Here's our summary of key economic events over the weekend that affect New Zealand with news of some slippage in the world's largest economies.
However, in the week ahead we will get central bank rate review decisions from China, Norway, the UK, and Switzerland. Of special interest to us will be Tuesday's one in Australia. No change is expected there at 4.35%, but the signals about how they see progress to their inflation targets will be important. There will be a heavy set of data releases from both the US and China this week as well, many of which could move markets. Elsewhere Japanese inflation data, German sentiment surveys, and PMIs everywhere will feature.
But first in Japan, their central bank held its new slightly positive official policy interest rate at Friday's meeting. But it did confirm it is working on ways to reduce its bond purchase program. They see Japanese inflation embedding from here, rising modestly over the rest of 2024 above 2%.
However Japanese industrial production slipped in April in advance data released Friday, but that was among overall business activity that rose at a modest rate.
Indian exports, which are actually modest on the world scale, rose in May to be more than +9% higher than year ago levels. (Australia's exports fell in the same month, but they are still larger than for India. You have to go back to 2018 for India's export levels to be larger than Australia's. Since, the Aussies have made far more gains than India. India may now be the world's fourth largest economy and Australia the 13th, but India is an also-ran as an exporter.)
Parts of India are in a dire situation relating to water supply.
Despite a heady push from Beijing, Chinese banks extended only ¥950 bln in new loans in May, up from the low ¥730 bln in April and well short of the 'recovery' analysts expected of ¥1.3 tln.
Also somewhat disappointing were May vehicle sales results in China. They were up only +1.5% from a year earlier to 2.42 million in May, slowing from a +9.3% rise in the previous month. However sales of new energy vehicles surged by a third, accounting for nearly half (47%) of all car sales and a record high share. The modest overall sales result is on the back of surging production (+25%) and the excess is being shipped to export markets, causing trade friction and distortions, and accusations of dumping.
And in a massive part of important north-east China, including Henan, Anhui, Jiangsu, Hubei and Shaanxi provinces, an emergency drought response has been triggered. This will be a very big test of their food security.
And there is this.
In Russia, as their central bank expected in its last policy review, inflation jumped to 8.3% in May from 7.8% in April, the highest since February 2023. A year ago it was running at 2.5%. War and the resulting labour market distortions are the cause.
In the US, the weekend release of the preliminary University of Michigan consumer sentiment index fell slightly for a third straight month in June, the lowest since November. Overall, consumers perceive few changes in the economy from the May survey. Inflation expectations were broadly stable at just over 3%. (The final results of this survey will come in about two weeks, and these have often come out better than preliminary results.)
The UST 10yr yield is now at 4.22% and unchanged from Saturday. But it is -23 bps lower than this time last week. The key 2-10 yield curve inversion is deeper at -49 bps. Their 1-5 curve is still inverted by -83 bps. And their 3 mth-10yr curve inversion is still at -114 bps. The Australian 10 year bond yield is up +1 bp at 4.14%. The China 10 year bond rate is still at 2.30%. The NZ Government 10 year bond rate is now at 4.66% and unchanged from Saturday.
The price of gold will start today little-changed at US$2334/oz but up +US$30 from a week ago.
Oil prices are unchanged at US$78/bbl in the US while the international Brent price is still just over US$82.50/bbl.
The Kiwi dollar starts today still at just under 61.4 USc. Against the Aussie we are start marginally firmer at 92.9 AUc. Against the euro we are unchanged at 57.4 euro cents. That all means our TWI-5 starts today up +10 bps at just on 71.1.
The bitcoin price starts today at US$66,514 and up +1.5% from this time Saturday. But that is down -3.7% from a week ago. Volatility over the past 24 hours has again been low at just under +/- 0.7%.
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20 Comments
Russia is a case of who gets their hands on it's resources - mainly energy.
Most folk don't think in energy terms, and miss the point (Sy Hersh did a good piece on who might have blown up the Nordrstream pipeline - and it wasn't the Russians.
https://sputnikglobe.com/20240615/rejection-of-putins-peace-offer-expos…
There will be the usual blitherings about propaganda (by association) but the piece is worth reading to realise how things seem to others. Nuland has a lot to answer for./to.
Russia is a case of who gets their hands on it's resources - mainly energy.
