Here's our summary of key economic events over the weekend that affect New Zealand, with good economic news that just keeps coming even as fears don't abate.
First, for those returning to work, welcome back. For those still on holiday, lucky you.
This coming week we will get some grunty American data along with the meat of their earnings reports for December results. (Tesla's will be particularly interesting.) They will report their first estimate for Q4-2023 GDP, December PCE, and personal income & spending data, as well as durable goods order data. Outside the US, Japan has a rate decision, as does the ECB, Canada, Norway, Turkey and Malaysia. We will get PMIs from Australia and their NAB Business Sentiment update for December.
Over the weekend, data from China showed investors are still withdrawing funds from the country on a net basis. Foreign direct investment into the Middle Kingdom fell by -8% in 2023. But although the transparency on this data is limited, there is a suggestion that there was a small improvement in the month of December from a year ago.
But that may be a data mirage. Bloomberg is reporting that things are getting grimmer in Chinese equity markets. Tokyo has overtaken Shanghai as Asia’s biggest equity market, while India’s valuation premium over China has hit a record. The meltdown in Chinese share values is wreaking havoc on the nation’s asset management industry, pushing mutual fund closures to a five-year high. But you won't find any of this in Hong Kong or other Chinese analysis.
Japan's December CPI inflation rate came in at 2.6%, down from 2.8% in November. And their core rate was at 2.3%, down from 2.5% in November. That is the 21st consecutive month it has been above the Bank of Japan's 2% target. But with this slippage, the central bank will likely remain very cautious that Japanese inflation is really back. 2.3% is a 17 month low even if over all of 2023 inflation was at a 41 year high in Japan. To help ensure that inflation stays embedded, Japan's government is urging businesses to raise wages ahead of annual spring negotiations between employers and labour unions. The largest union is demanding a 5% rise.
In the US, consumer sentiment as measured by the widely-watched University of Michigan survey surged in January, and inflationary expectations retreated. This was a combo that was not expected, or at least, not as decisively. Sentiment is now suddenly its highest in 2½ years. Year-ahead inflation expectations softened to 2.9% after plunging in December. That current reading is the lowest since December 2020. Few analysts saw such a sharp improvement in both measures coming although it is reflective of the steady progress in the American economy in other data, especially labour market data.
But American existing home sales activity dropped by -1.0% in the December month from a month earlier to an annualised rate of under 3.8 million, reaching the lowest level since August 2010 and falling below the market's anticipated 3.82 million units. For all of 2023, they sold 4.1 mln, the lowest level in nearly 30 years.
North of the border, Canadian retail sales jumped in December (but after a drop in November), the sharpest increase in 11 months.
Across the Atlantic, German producer deflation got "worse" in December with producer prices falling a whopping -8.6% from the same month a year ago. On an annual average basis, industrial producer prices were -2.4 % lower in 2023 than in 2022. But the December result is not all bad because a lot is due to extreme base effects. And energy prices in December were down more than -23% from the same month in 2022. Basically it is a gift from Russia. Germany is surviving a cold winter with plenty of gas and low prices.
And in a situation of exquisite irony and karma, Russia's attempt to freeze Europe and its Eastern European adversaries into submission isn't working, but Russia itself is in a deep freeze, one that can't be solved by just turning heaters on. The civilian infrastructure is crumbling and it is currently so bad, it is affecting arms production. Songun. Civilians come second in Russia too.
Closer to home, in Australia the IMF released the results of its annual staff review. The IMF wants to see meaningful tax reform there, and doesn't like that the markets pricing interest rate cuts in 2024. They [rightly] point out that inflation and inflation expectations are still far too high. The IMF's call for tax reform in Australia is a long-standing position - but one Canberra ignores.
The UST 10yr yield starts today at 4.13% and down -3 bps from this time Saturday. The key 2-10 yield curve is slightly more inverted, now by -26 bps. Their 1-5 curve inversion is little-changed, now by -81 bps. And their 3 mth-10yr curve inversion is a bit more inverted, by -126 bps. The Australian 10 year bond yield is now at 4.29% and down -1 bps from Saturday. The China 10 year bond rate is still at 2.52%, unchanged. The NZ Government 10 year bond rate is up another +1 bps at 4.83%.
