Here's our summary of key economic events overnight that affect New Zealand, with news of rising deficits everywhere.
First up, (updated) the US Fed meeting kept all its policy stances unchanged, saying they are delivering moderate growth and improved employment. But they are worried about weak business investment and weak exports. There was no explanation of their recent heavy repo market liquidity activity.
Meanwhile, data for the American December trade balance worsened, delivering a merchandise trade deficit of -US$68 bln in the month and taking the annual deficit to -US$860 bln or -4% of GDP and an unchanged level over the past three years. December exports were flat from November and imports rose +2.5%.
And speaking of American deficits, the US Congressional Budget Office has issued debt and deficit projections for the next ten years. They say the US federal budget deficit will be -US$1 tln in 2020 and will average US$1.3 tln per year over the 2021–2030 period. Because of those large deficits, federal debt held by the public is projected to grow from 79% of GDP last year to 100% of GDP in 2030. And it will keep growing; by 2050 they say, debt will be 180% of GDP and far higher than it has ever been.
And for more deficit news, Boeing reported its first annual loss since 1997 of -US$1 bln as 737MAX costs exceed US$18 bin. It also said it would make further cuts to the production levels of its larger 787 Dreamliner aircraft, currently its main source of cash.
And pending home sales skid almost -5% in December in a surprise pullback.
In China, even though financial markets are all closed, eyes are turning to the scale of the economic impact. The SARS experience is the main point of reference, but 2020 China is vastly different to 2003, and this time the official response has been far more aggressive - once it got going. The central bank was already in liquidity supply mode for the Spring Festival holiday, but what will be required now could exceed ¥1 tln and they seem primed to deliver that, or more, if required. Banks are expected to struggle when markets open.
Many of China's neighbours are also expected to suffer sharp economic pain as well. Further, anti-Chinese sentiment is growing in many of these countries as well.
Meanwhile, the Americans claim they have developed a vaccine for the African Swine Fever, and when available, at least that Chinese crisis will pass.
Overnight there were January consumer confidence surveys released for Japan and Germany. Both were unchanged at low levels but with signs of optimism returning.
In Australia, consumer inflation picked up marginally to be +1.84% pa for all of 2019, a rise from +1.67% in the year to September 2019. But it was virtually unchanged from the 1.78% in the year to December 2018.
But Australian retail is in bad shape with more stores and chain pulling the plug after a disappointing 2019 holiday season, and more to follow.
Overnight, European markets rose again, up about +0.4%. Wall Street is also higher today driven by bank and tech stocks, but the rise is less, about +0.3%. Yesterday Tokyo markets were up +0.7% and the ASX200 was up +0.5% with the NZX50 unchanged.
The UST 10yr yield is back lower today, down -2 bps after yesterday's rise and now under 1.62%. Their 2-10 curve is now at +18 bps. Their 1-5 curve has remained negative, now at -9 bps. And their 3m-10yr curve is still flatter at just +7 bps. The Aussie Govt 10yr is down -2 bps to just under 0.98%. The China Govt 10yr is holding at 3.03% but of course their markets are closed this week (at least). But the NZ Govt 10 yr has now come to yesterday's rebound party. It is up +6 bps to 1.39%.
Gold is little-changed, now at US$1,570/oz and that is up just +US$1 in a day.
US oil prices are little-changed today, now just under US$53.50/bbl and the Brent benchmark is at just over US$59.50/bbl. But pricing hasn't yet reflected a big jump in US crude stocks.
The Kiwi dollar is fractionally lower at 65.2 USc. On the cross rates we have held at 96.7 AUc. Against the euro we also unchanged at 59.3 euro cents. That leaves our TWI-5 at just under 70.8.
Bitcoin is still rising, now at US$9,332 and that is a further daily rise of +4%. It's also back above NZ$14,000 for the first time in 2020. The bitcoin rate is charted in the exchange rate set here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
57 Comments
Seems the message is becoming clearer:
https://surplusenergyeconomics.wordpress.com/2020/01/24/163-tales-from-…
I look forward to NZ politicians of EVERY hue being challenged on the points therein.