Russia overtook US as gas supplier to Europe in May
Rise in market share highlights difficulty of weaning the region off Russian energy
Russia accounts for only 15% of gas supplies. Where does the other 85% come from.......
Supplies isn't the way to look at it.
Same problem with economics; it's all about flows.
The question (of all finite resources) is stocks; how much remains?
The Us has already expended a good deal of energy accessing the Middle East; there's only itself (down to fracking) Canada (tar takes a good deal of energy to proffer) and Russia. Western companies nearly got there, before Putin applied pressure; to wit; BP.
Comparing Russia and US in supplying gas to EU is irrelevant. It tells you more about how small American share in EU market is. Russian gas exporter Gazprom used to be the most profitable company in Russia. Now it's recorded first loss in 20 years.
Export to EU isn't going to grow much, except maybe for countires like Romania or Bulgaria which aren't the wealthiest. At the same time Russia cannot increase its supply to China because Chinese aren't keen on that themselves. "Friendship without limits" doesn't include gas for some reason.
Russia's gas industry isn't doing that great now.
Talking about data slippage, has the REINZ gone bankrupt? Well past their usual reporting date
For some reason when there is a single day public holiday they skip a whole week. I think it will be out tomorrow
Spruiking seems more art then science
They are about to release their May data, at 9am.
I cannot bear the excitement
Thanks David,..
Have stocked up on 🍿
Re China and DC's 'this'
Democracy is somewhat similar - one debates around a council table, but the vote is the carrier. Even if you as an individual weren't happy with it (and were on the losing side of said vote) your obligation is to champion the majority decision.
Then there's those who wilfully ignore & obfuscate the democratic principles they claim to live in
"Previously in peacetime, the Pentagon needed approval of embassy officials before conducting psychological operations in a country, often hamstringing commanders seeking to quickly respond to Beijing's messaging, three former Pentagon officials told Reuters.
But in 2019, before COVID surfaced in full force, then-Secretary of Defense Mark Esper signed a secret order that later paved the way for the launch of the US military propaganda campaign. The order elevated the Pentagon's competition with China and Russia to the priority of active combat, enabling commanders to sidestep the State Department when conducting psyops against those adversaries. The Pentagon spending bill passed by Congress that year also explicitly authorized the military to conduct clandestine influence operations against other countries, even "outside of areas of active hostilities."
https://www.newshub.co.nz/home/world/2024/06/investigation-pentagon-ran…
China's instruction to it's CCP members; there is a principle in government about not confusing consultation with negotiation.
So the CCP state they have "fully listened to all the voices...." and then done what they wanted to anyway.
Not so different to here.
Non-Financial Debt (NFD) expanded at a seasonally adjusted and annualized rate (SAAR) of $3.339 TN during Q1 to a record $74.587 TN. Q1 growth was down somewhat from Q4’s $3.429 TN - but up significantly from Q1 ‘23’s $2.639 TN. For perspective, prior to Covid year 2020, 2007 held the record for NFD growth at $2.530 TN.
Total Household debt growth jumped to SAAR $578 billion from Q4’s $450 billion, with Mortgages increasing to SAAR $280 billion. Total Business borrowings rose sharply to SAAR $834 billion (from Q4’s SAAR $136bn), with Corporate borrowings surging to SAAR $658 billion after Q4’s SAAR $16 billion contraction. It was the strongest quarter of Corporate Credit growth since Q2 2022. At SAAR $99 billion, Q1 posted the strongest State & Local Government borrowings back to Q2 2021. And at SAAR $312 billion, Rest of World boosted borrowings in the U.S. at the briskest pace since Q3 2022.
And while all sectors increased borrowings during the quarter, it was the Federal Government that continues to power system Credit excess. Federal borrowings expanded SAAR $1.828 TN (to a record $26.809 TN), down from Q4’s SAAR $2.878 TN - but up significantly from Q1 2023’s SAAR $1.195 TN. Treasury Securities increased nominal $582 billion. One-year Treasury growth of $2.527 TN (10.4%) matched record pre-Covid total system NFD growth. Over 16 quarters, Treasury Securities inflated a staggering $7.208 TN, or 37.9%. Since 2007, Treasuries have ballooned $20.757 TN, or 343%.
At $32.438 TN, Total Treasury Liabilities ended the quarter at a record 115% of GDP, up from 99% to end 2019 and 55% to conclude 2007.
