Breakfast briefing: US fades both at home and abroad

Economy / news

Two key US surveys point to contractions; UST 2yr yield slips; Singapore inflation dives; local power price spike; UST 10yr at 4.41%; gold and oil firm; NZ$1 = 57.5 USc; TWI = 67.2

25th Feb 25, 7:20am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news the fading of confidence in the US is spreading, but trailing the international reputation demise.

First up today, the widely-watched Chicago Fed's National Activity Index for the US fell in January from an upwardly revised result for December, suggesting American economic growth decreased to below trend. The personal consumption and housing categories, along with the production sector, both retreated.

The Dallas Fed's regional factory survey fell sharply in January from a positive expansion in December to quite a negative contraction in this latest survey. New orders led the shift lower, while the company outlook index fell 24 points and the outlook uncertainty index surged to a seven-month high of 29.2 from nearly zero last month. There are some suddenly worried folks in the US oil patch - or as the Dallas Fed themselves noted, businesses are faltering under increasing uncertainty.

So investors are shifting to risk-free options. There was a large two year US Treasury auction earlier today, one that was again well supported, It delivered a median yield of 4.13%, down from the 4.17% yield at the prior equivalent event a month ago.

Singapore's CPI inflation rate fell to 1.2% in January from a slightly revised 1.5% in the prior month. This was well below analyst expectations of 2.2% and is the lowest level in four years. (In between, it peaked at 7.5% in September 2022, but it has been falling since.) Lower food prices were a key contributor in this January result.

Locally, we should probably note that the annual maintenance of the Cook Strait power cable has been putting huge pressure on an already stretched power supply. There was a very wide divergence in pricing between the Islands yesterday (very high in the South Island in the early afternoon) and a "low residual notice" was issued. (H/T TR.)

The UST 10yr yield is at 4.41%, down -2 bps from yesterday at this time. The key 2-10 yield curve is little-changed at +22 bps. Their 1-5 curve is now at +9 bps and flatter. And their 3 mth-10yr curve is flatter, also at +9 bps. The Australian 10 year bond yield starts today at 4.48% and down -5 bps from yesterday. The China 10 year bond rate is now at 1.81% and up +8 bps in a very big and unusual move. The NZ Government 10 year bond rate is now at 4.62%, down -5 bps from yesterday.

Wall Street has opened its week with the S&P500 up +0.1% in Monday trade. Overnight, European markets were mixed with Frankfurt up +0.6% which Paris was down -0.8%. Tokyo ended ist Monday session up +0.3%, Hong Kong fell -0.6%, while Shanghai slipped -0.2%. Singapore slipped even less, down -0.1%. The ASX200 was up +0.1% in Monday trade. But the NZX50 took a beating, down -1.7% with blood everywhere.

The price of gold will start today at just under US$2942/oz and up +US$7 from yesterday.

Oil prices are up less than +50 USc at just under US$71/bbl in the US and the international Brent price is now just under US$75/bbl.

The Kiwi dollar is now at 57.5 USc and up +10 bps from yesterday. Against the Aussie we are unchanged at 90.3 AUc. Against the euro we are also unchanged at 54.8 euro cents. That all means our TWI-5 starts today just on 67.2, and up +10 bps from yesterday.

The bitcoin price starts today at US$94,565 and down -1.1% from this time yesterday. Volatility over the past 24 hours has been modest at +/- 1.4%.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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18 Comments

by Foxglove. | 25th Feb 25, 7:55am 1740423318

“businesses are faltering under increasing uncertainty.” The last word there is the killer. Name one element or action, be it business, a government, a sports team or a society at large, that does well when stricken with uncertainty. What’s more like rust, once in, it never sleeps.

by IT GUY | 25th Feb 25, 8:17am 1740424632

Uncertainty is an everyday item Cam Bagrie - https://businessdesk.co.nz/article/economy/uncertainty-is-an-everyday-i…

by Advisor | 25th Feb 25, 8:35am 1740425705

A change in government or not come 2026, the average Kiwi will continue to feel the hard squeeze. We're caught between 2 seemingly competing ideologies that are unapologetically underpinned by broken neoliberalism.

Young folks (and skilled migrants) will continue to vote with their feet and the rest will keep fighting over what's left behind.

by powerdownkiwi | 25th Feb 25, 9:26am 1740428773

If you think about it, neoliberalism was born of pending scarcity.

Beneath the spin, it was one small echelon displacing everyone else, while peddling trickle-down. But the driver in the first place, was pending scarcity. We are well past that pressure, trending over the peak and looking down the other side. The joke is that the 'free-marketeers' actually need a support mechanism - policing, lawyers, courts, prisons - to enforce their 'property rights'. And, of course, they need someone else to pay for it... But those they made pay, are increasingly tapped-out. Funny old world...

by Foxglove. | 25th Feb 25, 9:56am 1740430560

Funny old world has largely been undone by it. Neoliberalism ventured forth coupled to globalisation. The latter exploited cheap labour, sweat shops etc. That enriched the perpetrators, manufacturers etc. End users also benefited somewhat by selection and price, but not as much. That shift undercut traditional business, commerce and consumption in the recipient countries to the point that the workforce lost its basic structure and skills and society became more expectant and less active. Once upon a time NZ had a manufacturing base. For example let’s say Lichfield shirts. Folk were employed, upskilled and they and the company paid taxes. Now all of that has disappeared and instead of wearing a shirt until was worn, it is now out of fashion and discarded in short time.

by murray86 | 25th Feb 25, 10:59am 1740434354

I don't disagree, PDK but I think you give them too much credit. Those who peddled the Friedman free market theories just wanted to get rich quicker, and sought to use the power of the US to influence the whole world. They pretty much succeeded with everyone mindlessly swallowing their BS. But then computers weren't much of thing then too, so there wasn't an easy way to question and test what was being sold.

