Here's our summary of key economic events overnight that affect New Zealand, with news about how hard it is to get the 'last mile' of above-policy inflation eliminated.
American consumer inflation expectations for the year ahead remained stuck and sticky at 3% in February, the same as in the previous two months, and holding at three-year lows. But is it enough for the Fed? Of some concern is that inflation expectations for 3 and 5 years ahead are rising, but only toward that same 3% mark. Clearly there is work to do to quell these expectations. The next big watch is on the actual February inflation and that comes tomorrow. Markets expect 3.1% with a core at 3.7% - in other words, no progress lower.
There was a UST 3yr bond auction today and that was very well supported. The median yield came in at 4.15% and only marginally higher than the 4.09% at the equivalent auction a month ago. There seems no sign investors are either pulling back, or demanding sharply higher yields. Demand remains high, yields are as you would expect.
The earlier official reports that Japan had slipped in to recession have proven incorrect. Their revised and updated data shows in fact it expanded at a healthy rate, driven by strong capital expenditure in the business sector. Private consumption, which accounts for more than half of Japan's GDP, remained weak at -1.0%, slightly worse than the preliminary -0.9% decline.
All eyes are now turning to the next Bank of Japan meeting this time next week. Markets are increasingly expecting them to signal the end of their ultra-low (negative) interest rate policy, one they have had in place for eight years now.
China's vehicle sales slumped in February, down -20% from the same month a year ago. But that comes after an exceptionally strong January. Combining the two months, overall vehicle sales in the world's largest market rose +11% to 4 mln units when you look at them both, with the NEV segment rising +29%.
Indian vehicle sales for February are now awaited. They too come off very strong gains in January (+14%).
In Australia, the peak body representing financial regulators, The Council of Financial Regulators, (The RBA, APRA, ASIC and the Australian Treasury) released the points they are talking about in a quarterly statement. The main issue seems to be the rise of hardship among borrowers, and the increase in the share of households who had fallen behind on loan payments (although from historically low levels).
And since the start of 2024, the iron ore price has fallen almost -20% - largely because of falling expectations China will deploy its traditional infrastructure stimulus as a way to reinvigorate its stuttering economy. It's new focus on "high quality development" won't be minerals-intense.
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The UST 10yr yield starts today at 4.10% and up +2 bps from this time yesterday. The key 2-10 yield curve inversion is deeper at -43 bps. But their 1-5 curve inversion is unchanged at -89 bps. Their 3 mth-10yr curve inversion is little-changed at -129 bps. The Australian 10 year bond yield is now at 3.98% and down -1 bp from yesterday. The China 10 year bond rate is also little-changed at 2.31%. The NZ Government 10 year bond rate is down -4 bps at 4.66%.
Wall Street has started its week with little change; the S&P500 is down -0.1% in Monday trade. Overnight European markets closed mixed with London up +0.1% and Frankfurt down -0.4%. Yesterday Tokyo ended its Monday session down a sharp -2.2%. Hong Kong on the other hand ended up +1.4% and Shanghai was up +0.7%. Singapore ended down -0.3%. The ASX200 ended down a sharp -1.8% while the NZX50 was down a much lesser -0.4%.
The price of gold will start today little-changed from yesterday at US$2178/oz.
Oil prices have stayed at just over US$77.50/bbl in the US while the international Brent price is now just under US$82/bbl.
The Kiwi dollar starts today at just on 61.7 USc and little-changed from this time yesterday. Against the Aussie we are firmish at 93.4 AUc. Against the euro we have held at 56.5 euro cents. That all means our TWI-5 starts today at just on 70.5 and now unchanged over the past five days.
The bitcoin price starts today at US$72,448 and up +4.0% from this time yesterday. Volatility over the past 24 hours has been very high at just under +/- 4.0%.
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87 Comments
Finally - after a decade or more - a prediction on a change to BoJ's interest rates that might prove correct!
Note that this is a probably a move up to a zero interest rate. BoJ will then control (absolutely) their 10-year bond yield at around 1% (instead of 0%). Best central bank in the world by some distance.
But they're wealthier per head.
As every depopulating nation will be.
The focus on 'total' was, in hindsight, ecological stupidity. Self-justification for a temporarily-advantaged few, at the expense of the long-term wellbeing of the whole.
Exactly what we're seeing hereabouts - except they're too late...
Japan is a great example on how raw indicators in their own right don't necessarily lead to greater personal prosperity (which is what a lot of us in the west are demanding).
They have:
- world leading infrastructure
- high levels of education
- top teir levels of R & D spend
- better rules around building and realtively affordable housing
And really low wages. So the nation is wealthy (actually it's broke), but it's not being distributed.