GSE growth has slowed markedly. After expanding $1.115 TN in the four quarters ended Q1 2023, Agency Securities basically flatlined during Q1 at $11.974 TN. Combined Treasury and Agency Securities ended Q1 at a record $38.782 TN, or 137% of GDP. With FHLB contracting $42 billion, GSE Assets declined $26 billion during Q1 to $9.315 TN.
Corporate Bonds expanded nominal $230 billion to a record $15.827 TN, with the strongest two-quarter growth ($543bn) since Q2/Q3 2021. Non-Financial Bonds expanded $112 billion, the largest increase since Q1 2023. Domestic Financial (i.e., bank and broker) Bonds gained $76 billion to a record $4.787 TN. ABS expanded another $22.2 billion, with growth at a 9.5% pace over three quarters (to a record $1.391 TN). Broker/Dealers issued bonds at the strongest rate ($22bn) in two years. Finance Company bonds expanded $35 billion to a record $1.114 TN, with one-year growth of $106 billion, or 10.6%.
Total Debt Securities expanded nominal $885 billion (6% annualized) to a record $59.986 TN, with one-year growth of $3.093 TN. Debt Securities inflated $16.288 TN, or 37.3%, over 18 quarters. Total Debt Securities ended the quarter at 212% of GDP, versus previous cycle peaks 194% at Q1 2008 and 147% to end 1999.
Equities inflated $6.470 TN during the quarter to a record $84.040 TN, with two-quarter growth of $13.477 TN (matching the gain from the 2020 Covid recovery). Equities ballooned $15.255 TN, or 22.2%, over the past year, and $33.270 TN, or 65.5%, over 18 quarters. Equities ended March at 297% of GDP. This compares to previous cycle peaks 188% during Q3 2007 and 210% to conclude 1999.
Total (Debt and Equities) Securities surged $7.355 TN to a record $144.026 TN, with one-year growth of $18.349 TN (14.6%). Total Securities ended the quarter at 510% of GDP, up from pre-Covid Q4 2019’s 454%, and compared to previous cycle peaks 376% (Q3 2007) and 357% (Q1 2000). Total Securities ballooned $59.558 TN, or 52.5%, over the past 18 quarters.
Broker/Dealer Assets expanded $282 billion, or 23% annualized, during Q1 to a record $5.158 TN. Debt Securities holding surged $93.8 billion to a 14-year high $542 billion, with one-year growth of $121 billion, or 28.8%. The Broker/Dealer Loans asset expanded $36.2 billion (to a six-quarter high of $688 billion), the strongest growth in 11 quarters. The repo market continues to be the chief source of funding for Broker/Dealer securities holdings. Repo Liabilities surged nominal $171 billion to a record $2.281 TN, with one-year growth of $262 billion, or 13.0%. It’s worth noting that five-quarter repo growth of $655 billion was the strongest since the 2006/07 Bubble period.
Money Market Fund (MMF) Assets expanded $81 billion to a record $6.441 TN, with one-year growth of $748 billion, or 13.1%. Treasury holdings surged $294 billion during the quarter, as MMF liquidated $284 billion of repo positions (winding down Fed reverse repo). Money Fund Assets inflated an unprecedented $2.438 TN, or 51.2%, over 17 quarters, in one of history’s great monetary inflations.
Federal Reserve Assets declined nominal $320 billion to $6.473 TN, with a one-year contraction of $1.274 TN. Treasury holding declined $227 billion to $4.176 TN, while Agencies shrank $92 billion to $2.029 TN. Total Liabilities fell $291 billion to $7.482 TN. The Fed’s Securities Repo Liability dropped $414 billion to $977 billion (down $1.766 TN y-o-y). The Liability “Bank Reserves” jumped $211 billion to $3.346 TN
With the Fed winding down its Repo operation, the Total Federal Funds and Security Repurchase Agreements Assets declined $198 billion during Q1 to $6.709 TN. Money Market Fund repo holdings contracted $284 billion to $2.382 TN (down $854bn y-o-y). Meanwhile, Broker/Dealer repo borrowings jumped $171 billion for the quarter and $262 billion y-o-y. ROW repo Liabilities were little changed for the quarter, but up a notable $461 billion over five quarters to $1.622 TN. Excluding the Fed’s position, the repo market expanded $198 billion during the quarter to a record $4.981 TN, with five-quarter growth of $1.306 TN, or 36%.
