Here's our summary of key economic events overnight that affect New Zealand, with news of some weaker American data overnight that has brought a risk-off tone to financial markets and a pull-away from commodity currencies like the NZD.
US jobless claims rose marginally last week but the weekly series of small rises are now adding up and they are now at their highest in almost 3 months. The level is still very low, even on a post-pandemic basis, but the trend is becoming noticeable. There are now however less than 1.6 mln people on these benefits so those falling off coverage is actually higher than new claimants.
Overall industrial production in the US fell -0.6% in October from September, the most in 4 months and more than market expectations. It is now -0.7% lower than a year ago.
Both the Kansas City Fed and Philly Fed's factory surveys came in with marginal overall improvements for November however. One reported lower new order levels, the other positive levels.
Canadian housing starts were impressive in October, rising from September when a fall from that already high level was expected. These starts were especially strong in Vancouver. Year-on-year they were up +3.9%.
Japanese machinery orders rose in the September data released overnight and by more than expected. But they remain -2.2% lower than year ago levels even if this is the least annual decline in 2023. Their look ahead however isn't especially positive.
Official data for Chinese house prices was glum again, and given the low volumes and sensitivity of this data, maybe not really telling the full story. Anyway that official data reveals further small declines in new house prices, larger declines for used houses. Only 11 of their 70 largest cities posted rises in new prices. And in only 2 of them did used house prices rise. It seems unlikely the official price data really reflects the state of their housing markets.
In Australia, their jobless rate rose to 3.72% in October and its highest since May 2022. Employment rose by +54,900 but +37,900 of those were part-time roles. Part time workers now make up 30.7% of their employed workforce, the highest proportion since March 2022.
The recent rising trend in container shipping freight rates came to an end last week with prices falling -2% from the week before. Bulk cargo freight rates are still rising however.
The UST 10yr yield is back down -11 bps from yesterday, now at 4.44% in a return to levels of two days ago. But their key 2-10 yield curve is still inverted by -38 bps. Their 1-5 curve is marginally more inverted, by -79 bps. Their 3 mth-10yr curve inversion is now -92 bps and much more inverted. The Australian 10 year bond yield is now at 4.51% and down -9 bps from yesterday. The China 10 year bond rate is little-changed at 2.67%. And the NZ Government 10 year bond rate is also little-changed from yesterday, still at 5.08%.
Wall Street's Thursday session down is -0.2% on the S&P500. Overnight, European markets closed widely variable with Frankfurt up +0.2% and London down -1.0%. Yesterday, Tokyo ended its Thursday session down -0.3%. Hong Kong fell -1.4%, and Shanghai ended down -0.7%. The ASX200 ended Thursday also down -0.7% and the NZX50 beat that, down -1.1%.
The price of gold will start today at US$1982/oz and up +US$21/oz from yesterday.
But oil prices have crashed -US$4.50 overnight, to be just over US$73/bbl in the US. The international Brent price is now down to US$77.50/bbl. Driving this were unexpected high American oil inventories.
The Kiwi dollar starts today at 59.8 USc and back down -½c from yesterday. Against the Aussie we are little-changed at 92.4 AUc. Against the euro we are also down -½c from yesterday at 55.1 euro cents. That all means our TWI-5 starts today at just on at 69.2, and a net -40 bps lower.
The bitcoin price starts today at US$36,570 and up a net +0.6% from this time yesterday. Volatility over the past 24 hours however has also been moderate at just on +/- 2.3%.
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110 Comments
But oil prices have crashed -US$4.50 overnight, to be just over US$73/bbl in the US. The international Brent price is now down to US$77.50/bbl. Driving this were unexpected high American oil inventories.
It's not so much lower oil prices as it is completely changing shape of the WTI curve. 3-month spread today plummeted from $0.51 backwardation to $0.06 contango. Consumer spending and demand isn't holding up. https://youtu.be/xsNRysmHcNQ Link
Not sure what you mean Jfoe.
Cheap crude is less profitable for oil industry. Capitalists are almost always short termists focussed on beating last years profits. They wont like cheap oil.
And yes high interest rates work against renewables but that is more likely to be lowered in the coming months.
It was inflation which was the big problem. And as Jimbo said the day before, it was a result of covid lockdowns, unprecedented monetary expansion and supply chain bottle necks. I don't think it will turn back up again like last year.
Maybe I am cynical, but I'll break it down.
The Saudis / OPEC have significant control over global oil prices because they know that adjustments to their supply / price have major impacts. If they want oil prices to go up, they increase their gate price. Low oil prices are never an accident. For example, when American shale got too big for its boots, the Saudis managed the oil price down to below $70 per barrel (making shale loss-making), and investors took a hammering. This held back shale oil investment for years.
So, when oil prices go down, it is rarely about supply and demand, it is a sign of OPEC's strategic intent. My guess is that the explosion of renewable energy is happening faster than OPEC had thought it would, and with interest rates weighing heavy on renewable energy projects, OPEC are opportunistically dropping oil prices in the hope that they can seriously damage the businesses that have grown quickly to deliver renewable projects (e.g. wind turbine manufacturers). It seems to be working.
