Here's our summary of key economic events overnight that affect New Zealand, with news supply-chain stress in threatening the global economy in a fundamental way now. And weaker American consumer sentiment isn't helping.
The rise in American inventories is starting to become concerning, although much of it is just caused by price rises. Still even if retail inventories were only up +1.7% in May from April, they are up a sharp +17% from May 2021. Wholesale inventories are where the real problems are, up +25% year-on-year. Congestion in shipping, rail and warehouse supply lines haven't really eased. The prospect of an inventory-correction has to be rising. There could be US$250 bln in excess stock in their supply chains, US$150 bln in wholesale channels, US$100 bln in retail channels. That represents about 1% of US economic activity, so any pullback would be noticeable even if not huge. World-wide it is a very much larger problem and that is where the real risk lies.
The US merchandise trade deficit for May came in less than for April although not by much. But at least it was their lowest in five months with exports rising +22% year-on-year. As we have noted before, the overall trade deficit amounts to only about -4% of US GDP, again very manageable in the intermediate term at least.
The weekly Redbook indicator as an early view on American retail sales shows them tracking little-changed with no real sign of any slowdown on this front.
But the Richmond Fed factory survey does, confirming what the Dallas Fed survey indicated yesterday - that the top is off new order levels and future prospects don't look as bright in June.
And the widely-watch Conference Board survey of consumer sentiment in June has turned negative too, near a ten year low. You would expect this negativity to show up in retail sales activity soon. If not, the mood turn is entirely political, not economic.
There was another US Treasury bond auction this morning, for their 7 year Note. This was well supported again, but the median yield rose to 3.20% from 2.71% at the prior event a month ago, so that is actually a very sharp move up for this benchmark paper.
Will the US Fed change its tightening course? Michael Burry thinks a retail bullwhip is coming and they will. But overnight senior central bank speakers in both the US and the ECB doubled-down on their inflation-fighting purpose.
In China, a creditor has filed a winding-up lawsuit in Hong Kong against giant property developer Evergrande. Chinese state-owned businesses had been helping Evergrande limp on, but it is now unsure what the future is for what was China's largest property development company.
And staying in China, senior officials are exhorting farmers to bring in a good grain harvest, an unusual move that probably indicates some concerns about food security in light of Russia's invasion of Ukraine.
In Germany, GfK Consumer Climate Indicator declined to a fresh record low even if it wasn't quite as bad as expected. All main sub-indexes were more negative, due to the inflationary surge. It been really negative for the past four months.
In Europe generally, we should note that Turkey has now consented to both Finland and Sweden joining NATO.
In the UK, the Scots are to have another independence vote next year. It is probably good time for them to push ahead while the English are weakened by a dodgy and possibly corrupt prime minister.
In Australia, their Federal Government has racked up AU$892 bln in bond debt - and growing. (For reference, the NZ Government has AU$168 bln gross outstanding.) At the rate they need to issue new debt, it will exceed AU$1 tln in the next few years. They now have a very serious interest rate risk. Plus, just given the quantum they have at risk, the market appetite for more may be constrained - meaning buyers may get hard to find. The head of their debt management office has been out explaining his expected predicament.
The UST 10yr yield starts today unchanged from this time yesterday at 3.20%. The UST 2-10 rate curve is little-changed at +7 bps and their 1-5 curve is unchanged at +38 bps. Their 30 day-10yr curve is steeper at +210 bps. The Australian ten year bond is -6 bps lower at 3.78%. The China Govt ten year bond is up +1 bp at 2.86%. And the New Zealand Govt ten year will start today up +2 bps at 3.93%.
On Wall Street the S&P500 is lower in their Tuesday session, down -1.5%. Overnight, European markets were about +0.5% higher. Yesterday Tokyo ended up +0.7%, Hong Kong was up 0.9%, and Shanghai managed a +0.9% gain as well. The ASX200 ended its Tuesday session up +0.9% while the NZX50 ended its day up +0.2%.
The price of gold is at US$1821/oz in New York and down -US$2 from this time yesterday.
And oil prices are +US$1.50/bbl higher at US$110.50/bbl in the US, while the international Brent price is now just over US$113.50/bbl.
The Kiwi dollar will open today -½c lower at 62.5 USc. Against the Australian dollar we are down -¾c at 90.3 AUc. Against the euro we are little-changed at 59.4 euro cents. That means our TWI-5 starts today at just on 70.5 and down a further -30 bps.