"Scarcity"? I don't think they understood that. I think they were just seeking power and control.

Trump is screwing it up for them.

by powerdownkiwi | 25th Feb 25, 11:51am 1740437518

I'm not saying they understood it; I'm saying it was the driver.

And before computers, we still had the MSM. Mostly MIA then, as now.

by Pa1nter | 25th Feb 25, 10:20am 1740432020

Young folks (and skilled migrants) will continue to vote with their feet and the rest will keep fighting over what's left behind.

This is the same scenario everywhere, and nowhere most Kiwis want to migrate to is generating additional abundance significant to here, or is free of any of our core issues.

They'll have fun finding out.

by kiwikidsnz | 25th Feb 25, 8:31am 1740425513

https://en.m.wikipedia.org/wiki/VUCA

by meh | 25th Feb 25, 12:19pm 1740439172

Uncertainty is a natural fact of life. It's the trying to control it that creates the problems.

by IT GUY | 25th Feb 25, 8:18am 1740424691

S&P500 looking toppy https://www.hussmanfunds.com/comment/mc250223/

With our most reliable valuation measures more extreme than both the 1929 and 2000 market peaks, we continue to believe that the stock market is tracing out the extended peak of the third great speculative bubble in U.S. history. Since the initial January 2022 market peak, the equal-weighted S&P 500 has clocked a cumulative total return less than 2.4% ahead of Treasury bills, while the small-cap Russell 2000 has lagged T-bills by more than -10.6% since then. The capitalization-weighted S&P 500 Index has performed better during this period only by driving the price/revenue multiple of the information technology sector to levels that easily exceed the 2000 extreme.

While record valuations, unfavorable market internals, and recurring warning flags have held us to a bearish outlook since the June comment, You Can Ring My Bell, our investment discipline has benefited despite a further market advance since then, partly as a result of the hedging implementation we introduced in the fourth quarter (see the section titled “Good News and Good News” in the October comment, Subsets and Sensibility).

What appears to be an endless bull market advance is actually a classic two-tiered blowoff in speculative glamour stocks. If you missed Bill Hester’s excellent analysis of large-cap market concentration, Slimming Down a Top-Heavy Market, now may be a worthwhile opportunity to recognize how extreme the current situation has become. The chart below offers some sense of how much investors now need to rely on a “permanently high plateau” in valuations.

by IT GUY | 25th Feb 25, 8:27am 1740425267

On that front, my friend Jesse Felder recently shared an interesting contrast. The latest survey by Bank of America reports that the average cash level in the portfolios of global fund managers is just 3.5%, one of the lowest levels on record, while their economic confidence is at multi-year highs, with 82% seeing no recession on the horizon. Fund managers tend to hold minimal amounts of cash at market peaks and – except when high interest rates create a clear incentive to hold cash – managers tend to hold the highest cash levels at market lows. The average cash level of fund managers is now lower than even the 3.8% reading that BofA described in December as a “contrarian sell signal.” Meanwhile, Warren Buffett’s company has been a net seller of stocks for eight consecutive quarters. Berkshire Hathaway presently holds the highest level of cash, as a percentage of assets, on record. Which one do you want to follow?

by powerdownkiwi | 25th Feb 25, 8:39am 1740425956

The US oil-patch has been 'worried' for some time. Ex subsidies - which are traceable to unrepayable US debt, shades of Mack and the Boys paying for their stove with an IOU - fracking has never made the grade. Which suggests its EROEI is too low.

Regardless of who is in the Whitehouse, that physics problem will worsen.

by kraken | 25th Feb 25, 12:08pm 1740438501

Trump says tariffs on Canada and Mexico 'will go forward'

https://youtu.be/plCJmvMaJJk

Bank of Canada governor says trade war is different for the economy than COVID

https://youtu.be/ZQNZjejjWmU

Yeah, QE is not coming back.

by HouseMouse | 25th Feb 25, 12:33pm 1740439992

Just saw an.Indian driver mow down a pedestrian at a crossing. Honestly, the quality of driving from recent immigrants is terrible, generally speaking. Call me xenophobic, I don’t care. It’s true, and it’s causing injuries and deaths.

by Chaosinflesh | 25th Feb 25, 2:48pm 1740448101

Nothing new there. We were following a workmate (fob) home one day in multi-lane traffic, and watched him toot his horn then change lanes straight into the car next to him. He didn't understand why they didn't move.

And that was 23 years ago.

But bad driving isn't restricted to immigrants. Most people honestly believe they are better than they are.

by solardb | 25th Feb 25, 9:08pm 1740470913

It's all the other idiots on the road.

by patbell | 26th Feb 25, 4:38am 1740497919

From my observations - NZ is a very unhappy place to be. The 40 odd year experiment has not worked for most of us. Time to jettison MMP. Time to rebuild our manufacturing base, Time to rebuild infrastructure that is owned by the population that paid for it. Time for many other changes. Time for us to look after us.