The banking system balance sheet also exemplifies the dominance of securities finance. Bank (Private Depository Institutions) Assets expanded $232 billion, or 3.5% annualized, during Q1 to a record $26.387 TN, with one-year growth of $262 billion, or 1.0%. Loans actually contracted $35 billion for the quarter to $14.447 TN (up $308bn, or 2.2%, y-o-y). Mortgages increased $30 billion, or 1.8% annualized, to a record $6.772 TN, while Consumer Credit contracted $58 billion, or 8.4% annualized, to $2.706 TN. Meanwhile, Debt Securities holdings rose $113 billion, or 7.5% annualized, led by a $100 billion increase in Treasuries (to $1.615 TN) and a $46 billion jump in Corporate bonds (to $954bn). Total Debt Securities holdings ballooned $1.490 TN, or 31.8%, over 17 quarters.
The Household Balance Sheet remains fundamental to Bubble Analysis. Household Assets inflated $5.182 TN during the quarter to a record $181.429 TN. And with Liabilities up $65 billion, Household Net Worth surged $5.117 TN to a record $160.844 TN. Net Worth inflated $12.946 TN, or 8.8%, y-o-y; $24.457 TN, or 17.9%, over three years; and $50 TN, or 45.1%, over four years.
For the quarter, Real Estate holdings rose $907 billion to a record $49.997 TN, with three-year growth of $12.027 TN, or 31.7%. Financial Asset holdings inflated $4.178 TN during Q1 to a record $122.516 TN, with Total Equities (Equities and Mutual Funds) surging $3.261 TN. Total Equities ended March at 162% of GDP, up from pre-Covid (Q4 ’19) 143%, and the previous cycle peaks 104% (Q3 2007) and 116% (Q1 2000). Household Net Worth ended Q1 at 569% of GDP, up from pre-Covid 537%, and the previous cycle peaks 488% (Q1 2007) and 444% (Q1 2000).
Household holdings of liquid assets (Treasuries, Agencies, Deposits and Money Funds) rose another $123 billion during Q1 to a record $21.859 TN. These liquid assets inflated $897 billion (4.3%) over the past year; $3.441 TN (18.7%) over three years; and $5.398 TN (32.8%) over four years.
Rest of World (ROW) holdings of U.S. financial assets inflated $2.777 TN during Q1 to a record $50.897 TN. Debt Securities increased $129 billion to a record $14.006 TN, with Treasuries rising $80 billion (to $8.136 TN) and Corporate Bonds gaining $60 billion (to $4.209 TN). Debt Securities were up $1.054 TN over the four quarters (Treasuries $578bn, Agencies $122bn, Corporate $398bn). Holdings of Total U.S. Equities jumped $1.240 TN to a record $15.744 TN. Repo Liabilities added $3 billion to a record $1.622 TN, with one-year growth of $350 billion, or 27.5%. ROW holdings jumped $7.647 TN, or 17.7%, over the past year, and $14.934 TN, or 41.5%, over 15 quarters.
In Russia, as their central bank expected in its last policy review, inflation jumped to 8.3% in May from 7.8% in April, the highest since February 2023.
This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link
Only one problem with this story - it does not indicate if the growth is real or nominal.
I think Snyder is being a little mischievous with Friedmans quote. He has taken out of context and misinterpreted it.
below is what Friedman said.... Low interest rates are generally a sign that money has been ( past tense) tight. There is no "magical" insight to be had from what Friedman says... and what Friedman says is not anything radical.?
I think Friedman is implying that the transmission mechanisms of Monetary policy, into the economy, are kinda dynamic ( not mechanical ), and one should have an eye on the "demand for credit" ( Quantity of money ) as much as interest rates... Demand for credit is influenced by many things... eg. fear/greed... ( the term ..'pushing on a string " , comes to mind )
Snyder turns all this on its head by saying we can tell what monetary conditions are by the level of interest rates . ie..high interest rates = plentiful money.
Thats not what Friedman was alluding to , in my view.
The Interest Rate Fallacy
Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy. "
Chief economist of Washington-based bankers association discovers principles of international trade. Free trade is no longer in fashion, since the US got beaten by it. Link
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