Where does all the wealth go? Not to the government, they are in massive debt. Not to the employees who work crazy hours for crap wages. And it doesn’t seem to go to the top either - Toyota San and Panasonic San don’t seem to make the same lists as Mr Tesla and Mr Amazon.
Yeah I'd agree with that. Although the lower income Japanese person probably works a lot harder than the lower income Kiwi. If you work as hard as the Japanese I think you would be much better off here.
They couldn't believe I could afford to take an international holiday and get 3 weeks off work as just a working class person.
Generally agree, but let’s unpack your first sentence - what do you mean by ‘middle class’? For me, these days it means upper middle income households. If that is the case I would say the ‘middle classes’ are similar between the two countries. Income is less in Japan, but in most places housing is significantly cheaper. And remember their interest rates are very low. Education is cheap, school Lunches provided etc.
What defines middle class is a little arbitrary.
Maybe if we want to take home ownership as some sort of middle class indicator, despite the prices being more "affordable" in Japan, their rate of ownership is 15% lower.
Ive posted this before, but it's an interesting insight.
It's always hard to compare, a middle class family in Japan would likely be a grandparent, 2 parents and 1 child living in a 1 or 2 bedroom apartment, with futons they roll out to sleep on in the living room. Though the number of children is pretty low so middle class also includes a lot of single people and childless couples, maybe caring for their folks.
A few years back I stayed with an upper middle class family and they had 2 adults and 2 kids in a 2 bedroom apartment.
That's not a standard that NZers strive for, but maybe it should be? Probably better than multiple families in cold and damp 3 bedroom houses
The weak Japanese yen has seen fewer Japanese travel and especially, Japanese spending less when abroad. Friends in Bangkok who have businesses in the tourism industry tell me they still get Japanese customers but they spend much less. When asked why, it all comes back to the weak yen.
Great metaphor.
It's just cards - all expecting to be redeemed, but the Bookie is increasingly unbacked and will do a runner.
What will be left, is a collection of EXISTING infrastructure; some maintainable, some not, and a lot adaptable to what will be a new way of living. The latter interests me; for perhaps 100 years there will be residual material - think of all the vehicles - around to be cannibalized, Long enough for full-life careers...
WW1 sharply introduced the age of oil. Up until then wind, gravity, water flow, fire hence steam had powered the globe with a lot of assist from beasts of burden naturally. Oil has accelerated power in not much more than 100 years, greatly more than anything else in the last 1000 years and beyond. Until the oil runs out, daresay any old cynic like me would contend that nothing much is going to change as to the way humans have been progressing their respective civilisations in let’s say, these modern times. Just a thought.
Nikkei Plunges As Yen Soars Ahead Of BOJ Policy Change
Casino economics.
“…only the fools are dancing, but the bigger fools are watching.”
https://www.ft.com/content/4d869e6a-a974-45fe-b204-cb5f85838352
For those who can't access.
“The bitcoin bulls have been proved mostly right about its prospects as a long-term investment,” Rockefeller International Chair Ruchir Sharma wrote in a piece in the Financial Times titled “Once dismissed as fanatics, the bitcoin bulls must be feeling vindicated.” Noting that bitcoin BTC has traditionally behaved like penny stocks that tend to pump and then dump, he said the fact that its bubble burst many times and quickly recovered over and over “suggests that something real and sustainable is going on. Bitcoin Bulls are not the greater fools. It increasingly looks more like an asset with staying power than a passing fad. Froth is a feature of any runaway bull market but for now it is the so-called fanatics, not the sceptics, who have good reason to celebrate. There is an old Wall Street saying for moments like this: only the fools are dancing, but the bigger fools are watching.”
And most people either have no idea, or think they’re too late to buy some. Just start somewhere. Michael Saylor just announced today he has brought another $1.3 BILLION NZD worth of BTC. Everyone here will own it through some form eventually, you may as well have some exposure now.
MicroStrategy has acquired an additional 12,000 BTC for ~$821.7M using proceeds from convertible notes & excess cash for ~$68,477 per #bitcoin . As of 3/10/24, $MSTR holds 205,000 $BTC acquired for ~$6.91B at average price of $33,706 per bitcoin.
If you’re interested in what he is doing, here’s today’s full interview with him on CNBC. https://x.com/swan/status/1767176262076825820?s=46&t=R4PLzUljVQMglCMDqjVRFQ
A question for you, or any other crypto gurus, based on complete ignorance on my part.
What is the overarching benefit being touted for Bitcoin, rather than crypto in general? I was under the impression that Bitcoin, like gold, was going to be the main, or trusted, medium for value/exchange in the digital age. If that's still the intent or perception, how is that going to be achieved for the average Joe when A) the price is so volatile, and B) the price (obviously based on current fiat values) is predicted to keeping rising, seemingly because of the demand from big corp. I thought the premise of Bitcoin, or crypto in general, was to circumvent institutional control over money. Is that still the case as far as pricing goes when that seems to be all that everyone talks about (the price) rather than the inherent tech that's supposed to be where the value is?
