Here's our summary of key economic events overnight that affect New Zealand, with news strong wage gains in Japan set the scene for a global set of central bank monetary policy reviews this coming week.
But first, American consumer sentiment is holding its recent highs in March, essentially the same as the past three months and back at levels prevailing in mid 2021. And at these current levels it is up a sharp +23% in a year.
American industrial production rose (slightly) in February from January following a previous month retreat. Most of the gains were in construction activity. But it is still marginally lower (in real terms) than year ago levels.
But March won't be helped by activity in the New York region. They reported a sharpish decline in their latest survey.
Home buyer and sellers have had a major win in the US with their real estate industry conceding their ability to price-fix commission levels. The groundbreaking $700 mln legal agreement ends years of dispute and could drive down commission rates and shrink the number of real-estate agents over time.
And we should note than an Illinois jury has awarded punitive damages against Reckitt/Mead Johnson by accepting the claim that cow's-milk based baby formula causes necrotising enterocolitis in preterm infants, often with fatal consequences. The company said it would appeal.
In Canada, housing starts jumped by +14% in February from January, to 253,500 units and well above market expectations of 230,000 units, according to official data. It was the highest reading in four months
Chinese banks extended ¥1.45 tln in new loans in February, down from the record ¥4.9 tln in January. January is usually a seasonal high. The February level was basically as expected. But authorities would be disappointed it is not higher because they had taken action to encourage lending. The central bank had announced its largest-ever reduction in a key mortgage reference rate. And they signaled recently there was still room for cutting banks' RRR, following a 50-basis point cut in January. Banks are finding to tougher to identify more lending opportunities.
China's house prices are falling a bit faster now according to official data. New house prices were down -1.4% from a year ago. In January the decline was -0.7%. Only seven of the 70 largest cities recorded any rise, all tiny, from a month ago. From a year ago only 13 showed rises. For resales, only two of those same 70 cities recorded a rise in February from January, none on a year-ago basis. The declines are probably sharper than being recorded officially due to very low demand.
China's one-year medium-term lending facility (MLF) rate was unchanged at 2.5% in today's update.
China’s national emissions trading scheme is set to expand to cover the aluminium sector as the compulsory carbon market pushes ahead to expand beyond the power sector and include more heavy emitters.
Global steel and iron ore prices are falling rather quickly now. Steel (rebar) is down -2.7% over the past week, and iron ore is down -10% over the same timeframe and may now be below US$100/tonne. Since the start of the year the reductions at -11% and -24% respectively. The steel price is back to 2009 levels as mill and port inventories rise and some steel mill profits have vanished. These pullbacks directly relate to soft Chinese demand. But copper is making a bit of a recovery, back to year ago levels after a longish soft patch. Supply limitations are driving this price higher.
Strong wage gains in Japan, and by much more than expected, are fueling speculation that that Bank of Japan won't wait any longer and will shift out of its negative policy rate when they meet on Tuesday.
Next week will see many central banks meet about their own monetary policy settings, including Australian, the US, Japan of course, Norway, Switzerland, England and Russia. There will be a raft of inflation reports out too.
The UST 10yr yield starts today at 4.31% and up +1 bp from this time yesterday. That is up a sharp +29 bps for the week. The key 2-10 yield curve inversion is a bit deeper at -42 bps. And their 1-5 curve inversion is a bit less less at -76 bps. And their 3 mth-10yr curve inversion is unchanged at -109 bps. The Australian 10 year bond yield is now at 4.16% and up +1 bp from yesterday. The China 10 year bond rate is little-changed at 2.34%. The NZ Government 10 year bond rate is up +3 bps at 4.75%. It was at 4.69%.
Wall Street has started its Friday session with the S&P500 down -0.6% and heading for a flat weekly change. Overnight European markets closed unchanged except London fell -0.2%. Yesterday Tokyo ended its Friday session down -0.3% which made it -1.3% lower for the week. Hong Kong fell -1.4% on the day to limit its gain to +1.9%. Shanghai shed rose +0.5% which enabled it to book a +0.4% weekly gain. Singapore ended down -0.4%. The ASX200 ended down -0.6% and a massive -2.3% for the week. That means most (but not quite all) of the 2024 gains have been reversed. The NZX50 was down -0.4% on Friday for a weekly retreat of -1.3%. So far in 2024 the NZX50 is up +0.3%.
The Fear & Greed index has changed little in a week and is still in the "greed" level.
The price of gold will start today -US$1 lower than yesterday at US$2157/oz. That is -US$29 lower than a week ago.
Oil prices have slipped -US$1 in the US to just over US$80.50/bbl in the US but the international Brent price is unchanged at US$85/bbl. A week ago these prices were US$77.50 and US$81.50 respectively.
The Kiwi dollar starts today at just under 60.9 USc and -½ lower than this time yesterday. That is a full -1c lower than a week ago. Against the Aussie we are nearly -½c lower at 92.8 AUc. Against the euro we are also -½c lower at 55.9 euro cents. That all means our TWI-5 starts today at just on 69.9 and -40 bps lower than yesterday from yesterday and -40 bps lower in a week.
The bitcoin price starts today at US$68,378 and down -4.1% from this time yesterday. At this level it is virtually unchanged from a week ago. Volatility over the past 24 hours has been extreme however at just on +/- 5.1%.