In a global market that has been rising since the start of 2023, investment grade corporates have just issued a record $150 bln in debt in January - so far. It's a head-turning pace. Corporate treasurers are voting with their deals, trying to stay away from the upcoming Trump uncertainties, and betting rates will rise sharply in the future. There is also pent-up rollover demand.
The price of gold will start today up +US$4/oz from Saturday at just on US$2029/oz.
Oil prices are little-changed at just on US$73.50/bbl in the US and the international Brent price is still just over US$78.50/bbl.
The Kiwi dollar starts the week at 61.1 USc and little-changed from this time Saturday. But that caps an almost -2½c retreat since the start of the year, or a -3.8% devaluation. That is large and there could be inflation implications. Against the Aussie we are holding at 92.8 AUc. Against the euro we are also holding at 56.1 euro cents. That all means our TWI-5 starts today just under 70 and a -1.6% devaluation for 2024 so far on that basis.
The bitcoin price starts this week a bit higher but still in its recent lower range. It is now at US$41,585 and up +2.6% from Saturday. Volatility over the past 24 hours however has been very low, +/- 0.4%.
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41 Comments
Yes. Their housing market was bonkers and a classic ponzi. The wheels fall off when their is no "next sucker". And to boot they refuse to pay out international investors on their bonds after creating the impression everything was govt guranteed.
No wonder foreign capital is fleeing.
Yes. Their housing market was bonkers and a classic ponzi. The wheels fall off when their is no "next sucker". And to boot they refuse to pay out internal investors on their bonds after creating the impression everything was govt guranteed.
Oh yeah. Right. China doesn't know how to run a property ponzi. Unlike the Anglosphere. Are you suggesting our property ponzi is somehow 'normal', natural, and symbolic of a whole superior socio-economic model? That's like those at the water cooler who mock the Japanese for building too many houses and too much infrastructure.
Aye not so good back in the USSR, we don’t know how lucky we are. Russia’s economy now shares 8th place globally with Canada & Italy in size. Ten states in the USA in their own right have economies larger or equal. If Russia is so well structured industrially, its infrastructure etc, and with massive energy reserves, why are its people then freezing. Big fire in St Petersburg gas depot courtesy of Ukraine won’t be helping much either.
2023, 2024 AND 2030 ESTIMATES FOR GROSS DOMESTIC PRODUCT (GDP) IN PPP INT$
'Incredibly stark': Biden aides give lawmakers a grim assessment of Ukraine without more aid
The president’s national security aides said in a private meeting this week that Russia could win the war within weeks if Congress doesn’t act.
Interesting site thanks, I found this interesting also:
https://www.worldeconomics.com/Thoughts/Dangerously-Misleading-Debt-Data.aspx
"Put simply, rising longevity plus static levels of retirement around 65, coupled with rapid reductions in family size, are producing an ever larger percentage of old people dependent on benefits, (to be paid for by a shrinking workforce), the cost of which already far exceeds current social security taxes. Yet opposition to potential solutions is fierce .Even a very modest attempt at raising the retirement age from 62 to 64 in France recently produced massive opposition including street riots. Solutions are unlikely to include faster economic growth to augment the size of the economic pie for a variety of reasons. Not least that rising interest rates are increasing the funding costs of official debt to levels that are already consuming big chunks of taxation in many countries, so reducing income that might otherwise have been used to foster faster economic growth."
China will be fine they are still going from strength to strength, unlike the USA which has been going backwards now for decades. The USA is going to be the one in trouble, perhaps you should ignore the "Hey, look over there!". 2024 is going to be a very decisive year, or is that divisive year for the USA.
