Here's our summary of key economic events overnight that affect New Zealand, with news investors are marking down Chinese equities in a brutal retrenchment Beijing doesn't seem to be able to arrest. Funds are flowing to Tokyo and the US both of which reached modern record highs.
But first in the US, a closely-watched leading indicator metric slipped marginally in December even though more components rose than fell. However the improving metrics were more than offset by weak conditions in manufacturing, relatively high interest-rates, and lowish consumer sentiment. But the magnitude of monthly declines has lessened, and the LEI’s six-month and 12-month growth rates have turned upward even if they remain negative. The 'recession' signal from this data is weakening.
China's Loan Prime Rates were unchanged yesterday, not a surprise given last week's unchanged Medium-Term Lending Facility rate. The unchanged LPR rates are because their central bank is in a very tough position, having already prioritised keeping up the value of the yuan to try and hold back the equity market retreat. Lower interest rates would make it almost impossible to hold the yuan's value - and they are prepared to take the risk on economic expansion.
The declining prospects for the Chinese economy can't now be avoided, even in China itself, it seems. Rare stories are surfacing about a 'deflationary nosedive'. (Stories like this however have been pulled by censors recently, so click the link soon if you want to read.)
In Taiwan, export orders fell a sharp -16% in December from the same month a year ago to under US$44 bln, far worse than market forecasts of a -0.3% fall and reversing a +1% gain in the previous month. This was the largest annual decline since June, as demand decreased for all product groups. It is a big change, but one magnified by high orders a year ago, so a base effect is in play here. A significant share of these export orders are for production in China by Taiwanese companies, so the decline won't all be felt in Taiwan.
The almost halving of the nickel price over the past year is causing a messy shakeout among miners in Western Australia (and globally in fact). Mines are closing and those running are loosing big money. High inventories and very weak demand from China are behind the retrenchments. Nickel is mainly used in making alloys such as stainless steel. Among other technical industrial applications, it is used in batteries as a "critical mineral", including rechargeable nickel-cadmium batteries and nickel-metal hydride batteries used in EV and hybrid vehicles. The lithium price has fallen even further and its miners are taking a cold bath too.
The UST 10yr yield starts today at 4.10% and down -3 bps from this time yesterday. The key 2-10 yield curve is slightly more inverted, now by -28 bps. Their 1-5 curve inversion is also a little more inverted, now by -85 bps. And their 3 mth-10yr curve inversion is a bit more inverted too, by -129 bps. The Australian 10 year bond yield is now at 4.23% and down -6 bps from yesterday. The China 10 year bond rate is down -1 bp at 2.51%. The NZ Government 10 year bond rate is down -7 bps at 4.76%.
Wall Street has opened its week modestly higher, with the S&P500 up +0.2% but that is a new record high. Overnight European markets were up a bit more, up +0.6% on average. Yesterday Tokyo surged again ending up +1.6% apparently driven by offshore demand. Hong Kong fell -2.3% and Shanghai a very large (for them) -2.7%. Singapore was little-changed. The ASX200 ended its Monday session up +0.8% which the NZX50 ended up a more modest +0.2% (Wellington was on holiday yesterday).
The price of gold will start today down -US$6/oz from yesterday at just on US$2023/oz.
Oil prices are up +US$1.50 at just under US$75/bbl in the US and the international Brent price is up +US$1 just over US$79.50/bbl.
The Kiwi dollar starts today at just under 61 USc and marginally lower from this time yesterday. Against the Aussie we are softish at 92.6 AUc. Against the euro we are also soft at 56 euro cents. That all means our TWI-5 starts today just under 69.9 and down -10 bps in a day.
The bitcoin price starts today lower. It is now at US$40,511 and down -2.6% from this time yesterday. Volatility over the past 24 hours however has been modest at +/- 1.8%.