From the second paragraph..
"Conventional economics teaches that economics is ‘the study of money’, and that energy is ‘just another input’."
Why link something that pretty much opens with a statement that is categorically incorrect?
Economics is the study of scarcity, the allocation of resources, and incentives. It may deal with money or finance, but this is secondary to those core elements.
I look forward to PDK one day posting a link which isn't based in a prerogative of misunderstanding, misinformation, and falsehood.
By PDK's own oft repeated words (and probably your own) - if you start with an incorrect premise, you arrive at the wrong result.
Just to humour you... The 3rd paragraph:
"...are almost wholly persuaded by a false interpretation which states that action on climate risks carries a “cost”, meaning that doing what she asks would be costlier than carrying on as we are, with an economy powered by oil, gas and coal."
Seems your Dr Tim Morgan also needs to take some economics courses along with dear Greta. If he knew that economics was actually about incentives (and not money), he would understand what an opportunity cost is and likely avoid the embarrassment of conflating money and costs.
4th paragraph:
"This is a folly every bit as absolute as the argument that we must immediately cease all use of the energy sources on which the economic growth of the past two centuries has been based. Continued reliance on fossil fuels might or might not destroy the environment, but it would certainly condemn the economy to collapse."
Right. You want me to fault the proposition that we must immediately cease use of fossil fuels because in the long run it would cause the economy to collapse. Yet there is no issue absolutely obliterating economic activity now due to the cessation.
You don't see how contradictory those two sentences are?
We are going to move away from FF reliance in the long-run. And in a big way. We are currently in a huge transitory phase which will allow this to happen both without the immediate and long run annihilation that your alarmist messiah suggests.
Again. Courses in elementary economics would highlight to the author why we will transition from FFs long before we consume them all.
My read was that author is not stating we must immediately cease - as to do so would be just as much a folly as being persuaded that taking action carries a cost greater than that of doing nothing. i.e folly applied to both.
He later in the argument refers to transitioning away, not immediately ceasing. But i accept the language is not that clear.
Even so, this is cherry picking/splitting hairs and a diversion from the guts of the report. That being ECoE, that the gift of vast energy surplus is fading and that we need to transition to lower levels of energy use. No one has effectively countered this fact, it's usually covered by suggesting some scientist somewhere is about to make a giant leap in energy discovery. Hopes and prayers. But yet we carry on as it's bau - building motorways a prime example of this denialism..
GT is up on IP.
She is a brand now.
You gotta be careful how you use here name. In free speech way.
Gummy is going to freak!
I reply not to the poster - that just ends in a quagmire of ideology - but to the 9 (so far) who gave that ridiculous comment a tick.
Economic Growth has been the Holy Grail for several decades, pushed by it's High Priests, Economists. Economic Growth (indeed any economic activity whatever) is dependent on energy being available to do work. The Laws of Thermodynamics apply, as does physics generally. So it is that we are well down the EROEI gradings https://dothemath.ucsd.edu/2011/10/the-energy-trap/ even as we are going after the ever-more-scattered resources we do the work to.
When this problem was foretold, clearly https://www.youtube.com/watch?v=kz9wjJjmkmc it was 'economists' who attacked the message, and indeed are still actively doing so. The typical economic treatise totally fails to ascertain resource limits, totally fails to count sinks (hence the failure to pick up the ozone hole or climate change or oceanic soups - all conveniently called 'externalities'. An economist will call for a 'price on carbon'- a scientist will call for cessation of it's discharging to the atmosphere.
A classic example: https://www.newshub.co.nz/home/money/2019/08/how-the-nz-economy-is-like…
Note the in-depth research as to energy and resource-scarcity. What we have to address, before it addresses us, is population overshoot and it's twin, the over-consumption of resources. We have been in thrall of/believing of, economists, and concurrently we've gotten into this mess. Yet even now, if I raise the possibility that there are Limits to Growth, I'd be hard put to identify a New Zealand economist who would acknowledge their existence.