The bitcoin price has moved little from this time yesterday and is now at US$20,581 and down -0.6%. Volatility over the past 24 hours has been modest at +/- 1.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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There could be US$250 bln in excess stock in their supply chains, US$150 bln in wholesale channels, US$100 bln in retail channels. That represents about 1% of US economic activity, so any pullback would be noticeable even if not huge.
This is part of the reason central banks have struggle to make calls about cash rates. There will be quite a bit of value tied up in delayed supply times, and manufacturers will also struggle to not over manufacture as they are having to make much longer forecasts.
I suspect that manufacturers focus on inventories will increase markedly now that interest rates are coming off the floor.
The last multinational I worked for decided over a decade ago to ignore std. Cost of Working Capital (CWC) inventory financing charges after the GFC sent global rates to near zero/-ve.
Going back to the 1980/90s CWC was always top of mind in business decisions.
Pressure on the RBNZ to not hike the OCR too high has well and truly started:
https://www.nzherald.co.nz/business/continuous-disclosure-recession-is-…
Was always going to happen.The precious property bubble is more important than CPI prints. Will be interesting to see if the govt starts to screw round with the mandate of the RBNZ. Election year is next year, can't have a recession going into election year can we
HM the NZD will lose even more value if rates are not raised pushing inflation higher. If the FED raise rates New Zealand has to go with that narrative not much RBNZ can do, everyone should of been aware rates would not be at emergency levels for long and considering inflation is high rates are still way to low. The housing market was pushed up by low rates and debt frenzy and will now crash because of higher rates as property prices fall to a fair value. When it cost 12 x average wage couples income to buy a 3 bedroom box on a small section in Auckland you would think people would know trouble is coming already building companies are going insolvent
https://i.stuff.co.nz/business/129103773/weve-never-seen-anything-like-…
Hopefully not many will have to pay extra as may not be able to, having already stretched in the first place to build new house.
The rise in American inventories is starting to become concerning, although much of it is just caused by price rises. Still even if retail inventories were only up +1.7% in May from April, they are up a sharp +17% from May 2021.
I wrote all the way back last September, just as Euro$ #5 was turning up the deflationary probabilities worldwide:
The way the supply bottlenecks of 2021 have worked out, there is going to be an inventory overhang at some point. When it does come about and how bad it will be, that’s really the demand question. There seems to be quite a bit of optimism about it, to the point of complacency while corporate CEO’s bark in the media instead about all the massive inflation they plan on throwing your way.
Inflation today (therefore not inflation) but potentially too many goods tomorrow.
How’s it going for consumer demand now that we’ve reached “at some point?”
Well, not good. Seriously, not good.
PYMNTS’ research finds that 61% of U.S. consumers were living paycheck to paycheck in April 2022, marking a 9-percentage point increase from 52% in April 2021, meaning that approximately three in five U.S. consumers devote nearly all of their salaries to expenses with little to nothing left over at the end of the month. [emphasis added]
Tapped out customers when inventories levels and flows are at historic highs. That’s not inflationary, rather the opposite – as we see in more and more places by the week.
US retail inventory
Just keep your returns: Stores weigh paying you not to bring back unwanted items
https://edition.cnn.com/2022/06/26/business/retail-returns/index.html
That "rise" I'm assuming is just 'value', not actual widgets? If so why is it concerning? If the total number of widgets in stock remain more or less stable, but the value changes due to in/deflationary pressures what is the problem, other than the banks concerned about value held in these inventories? Surely as inflation changes the price geography, so then should the relative measurements be adjusted to accommodate this?
RE: your comment about the English being weakened by their prime minister.The English don’t have a prime minister, Boris Johnson is the British Prime Minister. There is a welsh assembly, Northern Ireland assembly and a Scottish parliament. The English don’t have a representative body. Boris has strengthened the case for Scotland leaving the Union but this isn’t due to English weakness. Most English people would be happy to see an independent Scotland. They have only been together for the last 300 years. A relatively short time in European history.