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38 Comments
Well, the reality is that you cut wages by moving your industry outside of the country, by de-industrializing. And that is still the policy that America has taken. And it has replaced industrialization with financialization to make money financially, hoping that the companies that have now moved out towards China and Asia and other countries are going to be able to have higher profits and essentially become more prosperous for the donor class to the Democratic and also the Republican parties.
But what President Putin was talking about was something much more. Russia already, along with China, have begun to produce their own airplanes. Take a look at the last week’s news, all about Boeing, yet again, having other accidents on its airplanes. Boeing used to be a technological leader in aircraft, but then it was merged with McDonnell Douglas and became a financial company. So it broke up the Boeing system of making airplanes and began to outsource to various other companies, all the little parts. And all Boeing is now is assembling diverse parts that it buys from various suppliers, very much like television sets are made. You buy different parts from different suppliers.
Well, the reason Putin is making his speech in the Near East is Russia and China are working together for an enormous industrial development to take place in eastern Siberia, which has been obviously underpopulated because of the bad weather for many centuries now, but also is now beginning to warm up. And the idea is to integrate Chinese industry and Russian industry and technology and to design entire cities that are going to be technological complexes producing all sorts of interrelated parts together, computer parts, airplanes, trains, automobiles. China is already the largest automobile exporter in the world. And so you’re going to have this whole new center of industrial growth in eastern Asia. Link
Boeing are certainly a how-not-to case study but Airbus remains a leader.
The idea that China and Russia are going to be able to join to create a centre of technical leadership is attractive but as likely as time travel given the governance of both dictatorships and the plunging demographics.
Boeing have not done much more than adopt the successful Airbus model of accessing multiple suppliers and they are, just as Concord was, in different countries. Be that as it may, Boeing have certainly managed to turn their trusted and reliable 737 workhorse into a bloody big question mark.
The function of the World Bank is to prevent other countries from growing their own food, to make sure that the World Bank does not give economic support to domestic agriculture. One of the most fateful requirements of the World Bank is that it only makes foreign exchange loans. Now, foreign exchange loans mean they’re going to develop the export sector, they’re going to develop roads and transportation for export commodities. The government will bear the cost of developing mining, of developing oil and minerals, of deforestation, but it won’t develop domestic industry. And if you look at agricultural development in the United States, most of this agricultural development spending is domestic.
There’s farm extension, there’s education, there’s price supports domestically to support domestic grain, there’s a whole plan of creating a family-based agriculture. And if you look at the World Bank reports of the 1950s and 1960s, you’ll find every country report, the ones that are published by Johns Hopkins, the advisors to the World Bank says you have to have domestic currency to support domestic agriculture and food sufficiency. Not a single loan has been made for that unless it’s for plantation agriculture and export crops. So, the idea is that other countries, Latin America, Africa, South Asia, should depend on American farmers for grain and food exports and they should export plantation products that do not compete with American agriculture because products that are equatorial, that depend on domestic weather and domestic soils.
While the World Bank is supporting these export crops, it basically serves as a market for American corporations, the big infrastructure corporations. And it also supports the private investors, US mining affiliates, US oil companies, US forestry companies. The idea is that countries will increase their exports to be able to pay for these loans, but the mining companies, instead of having to build their own roads, instead of having to build their own infrastructure, the World Bank convinces governments to pay for these to essentially support the private sector and then support the private sector avoidance of paying taxes.
A lot of countries in the global south actually has long faced the problem of balance of payment crisis (NZ included}, and then it becomes a big tool to control economic policies and restructure economy in a way by these global institutions. And that is primarily because the global south has been exporting low value commodities, and the global north essentially exports a lot of high value products, to begin with industrial commodities, but now also services and so on. So, there is always this very desperate need of foreign loans, and you give these foreign loans and then they redirect a lot of economic policies. Link
Current account deficit debts held by individuals and companies that are denominated in international currencies, with these typically being USD, sterling and EU dollars.
Cross currency basis swaps hedge these risks in most cases today.