One highly-acclaimed one even suggested recently that we're going to be taking in each other's washing. Sorry, that we're going to be a 'service economy'. I sometimes wonder where these people come from - but I know where they're going, and there is a far better option.
but to the 9 (so far)
*11 now, PDK...
An economist will call for a 'price on carbon'- a scientist will call for cessation of it's discharging to the atmosphere.
The only thing that statement says is that the 'scientist' is an idealist, whereas the economist is a realist.
And arbitrary comments make no sense.
If this is what you refer, I pity you.
https://www.interest.co.nz/opinion/99764/labour-without-energy-corpse-c…
Steve Keen is the Trump of economics. He survives through alarmism and oversimplifications of concepts in order to talk to the masses. Case in point, that article. The primary goal of that is for Keen, who finds it difficult to secure tenured research positions, to raise money from fools.
You are certainly no Darwin either. In fact I've caught you out before in fraudulent behavour. Putting bullshit maths up to justify a point in some psychological need to impress. For some reason you think there are no others on these pages capable of understanding 1st year calculus masquerading as economics.
The system we are running is indeed bound to fail. 100%. There were stocks of stuff, which we ran down like there was no tomorrow.
Which there won't be.
Living sustainably - as in long term maintainably - is a long way different from what we're doing. Some of us are close to doing it, and it's not a bad life. But society as a whole? Has to move in quantum measure.....
Abundant gas driving out coal. "...In fact, JKM prices are expected to converge with coal prices in Asia for the first time in history. Platts Analytics expects JKM to fall below NEAT (the benchmark price for delivered coal in Northeast Asia) on a dollar-per-MMBtu basis this summer"
https://www.spglobal.com/platts/en/market-insights/latest-news/natural-…
Boeing, Boeing going exactly where? Extraordinary that technical blunders of this magnitude could evolve in this day and age. Understand that there are now some safety doubts emerging re the Dreamliner too? Has Airbus created so much competitive pressure that there has been incautious short cuts and cost savings in design, engineering and construction. Looks a bit like that.
Boeing has secured commitments on over $12 billion in financing from more than a dozen banks, the company also buys back it’s own stock with cheap money from the Fed. Boeing is essentially worthless, it’s now a zombie company on life support - it’s share price has only retracted 10%. Go figure.
US hopelessly, floundering around against the competition in panic catch up mode:
The Pentagon is clearly reacting to the advancing programs of China and Russia, given that alarmingly these weapons “are hard to stop, they can maneuver, they’re unpredictable” and “hard to detect” so “you don’t have a lot of time” to respond — as White explained further, according to the report.
It must be remembered that a 2018 report from the Government Accountability Office (GAO) warned that the current ballistic missile defense system in the US is powerless against hypersonic missiles from China and Russia. Link
There has always been that dynamic in warfare between defensive and offensive capabilities, it was such a problem in the US Civil war. I was watching Midway and that battle could have gone either way, 20 years later and it would have been about torpedoes and missiles. I remember a friend in the army talking about tanks, the one flash you're ash problem of today. The USA has used its aircraft carrier groups way past their apparent effective use in modern warfare, however they are great for extending your reach against unsophisticated adversaries. Warfare can change fast, my father had a good friend who at 19 was flying swordfish planes in the North sea and had the most exciting time of his life, those string bags were 1930's technology.
It's was obvious that high speed missiles were going to change the game, those old Navy beliefs formed in huge sea battles going back centuries had become outdated.The Falklands war would have been very different if Argentina had been able to secure the right fuses for it's bombs, however they came from the UK.
The military industrial complex in the USA has been about huge budgets and waste for years, you only have to read Boyd, he spoke of the movement of officers from high ranks to privileged positions in private companies on retirement, using contacts to secure enormous defense contracts.