I'd say your guess is 100% incorrect -
LONDON, June 26 (Reuters) - Global energy demand rose 1% last year and record renewables growth did nothing to shift the dominance of fossil fuels, which still accounted for 82% of supply, the industry's Statistical Review of World Energy report said on Monday.25/06/2023
Forget oil prices, energy cliff is coming.
It's a little off topic but does anyone have an opinion on this? https://www.forbes.com/sites/ianpalmer/2022/08/17/skynano-startup-to-co…
Seems like an easy way to catch carbon from exhaust, particularly from steel mills. Says that it can be done at relatively low concentrations also.
CCS is usually too energy-intensive, and doesn't scale. The giveaway is that I you search it, it's all lab-sized prototyping, or artist's impressions.
Then you've got to put it somewhere. Permanently. Which is what takes the energy - which has to come from the primary energy of the fossil burn, so results in less net energy. So far, we have chosen to use all the net energy we can get our hands on, for short term growth.
You're giving Saudis too much "credit" here. They need to make a buck also.
https://www.arabnews.com/node/2383376/business-economy
Saudi population growth1 million in the last couple of years.
https://en.wikipedia.org/wiki/Export_Land_Model
"Environmental initiatives more viable". How so? I would say the opposite. The cheaper oil is, the more will be burnt.
https://www.rnz.co.nz/news/business/502575/cheaper-flights-influx-of-ne…
Yes but no.
The problem is that those whose operations become viable at low prices, buy. That drives up demand. Demand drives Capex - but every new extraction proposition is harder to do than the last one; so more expensive. The demand drives the price over the extractor-Capex threshold; they attempt to sell at a recouping price......
....which those who entered because of the low price, cannot afford.
We are at or near, the 'price' where Western society, as configured, cannot 'afford' itself. I suggest we're past it - and that at some point the growing debt-mountain will just become non-credible. Then?
Take a slightly different perspective. Climate change is forcing the move away from fossil fuels faster than ever. Personally I don't believe they will go completely. They don't need to, but this current move could be one from the fossil fuel companies as their power and influence is threatened. This could be a last gasp to retain or regain their position and the dependency on them. Personally I think it would be foolish and short sighted, but when people see their power and influence threatened they do foolish things.
PDK Western society is likely to be the last cheque book standing given global "wealth" distribution.
So the first to be priced out of the oil market will be Africa, Asia, South America, Middle East (despite their resources lots of incompetence, and corruption will assist). China has coal and mates in Russia of course but Russia is also corrupt and incompetent.
So lots of civil unrest coming and people looking to flee to western countries - under way already.
Of course but regardless it is hard to ignore the issues of corruption (and incompetence) in countries such as Russia, Pakistan, Egypt, Venezuela etc etc. Should I add more such as Iran, South Africa, Nigeria - it will be quite a long list before we get to "western countries"
I mentioned my justification above.
Interest rates are headed lower next year.
Renewables initiatives are often backed by government and have long term cost benefit horizons. They address other issues like Carbon emissions and energy reliance. Even if crude were cheap these projects will be given the green light if interest rates are lowish.
Renewables can never compete with crude even on the best of days. When crude is expensive, it is inflationary and economic forces allot energy only to the most immediate and necessary activities. It is when crude is cheap and rates are low that the best opportunity for renewables arises.
Of course, a lot depends on governments here. Even though debt is high, once interest rates have lowered the debt burden eases significantly, and governments can look beyond the immediate problems.
At least that is how I see it.
A great read on such matters, is: Blackout (how energy-rich Australia is running out of electricity?) by Matthew Warren.
Interesting how political bandwagoning can have unforeseen outcomes; too much PV, not enough baseload (at least, in the current :) configuration. It also reinforces the problem with valuing stuff in dollars, from here on. Onslow, for instance, either is, or isn't, a good idea given a fossil-energy-free future. Talking 'billions' is absolutely irrelevant - which points out what I hammer on about; that economics as a mind-set is also increasingly irrelevant, where we are headed.
Another great read - and which explains a lot of comment hereabouts, is Peter Turchin's End Times (Mora interviewed him recently).
https://www.rnz.co.nz/national/programmes/sunday/audio/2018679921/dr-pe…
Both great backgrounders.
Peter Turchin has well explained the reasons why we shouldn't trust people who say they know what's good for us:
Elite overproduction - Wikipedia
Are we overproducing elites and instability? - Niskanen Center
Nah, rationalist, more like. I've learned (from sailing offshore on our own, amongst other things) that there are times when there are no perfect cards in your pack, but there are ALWAYS best cards by rank. The trick is to identify them, and play them best-first (although occasionally, there is a good argument for hanging onto the best, for later). That takes the ability to think dispassionately - which doesn't come naturally to any of us; certainly me.
Thus I shudder when I hear; 'I'm an optimist'. It tells me they have yet to learn how to divest...
:)
I thought it was wide open a few years ago when the government had $50b to splash and save us from a global pandemic shut down. TBF it wasn't just me there were any number of commenters on this site pointing to it as an opportunity.
The idiots decided to slam the window shut and go with bau thinking.