In respect of balance sheets, the main parties with natural long-term positions wanting to swap foreign currency into New Zealand dollars are resident banks. The banks raise foreign currency funding (totalling about 40 percent of GDP) that is then swapped into New Zealand dollars to on-lend to households and firms in New Zealand dollars.
On the other side of the swap market, the main sources of New Zealand dollar funding are (i) non-resident entities who issue New Zealand dollar denominated bonds (often referred to as Eurokiwi, Kauri and Uridashi bonds) when it is cheap relative to funding from other currencies (net of the cost of swapping the proceeds into foreign currency to meet their end-uses); (ii) the managed funds industry that holds foreign assets, but hedges some of the associated currency risk to match their New Zealand dollar liabilities; (iii) and the Reserve Bank which obtains foreign currency liquidity by swapping New Zealand dollars for US dollars to obtain foreign currency liquidity (discussed in the next section). Each of those parties relies, to a greater or lesser extent, on the continued functioning of those markets. - Link
WORLD BANK NZD NEW DUAL-TRANCHE 5.5YR AND 10YR KAURIS***
5.5 Year tranche:
- Firm order book in excess of NZ$1,010m (incl. JLM trading interest)
- Issuer will print a minimum NZ$1,000m trade, and is open to further upsize subject to demand and pricing
- Issued NZ$1,000m
- Pricing set at Mid swap +23bps / Yield [0.751]%
- ISIN NZIBDDT016C7
- ANZ B&D
10 Year tranche:
- Firm order book in excess of NZ$350m (incl. JLM trading interest)
- Issuer will print a minimum NZ$250m trade, and is open to further upsize subject to demand and pricing
- Issued NZ$300m
- Pricing set at Mid swap +39bps / Yield [1.304]%
- ISIN NZIBDDT017C5
- ANZ B&D
As I am ignorant to what this means I asked Ai to explain. How do you rate the answer Audaxes/anyone?
The World Bank recently issued bonds in New Zealand dollars, and this move provides us with some interesting insights into how investors view the New Zealand economy. Imagine these bonds as a way for the World Bank to borrow money from investors, and the response has been quite positive. The fact that there were more orders than needed and at attractive prices indicates that investors are feeling confident about New Zealand.
When we talk about "market conditions," it's like looking at the price tag of these bonds. The World Bank set the prices based on certain factors, and the specific yields (like interest rates) show that they were able to attract investors at rates of 0.751% for a 5.5-year bond and 1.304% for a 10-year bond. These rates are the cost for the World Bank to borrow the money.
Sorry, these bonds were issued around Dec 20. I should have added context to an example of World Bank being in receipt of London based NZ banks' subsidised USD credit via the cross currency basis swap - NZ bank (USD lender) pays the USD basis to the USD borrower (World Bank)
This appears to tie in with the current project for the Work Economic Forum, to benefit the wealthy and have countries all specialise in what grows well etc to export to the rest of the world, while the world bank issues loans as a means of control at governmental level. Scary stuff, but real.
The financialisation of industry is destroying the US industrial base. Another case in point is Hartzell Aviation;
https://www.avweb.com/aviation-news/new-ownership-at-hartzell-raised-pr…
Private equity companies buys out Hartzell which was already profitable and promptly pumped the prices. Some of those prices rose more than 100% as greed takes over. The long term prospects for Hartzell now have to be pretty grim as customers look to other sources, and new companies step in to offer competing products. Ultimately the company may even be a target for a Chinese take over after the greed has destroyed the value.
Looks like my proposed annual levy for employers wanting to recruit from overseas the other day might have been on the light side.
The men feel exploited, claiming they paid between $50,000 and $70,000 to Indian agents for the jobs
We could stop this with the stroke of a pen. I don't mind if people currently working in security become more in demand and receive a higher pay as a result nor if those higher wages attract some into this field of work from the hundreds of thousands on the unemployed scrapheap.
Of course it is and the existing taxpayers/NZ citizens are the losers. It used to be they recycled business like cafes, they used to 'invest' for $300k or $400k, work for a couple of years to get residence and sell to the next 'investors wanting to help grow our economy'. It was and always has been about obtaining residence.