Pictures are worth a thousand words. China is on a whole different level. Just watch how low the USA can go https://www.youtube.com/watch?v=3QrZLNyYHVw
https://www.stuff.co.nz/nz-news/350152145/home-front-defence-forces-3-billion-housing-problem
Oz solved this problem decades ago: private investors
All good old state housing. if maintained nothing wrong with them. Sadly a comment on the state of defense and the lack of funding it gets.Loved the story about a SAS Vietnam reunion several years back. The same plane that flew them to Vietnam flew a bunch of them to the reunion. Thats how old the hercs finally being replaced were.
The numbers are weird.
So back of envelope: 1600 houses at approx $1,800,000 each !!!!! And that includes many are only refurbished.
No mention of the rental income to defence which on a 30 year programme approaches one billion. At conservative rents.
The bureaucrats are having a laugh.
I hope Nicola Willis notices this one.
The meltdown in Chinese share values is wreaking havoc on the nation’s asset management industry, pushing mutual fund closures to a five-year high
Market capitalization isn’t “wealth.” It’s the latest price, times shares outstanding. Blotches of ink on paper. Flashing pixels on a screen. If a dentist in Poughkeepsie buys a single share of Apple at a price that’s 10 cents higher than the previous trade, $1.6 billion in market capitalization emerges from thin air. If a single share trades 10 cents lower, $1.6 billion evaporates just as quickly. Whatever happens, every security in existence has to be held by someone until it is retired. Ultimately, the wealth inherent in a security is the future stream of cash flows it will deliver to its holder(s) over time. Price fluctuations don’t change those underlying cash flows. They just provide opportunities for the transfer of savings between investors. High valuations favor the sellers. Low valuations favor the buyers. Investors have never paid higher prices for those future cash flows, or accepted prospective returns so low.
Put simply, the bubble hasn’t changed the wealth, and a collapse won’t change the wealth. What will change is the market cap. I suspect that the erasure of market cap in the coming years, and possibly the coming quarters, may be brutal. Still, no forecasts are required, and our own attention will remain on observable valuations, market internals, and other factors. Meanwhile, even if an investor sells at these extremes, the only thing that will change is who holds the bag. Link Hussman
Stunning and revelatory.
The rumors are now confirmed: the Fed is in the process of changing its role from “lender of last resort” to dictatorial financial overlord. If that sounds dramatic, consider that Powell & Co. plan to force banks to borrow from them - or else.
In the spirit of never letting a crisis go to waste, the Fed, the FDIC, and the Treasury are citing the collapse of several regional banks in March of last year as the impetus for transforming the discount window from an emergency measure into standard operating procedure.
Why would the Fed do this? Why don’t they want us aware of where the problems are in our financial system?
In short, because they’re everywhere. The Fed knows that they’ve created the mother of all ticking time bombs and there’s only two options: let it explode in the most violent deflationary event since the Panic of 1907 or diffuse this monstrously large bomb by throwing it in an equally large liquidity bath.
https://www.fxhedgers.com/p/you-will-borrow-and-youll-like-it
The Fed does not have the resources to contain contagion in the global eurodollar banking system.
On a typical day, a staggering FOUR TRILLION dollars flow through a concealed shadow money space, lurking beyond the reach of bank balance sheets. But that's just the tip of the iceberg – estimates suggest there could be up to 100 TRILLION dollars in outstanding contracts, all hidden from plain sight.
Part 2/3 MEGA Thread, Final part 3/3 of The Hidden Shadow Money Space, BIS:, Bank positions in FX swaps: insights from CLS https://www.bis.org/publ/qtrpdf/r_qt2...
Global Banking Cartel That Prints Trillions Of Dollars (Exposed)
Basically it is a gift from Russia.
Silly comment. There are no gifts from Russia.
The czar miscalculated his genocidal adventure in UA completely and while things are mostly static at the front the economy is in tatters due to Western sanctions, price caps on oil & gas and short-term war efforts.
He needs every dollar he can get and due to his inaptitude and Western collective action he gets much less than he used to.
Russia is collapsing slowly with every day.
The German economy has become less competitive due to the refusal of Russian gas, said the German Minister of Economics. “Germany is in a particularly difficult situation, we are dependent on Russian gas. After it disappeared, we found ourselves at a disadvantage,” said German Economy Minister Habeck.
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