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21 Comments
Some inspiration https://youtu.be/rMePrwQfT5I?si=YFoKCLW1XL1o6KVh while most of us wait for the coalition’s trickle down economy to kick in.
If he's gonna start doing 'working man' songs, let's hear him belt out a sea shanty next.
Maybe this one? https://www.youtube.com/watch?v=dN3wEdK_vxw
US Industrial Production Sees More Downward Revisions (You Can't Make This Up)
The US with the West calls the war in Ukraine a stalemate only because Russia made no major land gains. This is absolutely not the case if you look at the overall geopolitical situation: The US is losing the economic war all over the world: Russia is becoming more productive and growing economically in contrast to the US. Europe in particular is the big loser and is heading for a depression, not only because of the loss of cheap raw materials from Russia, but also because Europe is being pushed against China by the USA.
For a benchmark, China installed highspeed rail in Indonesia, connecting Jakarta and Bandung (143km) at a speed of 350km/h, for a total cost of $7.3 billion. The line had 2 million passengers in the last 4 months. The American people are getting absolutely fleeced with this. Also a reminder that Java, the Indonesian island where the train is, is the most densely populated area on earth, and is extremely mountainous. So technically and socially much more difficult to build than SF to LA... The project started construction in 2016, and was in operation by 2023. The SF to LA line started construction in 2015 and is now expected to begin operations in 2033... well, if they get $100 billion in ADDITIONAL funding, that is Link
Interesting perspective on the Red Sea shipping issue (for me at least):
A detour via cape horn for a ship traveling from Asia to Europe adds 40% to a journey. You could think of this as 'just a delay' or you could think of it as equivalent to suddenly having a 40% smaller fleet.
A reduction in capacity like that doesn't necessarily neatly translate into an equivalent reduction in production. Tesla in Europe have already shut down production as there is not enough shipping capacity to supply necessary parts (according to Mr Musk).
This Red Sea issue is not going away any time soon (esp. considering that the US refuse to acknowledge why the Houthis are doing what they are doing because they refuse to address the underlying cause).
Strong covid-era deja vu on this one. Hard to see inflation not being effected when you consider the lagging effects.
Hopefully we have the wherewithal to do that.
A world where more goods are produced locally and sold at higher prices is where we need to go ultimately. I actually think it would benefit even lower income workers if it means a stronger and more diverse economy. And besides, nobody has been complaining about the cost of clothing or televisions for example. People deal with those - they struggle with and complain about the cost of essentials.
I do wonder what higher shipping costs will mean for the local price of food produced in NZ. We are often told that the high price we pay for locally produced food is due to the 'global price'. I can see how higher shipping costs could make selling locally more attractive. In an ideal market I imagine the local price should be the global price minus the difference between local and international shipping costs. Of course, you will have confounding things like larger international customers using their clout to negotiate favourable contracts. Another factor would be input costs for producers so we may not be talking about a lower price overall. That said, I remember a recent statistic showing that of the recent higher input costs for local farmers 90% was debt servicing so who knows? It's all very complicated!
A world where more goods are produced locally and sold at higher prices
Do you mean selling at higher prices than we currently do or higher prices than everyone else? Are we intending to sell locally too? Given current spending patterns how exactly do we sell at higher prices?
I agree we need to manufacture more locally.
As for local food production - blowing the price of land into giant bubbles and associated debt doesn't help with local affordability.
I mean produce and consume more locally. Obviously this is not really possible to take very far in a globalised market without looking something like Cuba.
However, to a large extent we have ignored some of the negative externalities that are a result of a globalised economy. I'm not talking about things like pollution, etc, but specifically the degradation of our society and it's productivity. Tourism and primary industry are about all that's left (ignoring property/importing debt as it's a false economy). We have lost something of real value. Imagine if we knew the monetary value of what we have lost or are missing out on. Knowing that, there should (in an ideal world) be a price we would be prepared to pay to get it back or increase it. That price would be reflected in the cost of locally produced things sold locally. Of course we have a globalised market so good luck with that!
Tangentially related, but it's worth looking at the banking sector for an example of how difficult this would be to make work in today's world. We know between the big four Australian banks their profits represent thousand of dollars for every person in NZ. In theory, much of this could be going Kiwibank's way and helping with government revenue. Tax cuts anyone? Still, a lot of people won't bank with Kiwibank, often citing cost as the issue.
In a world full of tat and waste, would people really be so unhappy giving some of that up in exchange for the benefits associated with a better local economy? Pie in the sky, I know. But worth thinking about - especially with the resource limits we are all going to be coming up against. One way or another the consumerist orgy is going to wind down.
This all brings to mind a bit of a personal philosophy of mine. In life, meaning is found in doing the things that are necessary for life. For example, growing and cooking your own food provides satisfaction in a way that time spent at a desk earning money to order more UberEats doesn't. The same could be applied to the country as a whole. There would be an intangible benefit in doing more of what is necessary to provide for ourselves rather than outsourcing it all in exchange for milk powder (or worse, selling off the backyard).
As for local food production - blowing the price of land into giant bubbles and associated debt doesn't help with local affordability.
Definitely. I would say it goes further than that. Rent is a huge cost for all sorts of businesses and is closely related to property values. Why is my 'pint' now $15? I can buy the same in the supermarket for 1/4 the price. As far as I can tell, that difference has only been growing.
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