See how many overseas students turn up wanting our world class education after the right to work and pathway to residence is removed (some will, but nothing like we've had).
Residence in NZ is worth many more times that, especially if you have (or are intending to have) a family.
Those I know at that age are funded or have borrowed from family. However, there are news reports of them borrowing from the agents they're paying it to as well - not dissimilar to how our bar banks create debt out of thin air.
"I don't mind if people currently working in security become more in demand and receive a higher pay as a result" - then every business has to pass on that cost, then everyone demands higher wages to pay for their higher costs. Having a very low unemployment rate (as we still do) will cause significant and sticky inflation.
Taxpayers end up subsidising those business that pay low wages with the likes of accommodation supplement and working for families..
It's many times worse when we let them import cheap migrant workers - it worsens housing and healthcare shortages and adds to our infrastructure deficit, and they don't pay enough tax to even pay their way.
Agree, however, Immigration is meddling with the market's ability to price wages and allocate labour correctly. I'm a little biased too in that I've never seen the point of growing the population on a fixed sized piece of land since I was at school in the 80's.
Given we must have inflation (per RBNZ mandates), I would rather have inflation caused by wages rising than lowering interest rates to generate it like the RBNZ has spent most of the last 20+ years doing. Look at what their lowering interest rates has done to cost of housing! The cost of housing remains the biggest problem (appreciate tax treatment etc also plays a part), billions sent in bank profits and accommodation supplements to private entities.
BTW, personally I preferred the original 0-2% range but would actually be happy for some degrowth these days (PDK effect?).
Justin Trudeau feeling the heat...
Canada on Monday announced an immediate, two-year cap on international student permits and said it would also stop giving work permits to some postgraduate students as it seeks to rein in record numbers of newcomers seen aggravating a housing crisis.
Rapid population growth fueled by immigration has put pressure on services, like healthcare and education, and has helped drive up housing costs. These issues have weighed on Liberal Prime Minister Justin Trudeau's support, with polls showing he would lose an election if one were held now.
Published today:
The Westpac McDermott Miller Employment Confidence Index rose 1.4 points to 99.7, still marginally pessimistic.
Senior economist Michael Gordon said the lift in sentiment seemed to have been driven by strong wage growth last year, and hopes it might continue, but he doubted it would be sustained.
"People are viewing their situation in inflation-adjusted terms - high inflation has meant that even those who have received larger pay rises in recent years still feel that they're struggling to get ahead.
"But with the jobs market also softening, people probably rightly perceive that the window of opportunity for a catch-up in pay rates won't be open for long."
FYI: 100 means neutral.
Methinks economists often misread what employees are saying here.
Employees, especially the old hands, have a pretty good idea of how their business is fairing. Thus while issues like the cost of living do play a part, another significant part of how safe they feel is related to how their business is getting on, and whether they see downsizing, re-shuffling of the deck chairs, unreplaced workers, falling sales / production, etc.
With that in mind, the fact that it has been sub-100 for some time now could be considered a leading indicator of how businesses are actually fairing.
The new Government is also promising to review all legislation that refers to the Treaty principles with a view to “replace all such references with specific words relating to the relevance and application of the Treaty, or repeal the references”.
The alarmism in reporting on the proposed Treaty Principles Bill fails to recognise (probably through ignorance) that this proposal is actually what the Office of Crown-Māori Relations - Te Arawhiti recommend as best practice Treaty clauses in Acts. ACT is actually recommending best practice as recognised by Parliamentary drafters in this case, for precisely the same reason that ACT made this proposal - clauses that blandly state that decision makers must comply with the principles of the Treaty are meaningless.
"clauses that blandly state that decision makers must comply with the principles of the Treaty are meaningless."
No worse than that - they allow people (and the very biased Waitangi Tribunal) to interpret them to suit their own agenda
As Humpty Dumpty said "well words mean what ever I want them to mean"
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