in much faster than it can invest them so it has had to lay off more than NZ$36 bln to Singapore's central bank, the Monetary Authority of Singapore, as it is “not finding enough opportunities to put the money to work.” They aren't the only ones worrying about future prospects for Singapore. Elsewhere, surplus liquidity is building up in Japan as well.
Australian building permits rose sharply in May, driven by the volatile apartment-building sector. The total number of dwellings approved rose +20.6% following a -6.8% decrease in April. By far the largest rises were in Sydney.
In Australia it is a different story with house prices turning up, according to CoreLogic analysis. The cumulative +4.1% lift since February comes after a -9.7% decline over the previous ten months. The pace of Annual price declines moderated from -6.8% in the year to May to -4.8% in the year to June. The recent turn up is consistent with the new lending data.
And staying in Australia, one of their largest pension funds has slashed the value of its local office property assets by as much as -20% as commercial property woes hit them as one of Australia's biggest landlords. The Australian Retirement Trust, which manages NZ$260 bln of assets, said its local office buildings have seen “material downward movements ranging between 5% to 20%”.
Later today, the RBA will review its cash rate target which is presently at 4.10%. Markets expect a +25 bps rise to 4.35% given they have a strong labour market and housing distortions are featuring again. They also have inflation at 5.6% which is well higher than they want. Higher interest rates won't help those commercial property valuations.
The UST 10yr yield will start today at 3.86% and up +2 bps from yesterday. Their key 2-10 yield curve inversion is slightly deeper at -108 bps. Their 1-5 curve is a little less at -125 bps. And their 3 mth-10yr curve is also slightly less inverted, now by -133 bps. The Australian 10 year bond yield is now at 3.98% and down -3 bps. The China 10 year bond rate is little-changed at 2.70%. And the NZ Government 10 year bond rate is down -3 bps at 4.64%.
In a shortened Monday session on Wall Street today, the S&P500 closed up a minor +0.1%. Overnight, European markets slipped about -0.2%. Yesterday, Tokyo ended its Monday session ended up a strong +1.7%. Hong Kong ended up +2.1%, and Shanghai finished +1.3% higher on the day. The ASX200 ended its Monday session up a much lesser +0.6%, and the NZX50 could only manage a no-change ending after being lower all day.
The price of gold will start today at US$1921/oz and little-changed from yesterday.
And oil prices are a little softer at just under US$70/bbl in the US. The international Brent price is a tad softer too at just on US$74.50/bbl. Low oil prices are worrying producers. Saudi Arabia said that it would extend a cut in oil production of one million barrels a day that it announced in June through at least August, trying to push up what officials view as stubbornly weak oil prices. The Saudis were joined by Russia.
The Kiwi dollar starts today at 61.5 USc and only marginally firmer than this time yesterday. Against the Aussie we are little-changed at 92.1 AUc. Against the euro we are similarly little-changed at 56.4 euro cents. That means the TWI-5 is now at 69.9 and fractionally firmer.
The bitcoin price has risen from this time yesterday and now is at US$31,011 which is a +1.7% rise and still above NZ$50,000. Volatility over the past 24 hours has been modest however at just under +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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Shares: Usually an index is quoted. (Pays to know what the index includes and how it is calculated.)
Commodities: Usually in USD or another major currency - sometimes the local
Bonds: Usually by the current yield (i.e. what the underlying face value is predicted to be worth when (if) they redeem - adjusted by the margin between current yield & predicted future yield. Once again - this yield - like share indicies - is subject to the method used).
"Slovakia's GA Drilling has demonstrated a pair of new technologies it says could unlock geothermal power generation more or less anywhere on the planet. Anchorbit and Plasmabit promise much faster and cheaper drilling into hot rock 10 km underground.
The intense heat under the Earth's surface represents a virtually inexhaustible source of reliable clean energy that would be available 24/7 from anywhere on Earth – you could pull it up as steam to run generator turbines, or pipe it directly into district heating systems."
It's not a new energy source - we've known about it forever.
What we are in, is a race between technology and destroying our global habitat. Remembering that technology is what has done the destroying, thus far...