Maybe Russian output depressing prices??a bit??
https://gcaptain.com/u-s-sanctions-three-shipping-companies-for-russian…
Official data for Chinese house prices was glum again, and given the low volumes and sensitivity of this data, maybe not really telling the full story.
What Alf needs to realize is that this is a good thing. The Chinese economy's dependence on real estate is diminishing. It peaked at 24.2% of GDP back in 2015. Chairman Xi's government has shrunk it down to 19.4% nowadays (Bloomberg). Beijing has been popping the property bubble to channel funding into higher value-added industries (such as EVs, AI, Microchips, Pharma, Avionics, etc.). It's succeeding. Contrary to what the usual ignorant and/or malevolent doomsters claim, this is not a crisis but a paradigm shift. History will remember Xi Jingping as an effective and visionary reformer. In fact. Link
Means their young people might get a job?
https://www.cfr.org/blog/root-chinas-growing-youth-unemployment-crisis#…(for,no%20longer%20publish%20the%20statistic.
But oil prices have crashed -US$4.50 overnight, to be just over US$73/bbl in the US. The international Brent price is now down to US$77.50/bbl. Driving this were unexpected high American oil inventories.
That's very welcome from an economic perspective (although obviously low oil price aren't so great environmentally.)
It's the thing you get when you are grid connected.
So. 1. You don't go frowny face when somebody opens the fridge or something and the little light inside wastes your precious power. Bet you have PDK.
2. All your excess goes out the gate, this contributing to the nation, and in part reducing the use of dinosaur juice.
It's socially responsible.🌞
1 - you lose. My fridge is perhaps more efficient that yours; I applied some thinking to it. I haven't had a too-little-power problem for more than a decade (the generator is covered in dust; we used it 2-3 time a week in 2005, once a week by 2008, intermittently by 2012 - only to drive a couple of hungry-start tools now. Your assumption suggests (to me) a lot about the rest of your thinking, btw. https://dothemath.ucsd.edu/2015/04/programmed-to-ignore/ put yourself through it :)
2. I grew a forest, to do my bit for the planet. A long time ago; half a lifetime. And stayed out of the ETS, for the same reason. And built a passive-solar house (not passivehaus, that's different) so it wouldn't demand energy. So I probably out-rate you in terms of what I do for society with the solar energy I capture. Just sayin'. Not that I'm knocking what you do, I was once co-chair of Solar Action, when such impetus seemed necessary.
Yes, we should be valuing and trading ex fiat, ex usury, perhaps with some other demarcation-measure.
It's not superiority - just a way of thinking. For instance, I didn't think: How can I power a conventional house? I thought: What is essential, and how can I reduce that demand? That's why I suggested the link - it's food for thought, so to speak. You should get in touch, come visit next time you're passing (I don't think we're far apart geographically?). You'll smile when you see the fridge...
Some years ago, I was contacted via this site, by a fellow who went by the monniker: Iconoclast (of whom I sensed we had not much in common...).
His better half reckoned they needed to escape climate issues in Oz, and could she visit us while looking at/for NZ land? We said of course; stay as long as she wants. She found a place, not too far from us. They both stayed while they had a house built; some months. He and I found our common ground - as you do - and thoroughly enjoyed discussing our non-common ground.
We became friends; when he was diagnosed terminal, I'd take him on 'trips' (he wasn't from here, although originally Kiwi) all over the region; lunch in a little pub somewhere; great memories. I spoke - from the heart - at his funeral. I miss his company, still. Different as hell, but mutual respect.
Go well.
Shameless central bankers | croaking cassandra
"But here we are dealing with Quigley and Orr, who know better but seem to have a tenuous relationship with truth and serious analysis whenever something otherwise suits. And Silk, who may know no better – but can surely read, if she were at all curious – who is the senior manager with overall responsibility for the Bank’s macro and monetary policy analysis.
None of them should be in their roles (Silk should simply never have been appointed to hers). But will the new government care enough to do anything about this situation, or will spin and dishonesty continue to characterise our central bank, while those with the power to do anything about the situation get on with simply holding office?"
Reddell rejects anything to do with physical Limits - as you'd expect from his siloed background. We can therefore filter his comments; somewhat like folk arguing as to why the carpets on B Deck are getting wet - and blaming 'cuplrits' - without going outside and realising the ship is sinking.
Interesting, I guess - to those who need to believe the carpets can be kept dry...
NZ has 577k part time workers. 20% of the approx 2.9 million employed. The key factor is that all of those part timers can have their hours adjusted downwards at will as the economy slows. For every hour of paid work they lose (assuming minimum wage) it is $18.90 per week less in their pocket. That is a lot of money for those living paycheck to paycheck. Even 1 hour of work per week will still have them counted as employed according to the
Household Labour Force survey that generates the unemployment number.
That's what happened to us in 1990. I had my hours cut and my husband's salary that was base + commission ended up base only. So while we were nowhere near unemployed, our household income went down about 30%. At the same time the value of our newly bought house went down around 15%. Happy days, and plenty of beans on toast for dinner.
Also look at the underutilisation rate, currently 10.4%
https://www.stats.govt.nz/indicators/underutilisation-rate
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