Hi Snow, some good questions.
Like most technologies it is evolving over time. Not everyone involved has the same idea about the overarching benefit or primary use case. Depending on who you are, your level of wealth, and the government you live under, these WILL be different. That is why people in NZ arn't interested in using it now, and people living under a totalitarian regime, or sending migrant migrant remittances back to their families in El Salvador are.
For example, If you watch that interview I posted above with Michael Saylor (A billionaire living in the USA), he is not at all concerned about it being used (or not used) for small peer to peer 'coffee' transactions. But he is very concerned about wealth preservation when his buying power in fiat is being erroded by millions per year. He views it as 'digital gold' or 'digital property'. Simply an asset that is better than any other as a store of value. Why do people buy assets? To preverse their wealth against devaluing currencies. There is a reason why physical property (land) around the world is worth far more than it's utility value should be. It's because people are using it as a vehicle to preserve and protect their capital. He believes bitcoin will seriously erode the market for both gold and property because it's better in every way.
Unlike both gold and land though, it is almost infinitely divisible (1BTC = 100 million satoshis), and ALSO able to be used as a medium of exchange. As you point out, extreme volatility is not highly desirable in that case. But it will not always be that way, the larger the asset gets the more that volatility will reduce. We can already see that happening, in another 10/20/30 years it will be no different to the volatility between other international currencies. Currently it is the 13th largest currency in the world with around 19 million BTC circulating. If you looked at the USD in BTC terms, there is the equivalent of 550 million BTC circulating! So of course it will be volatile in comparison right now. That gap is closing fast.
The more fiat comes in, the more it is used and the larger it gets, and the more it slowly replaces the traditional system because people want it. People forget fiat is an experiment too, one that has only been running for 50 years, and is already breaking. No one knows how this will play out, but we can see the general direction this is going.. So your questions are totally valid, it's just very early.
a rocket scientist is an susceptible as anyone to viewing the world from their own siloed bubble.
Next hes going to tell me El Salvador is the new Nordic economic miracle..
We are leveraging fiat/assets to provide INCOME ... which is devaluing fiat
Its keeps the Ponzi afloat for now
To believe in the future of Bitcoin as a "wealth protection' mechanism does not understand the underlying (income) problem.
He used a combination of convertible notes (a loan that converts to shares when they do their next fundraising round), and excess cash sitting in the business (that will otherwise lose at least 30% of its purchasing power in the next 10 years). If you think BTC is fictional, I don't suggest learning about what those digits in your bank account actually mean.
MSTR (up 149% this year) - has discovered the infinite money glitch
Borrow money at nearly 0% to buy bitcoin. Notes are convertible so lenders want to buy MSTR shares because it keeps going up and they can get MSTR at a discount.
MSTR buys bitcoin (last night for example). MSTR stock price goes up (+16% today). Now MSTR can borrow more money to buy bitcoin and lenders want to do this to have more MSTR stock.
The White House has unveiled its draft Budget Request for 2025 The US plans to allocate funds including: $850 billion - for defence; $19.8 billion for modernisation of the nuclear deterrent; $100 million for military aid to Taiwan; $25 million to combat Russian influence in Africa. The Biden administration has not included in the draft its previous request to the US Congress for $61.4bn in aid to Ukraine; instead the Request for Ukraine 2025 rests at just $482 million. Link
"with news about how hard it is to get the 'last mile' of above-policy inflation eliminated...."
Yip
We can expect more of this sentiment to get people to suck higher for longer
The pie is shrinking and we must keep pushing those at the margins away from the table
Q4 GDP results March 21st.
Thus we'll see where we were at Dec 31st 2023 ... while Q1 2024 draws to a close.
The US has had respectable growth for the last few years ... NZ? ... Not so much. Best summarized as recession, anemic growth, and probably now back into a recession.
Why the difference? The US government has been spending and keeping the US economy juiced while silly little NZ's government is embarking on austerity.
Thus, NZ's inflation track and the USA's inflation track are vastly different. Ergo, I think the RBNZ is going to have to use that FX war chest it has been building.
You get a whip and I get saw.....
Our stops are in, so there's nothing to do......
The epic fail of the Russia sanctions in a nutshell: “The sanctions were imposed by one important sector of the world economy which then cut itself off from resources that it needs in return for cutting Russia off from various things that Russia doesn't really need”. Link
The S & P 500 has been on a 6 month spree, it will pull back at some point, hard to see where the support will be, I guess you could put a few Fibonacci lines on it but these will be technical vs solid support IMHO.
As % are high , good chance we could see some serious vol here.
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