I'm no Luddite (have an engineering/inventing background and spend many hours 'making'), but think about it; a tankful of petrol versus a geothermal-driven generator, transmission, charging, and the energy0density and weight of batteries (petrol empties/lightens en route, a big plus for planes, a smaller one for cars). Replacement it is not - but we will go there because we have no alternative.
No all he did was post a link to an article on a company developing tech to tap geothermal energy. Nothing wrong in that, plus it is interesting. But as PDK points out it is a part of the cycle of denial, that tech will save (because God won't or "I" am a true believer so all you others will die but God will save me) us. But in the end it too must fail because of the limitations of the tech. But it will help defer having to face the inevitable by the powerful and privileged.
https://www.smithsonianmag.com/smart-news/this-new-device-generates-ele…
There are numerous clean energy technologies coming on stream. The question is will we let them past the fossil fuel lobbyists... and will it be fast enougb.
Read about that on New Atlas too. But you're right,the FF lobbyists are too powerful. If the FF companies were smart they'd be funding the alternative energy research for a share of the profits and rolling it out as an alternative to FF, where it can be. But it looks like they're in denial too. personally i suggest that FF will never be completely gone, as some things will always need it. But many energy needs do not need FF and this needs to be recognised now, and pressure put on the create the alternative sources. Forget about market demand. That'l never be powerful enough to get it done privately. Governments and wealthy corporations need to do this.
"Currently, the fingernail-sized device can only create continuous electricity equivalent to a fraction of a volt, writes Vice’s Becky Ferreira. But the researchers hope it can someday become a practical, sustainable source of power."
Give it a few decades and it might be able to charge your mobile phone.
Geothermal has limited potential - but that link is just a standard puff-piece; we need development money, please give a little.
The limit, is exactly the same problem Climate Change has; getting rid of low-grade heat fast enough not to heat the above-crust planet. If used for energy purposes, the result is low-grade heat (energy is never destroyed, but entropy is a one-way trip). If we attempted to replace fossil energy, present petajoule rates, with geothermal, we'd cook the place.
https://dothemath.ucsd.edu/2012/01/warm-and-fuzzy-on-geothermal/
https://dothemath.ucsd.edu/2011/07/galactic-scale-energy/
https://dothemath.ucsd.edu/2022/09/death-by-hockey-sticks/
https://www.forbes.com/sites/timworstall/2012/04/12/economic-growth-wil…
I recall reading a Victorian era story about a businessman or scientist that drills deep into the Earth with unfortunate consequences. Can anyone recall the title of that story? I'm sure the name of the offender became an eponymous adjective. All my searches have been fruitless...
Unfortunately, skills will be a massive roadblock in deploying such new technologies at scale and optimally utilising benefits.
I heard James Dyson on a podcast yesterday lamenting how hard it is to get young people excited about engineering. The UK alone is forecasted to falling short of 2 million workers in key engineering trades and subfields by 2035.
If that's such a simple solution, what's stopping us from doing that now? Those countries are rather good at pumping out students in the million each year with flashy degrees but hardly any real-world skills.
China and India are facing high level of youth unemployment because of "a mismatch between the jobs young people are studying for and the roles that are available". How are we to import skills when the source countries aren't producing enough themselves?
The situation is much worse in India and still deteriorating:
The India Skills Report 2021 found that about 45.9% of young people would be considered employable down from 47.5% in 2019
The 2019 National Employability Report for Engineers found that about 80% of Indian engineers did not possess the skills needed to meet the demands of their employers
profile,
I'll save you the trouble of reading it all.
Clearly, geothermal energy works well in select locations (geological hotspots). But it’s too puny to provide a significant share of our electricity, and direct thermal use requires substantial underground volumes/areas to mitigate depletion. All this on top of requirements to place lots of tubing infrastructure kilometers deep in the rock (do I hear EROEI whimpering?). Even dropping concerns about depletion, the practical/economic challenges do not favor extraction of geothermal heat on a large scale. So geothermal is not giving me that warm, fuzzy feeling I seek. It’s certainly not riding to the rescue of the imminent liquid fuels crunch.