sigh sigh -- the British Parliament is effectively an English one -- Neither Scotland or Wales have voted conservative since the 1950"s in Scotland and 1850's in Wales -- there are only 59 seats in Scotland -- of which the SNP currently hold 48 conservative only 6 mostly - To say its a British and not English Parliament may technically be correct -- but its along the same lines as saying Hong Kong has its own democracy and China is merely an observer! Last vote Every other party , every major institution and even the Queen who traditionally never comments weighed in -- all against independence -- but in fact all major institutions who simply wanted to maintain the status quo - and retain their privaledged powerful and financially reqarding dominance - Scotland is, and continues to be the ONLY country in the world to ever discover significant oil resources and yet become poorer not wealthier -- You have to ask the question - WHY are ENGLAND so DESPARATE to keep SCOTLAND ??? and as ever its only so they can keep exploiting it for its natural resources as it has done all its other colonies
That's pretty much the same problem in regional NZ. Kid's need to go to the major centers for the opportunities. It'd be nice if governmental economic policies supported business's to be located away from the major centers to ensure kids everywhere got the opportunities. But then the bright lights would still draw them.
Also, if I was pushing for Scottish independence, I would use a spell checker, and cut down on the use of capital letters which highlights this lack of spell checker. I would also never mention Venezuela, Mexico, Nigeria, and a few other African and South American countries where the people have not benefitted from the discovery of oil in their country.
The actual comment that the Scottish people would be more likely to succeed because the British parliament is led by a dodgy and possibly corrupt prime Minister is not the sort of thing that should be put on this website. It's proper place is on tne front of the"Sun" newspaper, or on CNN, or Newsweek, or on one of those websites where writers push the views of their political and economic bosses.
Come on team, I am sure you both know this but he has been breaking his own regulations. https://www.bbc.com/news/uk-politics-59577129
DC is simply calling it, if you disagree with him please present some points of order to consider because at the moment what I have read is really quite damning.
I think David's comment was meant to in relation to them being more likely to succeed at achieving independence not more likely to succeed in a general sense. And Boris broke the law and repeatedly lied to parliament about it, these are facts which I think can reasonably make him be considered "dodgy and corrupt" so not sure why it would be in appropriate to say that.
Wait A Sec, That’s Not Really An *RMB* Liquidity Pool…
Over the weekend, the People’s Bank of China formed an alliance via the BIS where it convinced five other central banks – Indonesia’s, Malaysia’s, Chile’s, Singapore’s monetary authority, and the HKMA (obviously) – to put in toward what Western media outlets have described as an RMB liquidity pool.
What was left out from most descriptions was the key phrase which, to its credit, wasn’t hidden by the PBOC. Just from most media accounts. On its own website, China’s central planning central bankers admitted:
Each participating central bank contributes a minimum of RMB 15 billion or US dollar equivalent, in RMB or USD, placed with the BIS, creating a reserve pool. [emphasis added]
It’s not an RMB liquidity pool at all, rather a eurodollar insurance policy for these clowns and their close Chinese trading partners. Get the media to report one thing that it is not; produce the impression of proactive RMB liquidity when it is something else entirely.
Why might this be?
Perhaps when CNY might plummet again as dollars grow even more scarce – in and around China and its closest allies.
And why might that be?
At the rate they need to issue new debt, it will exceed AU$1 tln in the next few years. They now have a very serious interest rate risk. Plus, just given the quantum they have at risk, the market appetite for more may be constrained - meaning buyers may get hard to find.
I am not sure the old paradigms make sense in the post-QE world. The idea that central banks in stable developed sovereign economies are at the mercy of the bond markets has died a thousand deaths.
Australian financial institutions (banks) have $400 billion of deposits trapped in settlement accounts at the RBA (about $350 billion more than in usual times). The banks are earning cash rate on these balances - meaning $400bn of Aus Govt 'debt' is at cash rate - well below inflation (NZ has $44bn of debt at OCR). If the Australian Govt does spend more than it taxes, the settlement account balances will increase further (i.e. more debt at cash rate).
Banks will happily swap some of the low-yielding Govt debt sat in settlement accounts for Govt debt in the form of bonds with a higher yield. There will no shortage of demand.
If yields do start to rise, RBA have already shown that they can step in and bring those yields down. The mere threat of doing this would probably be enough to get things under control.
Banks will happily swap some of the low-yielding Govt debt sat in settlement accounts for Govt debt in the form of bonds with a higher yield. There will no shortage of demand.
From whom to who? The RBA has a bond asset on its balance sheet that is offset by the low yielding liability to banks, you mention, which cannot be palmed off to another party. Someone has to hold it until the bond asset is sold or redeemed.