The USA keeps it expensive bases in countries as diverse as Germany and Korea, these must be costing a fortune and past being useful once the cold war ended, but money speaks. Perhaps those bases are more about financial oppression rather than military objectives.
https://www.amazon.com/Boyd-Fighter-Pilot-Who-Changed/dp/0316796883/ref…
The carriers have another purpose too. Remember when Reagan called the bluff and fragmented the Iron Curtain. Leading up to that he had re-activated the four Iowa class WW2 battleships as a statement of sorts. Russia was exposed and it was discovered that overall its military capability, nukes included, was way short of that of the USA. Sure if it had come down to the big one, Russia would have inflicted colossal damage but they would not have won, and they knew it. Think the USA has simply carried on with the philosophy of the success of that, especially with the emergence of China militarily. Keep the carriers, subs, stealths and tanks rolling out, fight us and get wasted, QED.
ps. Midway one American pilot backed a hunch, that’s all that swung it.
Hydraulics are being replaced in lots of application with direct electrical drives. Still plenty of places where the electrical drive unit can't be made compact enough to replace the hydraulic ram, but where it can electric is taking over. Automotive power steering is one example, the losses of keeping a hydaulic system pressurised when its doing no work, compared to an electric motor that you only put power into when it needs to provide assistance.
I'm pre-hydraulic: and the dozer escapades were for the old MoW on a 3T series D7. That, and stone crusher proximity, did for my high-frequency hearing - Elfin Safety was non-existent.
Airbus, too, is fly-by-wire. Recall Air France 447, which nosedived into the Atlantic off Brazil in 2009, because the joystick controls which fed software inputs, were not synchronised side-to-side: so one pilot's action in making the aircraft climb was not apparent to the other, more experienced pilot. Fundamental UX design error....
Extraordinary that technical blunders of this magnitude could evolve in this day and age.
Less technical blunders than financial blunders. The overfinancialisation of everything, essentially turning Boeing into a company measured far more by RONA than by the building of great aeroplanes. Hence the decisions to hide technical issues that were important but the divulging of which would have cost time and money.
Management issues far, far more than technical.
And their 3m-10yr curve is still flatter at just +11 bps.
On a coupon equivalent basis the spread is closer to +6 bps. And 10 year TIPSs are now pricing negative yields.
Why the Guardian will no longer accept fossil fuel advertising
I guess that's the beginning of the end for the fly/drive vacation experience, both domestically and abroad.
Well that must include any advertising for NZ tourism unless it includes international travel by balloon or sail. So in future UK tourists will not be the kind-hearted empathetic POMs who read the Guardian but will be the barmy army, yobs and just plain nasty who read the other UK newspapers.
Don't think of short-term oscillations as the only cycles. It's an important distinction, like waves on top of swells. One of the best primers - well worth the download and the reading-time, is: https://books.google.co.nz/books/about/Thinking_in_Systems.html?id=CpbL…
We are at the top of the swell, give or take. Just what life looks like on the long downside, some of us are trying to ascertain (but there aren't a helluva lot of economists in our cohort :). Some see a full collapse, others a series of waves on the way down.
It is a squeeze, a drawn-out process which slowly but steadily and increasingly deprives the economic system of its monetary oxygen. As such, it can – and so often does – go on far longer than it “should” under the mainstream binary growth model.
This is therefore different than the “shock” which orthodox Economics assumes precedes recession. You have growth at all times and if suddenly you don’t it is only because of a substantial shock which temporarily depresses activity and output. That’s a recession. There’s no room in this model for something like a sustained squeeze.
Yet, that’s what keeps happening. Link
Tesla proves the doubters wrong. Light a candle for the people still holding short positions.
https://electrek.co/2020/01/29/tesla-tsla-releases-q4-earnings-beats-on…
Took a hit there for a day but climbing higher again even when stock markets are mostly rising.
Another thing I've noticed is that news out of China seams to be drying up. Live sites not reporting more infections or deaths... YouTube lists from within China bot getting out unless positive.
I'm sure that deaths did not just stop and very few have posted anything on the net. The question is who is stopping that news getting out, I very much doubt it that China can blackout the whole country.... maybe more likely the West could though... we wouldn't want stocks to drop further in bad news would we...
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