"It would take approximately four
years of drilling at the rate Texas currently drills for oil
and gas to produce the equivalent energy of all oil and
gas used for electricity and heat production currently
in the State from Texas’ geothermal resources.
An aggressive
geothermal drilling program at ‘home’ such as this may
serve to free up Texan natural gas for export, instead of
being required for domestic electricity production.
Source: Future of Geothermal Energy in Texas, 2023.
...It is estimated that an average of 25 billion barrels of warm
and hot water is produced annually from oil and gas wells
within the United States. This “co-produced” water must be
managed and disposed of, adding significant operational
costs. Geothermal energy can be produced from existing
oil and gas wells, as either electricity or Direct Use heat,
depending on the location, subsurface properties, well
parameters, and other factors"
July 3 (Reuters) - Tesla (TSLA.O) shares jumped about 7% on Monday after better-than-expected quarterly deliveries showed that Chief Executive Elon Musk's plan of boosting volumes through discounts was working.
The day's gains lifted the top U.S. electric-vehicle manufacturer's market capitalization by around $57 billion to $887 billion.
True. Tesla is making a huge play in the US, EU and Aussie stationary battery storage markets. They were confirmed as the suppliers and installers for at least 4 storage projects in Aus last year (many more to come), each upwards of 300 MW (2+ hours of discharge capacity).
And staying in Australia, one of their largest pension funds has slashed the value of its local office property assets by as much as -20% as commercial property woes hit them as one of Australia's biggest landlords. The Australian Retirement Trust, which manages NZ$260 bln of assets, said its local office buildings have seen “material downward movements ranging between 5% to 20%”.
Fed Economists Warn Of Looming Disaster Due To High Interest Rates
In a note, Ander Perez-Orive and Yannick Timmer reveal that an unprecedented number of distressed companies could collapse due to the recent increase in interest rates.
According to their analysis, more than one-third (37%) of non-financial US companies are in financial distress.
The share of nonfinancial firms in financial distress has reached a level that is higher than during most previous tightening episodes since the 1970s.”
Morgan Stanley Says Bill Dudley Is Wrong About the Bond Market
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Strategists see scope for Treasury market rally from mid-July
-
Former New York Fed head expects 10-year yield to reach 4.5%
Regulators trying to be proactive ahead of avalanche. CRE loans coming due by the boatload; many troubled borrowers have already said they'll walk away and stiff banks. Govt wants banks to open options for these 'good clients.' Can kicking at its finest. https://buff.ly/3PArAEx Link
China Announces Export Controls On Two Metals Used In Chips, Citing "National Security"
The ministry's move is likely a response to the Biden administration's chip crackdown in recent weeks and months.
And - You've Had Your Chips: Netherlands Bans Sale of Microchip Tools to China
And Hong Kong is trying to extend its national security reach overseas by issuing arrest warrants for eight democracy activists who live outside the city now. Two are in Australia, setting up a new confrontation front.
As Julian Assange turns 52, projections in London call attention to his continued incarceration for publishing - he faces a 175 year sentence if extradited to the US for championing the public's right to know Julian fought for us - now it is time to fight for him #FreeAssangeNOW Link
OOPS! German 1 day ahead power price plunged to minus €53.87/MWh, the lowest level since 2012 thanks to strong winds & sunshine. The negative price for electricity makes it clear once again that we need more energy storage in order to successfully achieve the energy transition. Link
The bitcoin price has risen from this time yesterday and now is at US$31,011 which is a +1.7% rise and still above NZ$50,000
According to recent data from Glassnode, around 79% of the circulating supply (approximately 15,079,000 coins) of the ol' rat poison is now worth more than when they were last moved (for ex, bought or sold). What this means is that those coins are experiencing significant profitability.
"In Singapore, their largest bank, DBS, said that deposits are flowing in much faster than it can invest them so it has had to lay off more than NZ$36 bln to Singapore's central bank, the Monetary Authority of Singapore, as it is “not finding enough opportunities to put the money to work.” They aren't the only ones worrying about future prospects for Singapore. Elsewhere, surplus liquidity is building up in Japan as well."
Don't be surprised if the above happens here.
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