Yes. If Australia Govt sell $200m of new bonds on the primary market (i.e. to an institution with a settlement account), $200m of RBA liability would shift from the buyer's settlement account balance to the Govt's settlment account at RBA (the equivalent of our Crown Settlement Account). Govt balances at RBA are RBA liabilities are they not?
The question is whether Govts / central banks ever really need to unwind this position - where central banks hold some bonds, significant Govt liabilities are held in settlement account balances (earning cash rate), and Govts have inflated settlement balances.
Banks purchasing the new government liability (bonds) creates new deposits for the government which are lodged in the Crown Settlement Account. And yes bank settlement accounts are reduced by this amount up until the government dispenses these deposits to the private bank accounts of qualifying beneficiaries.
Nonetheless, pre- existing liabilities the RBA has to the banks arising from settlement of QE bond purchases are not diminished. The QE bonds on the RBA's balance sheet were initially issued to raise deposits for the government with a remnant still sitting in the Crown Settlement Account or in private beneficiary citizen bank accounts. The bond assets that once offset these government bank created deposit assets (bank liabilities) were just swapped for bank reserves by the RBA and must remain in existence until the bonds are extinguished together with the associated deposits.
It is noticeable how the RBNZ liability (Crown and Bank settlement accounts) grows with each new round of bank underwritten debt issuance that is not spent into the banking system. This will happen until the created deposits have been extinguished or dispensed elsewhere.
Bitcoin is looking fairly stable. I see this as a good thing. It should stay at the same price for an extended period of time, like a year or two, for people to become confident in it again.
Maybe you don't understand BTC. If you look at the growth of BTC in fiat currrency over time using a logarithmic scale, you understand it much better. Those people who are looking for a quick buck have been largely shaken out already. The price action of BTC in the near or short term is irrelevant. Even though Tim Draper is calling for $250K by end of 2023.
https://www.forbes.com/sites/johnhyatt/2022/06/24/former-crypto-billion…
Absolutely ludicrous.
Yes the problem is most people don't understand it and never will You need to be a propeller head with an IQ of 160+ you see or, like you, just pretend. Even then you wake up one morning and all the money is gone and there is no official oversight, regulations or assistance anywhere to be found! The Russians found your passphrase written on an old serviette slipped into page 162 of My Secret Life by Walter on the bookshelf.
Also if you look at the graph above you see very long periods of stability and then it shoots up, goes down some, and then another long period of stability. Perhaps it doesn't understand itself?
And also, come on, the first rule of bitcoin club, only put in what you can afford to lose. Lose totally and forever. How great is that? Not.
Also if you look at the graph above you see very long periods of stability and then it shoots up, goes down some, and then another long period of stability. Perhaps it doesn't understand itself?
What graph? I talked about log scale over time. Just like this. Educate yourself before you write nonsense.
https://www.lookintobitcoin.com/charts/bitcoin-logarithmic-growth-curve/
It's hard to take propaganda seriously when they don't even know what "logarithmic growth" is. Hint: it's not modifying an axis to show log10(value).
What that graph shows is that, over time, bitcoin has increased in value exponentially, with corresponding exponentially increasing wild/erratic swings.
It's just gambling fueled by cheap debt - just like all the other bubbles.
In China...senior officials are exhorting farmers to bring in a good grain harvest,
I don't get this. Do officials really think exhorting farmers to bring in a good harvest will somehow inspire farmers to ignore weather, pests, biology, climate and mechanical breakdowns? If they don't think this, why do it at all?
Will allow them to claim credit for the exceptional harvest they have extorted out of the people
Same as bureaucrats (and politicians) everywhere - when times are good they will claim the credit, when things dont work out as required stay in the background (or go on an overseas trip!)
I remember listening to Chinese propaganda stations on shortwave radio channels in the 60s, and hearing Mao exhorting villages to produce more rice - when millions were starving, executed or locked up in the cultural revolution.
Xi and co are resurrecting Mao, just as Putin is channeling Stalin
Hmmm ... Chris Hedges: Fascists in Our Midst
In their ideal America, our “secular humanist” society based on science and reason will be destroyed. The Ten Commandments will form the basis of the legal system.
It will be interesting to see if when Winstone get on top of the gib situation they don't have a special for awhile eg $10.00 a sheet to deal to the imports until they can monopolize it again . Things like this may bring the cost of building back down again. Our interest rates will track offshore trends whether we like it or not to protect our currency a d prevent imported inflation, our real rate is almost certainly higher than measured.
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