US retail sales tick up; South Korea sentiment falls; bond markets see inflation coming; 2020 equity market moves very mixed; UST 10yr at 0.93%; oil and gold hold; NZ$1 = 71.6 USc; TWI-5 = 73

US retail sales tick up; South Korea sentiment falls; bond markets see inflation coming; 2020 equity market moves very mixed; UST 10yr at 0.93%; oil and gold hold; NZ$1 = 71.6 USc; TWI-5 = 73

Here's our summary of key economic events over the Christmas-New Year holiday break that affect New Zealand, with news signs of inflation are emerging in financial markets.

First in the US, holiday retail sales have been better. Last week they were up a fractional +0.4% from the prior week, and that is 'better' because that prior week was down -0.9%. Compared to the same week a year ago, these sales are up almost +9%.

The Dallas Fed factory survey picked up in terms of current activity in December, but expectations this would last waned.

Congressional squabbling over the level of pandemic relief continues, even with a deal in place. The art of political compromise is lost in Washington.

In South Korea, consumer sentiment slipped sharply in December from November and reversing two months of strong sentiment gains. The new pandemic outbreak no doubt is changing the mood there.

In bond markets, the UST breakeven rate is almost at 2% today, it's highest in two years. This rate is essentially the bond market's prediction of future inflation. The US Fed is trying to reignite inflation for a set of reasons, not the least, it is a way of 'paying' for all this excessive monetary and fiscal stimulus. Unfortunately for them, higher interest rates also mean a very much larger claim on their Federal budget. Even now, with near-zero rates, interest on the US Federal debt takes US$345 bln (5.3%) of their tax revenues. It is a very tricky public policy balance and if it goes wrong, the world will pay a high price.

On Wall Street, the S&P500 is down -0.2% in afternoon trade today and that is a reversal from the +0.5% it opened at. Overnight European markets were mixed although London was up +1.5% to match yesterday's similar rise in Frankfurt. Yesterday the very large Tokyo market rose a very strong +2.7%. Hong Kong rose almost +1.0%, but Shanghai fell more than -0.5%. The ASX200 was open with light trading and posted a +0.6% gain, while the NZX50 posted a very strong +1.6% gain in light trade.

For the year, the NZX50 Capital Index is heading for a +13% rise, the ASX200 for a -1.5% fall. They compare with the S&P500 which is headed for an annual gain of +15%, Shanghai will be up +11% and Tokyo up +16%. In Europe, the Frankfurt market will post a +4% gain for the year, Paris will post a -6% loss, and London a -13% loss in 2020.

The latest global compilation of COVID-19 data is here. The global tally just keeps on rising, now at 81,586,000 and up +577,000 in one day. We are heading for 100 mln before the end of January. Many countries are getting a surge from Christmas gatherings where social distancing was abandoned, and with New Year approaching, that surge is likely to be compounded.. It is still very grim in Russia, the UK, South Africa and Indonesia. It does seem to be easing in Europe, although not in the UK or Sweden. Global deaths reported now exceed 1,769,000 and up +12,000 since this time yesterday as death rates rise everywhere. The UK variant strain is now spreading worldwide, although only small numbers of cases are being reported so far.

But the largest number of reported cases globally is still in the US, which rose a massive +218,000 overnight for their tally to reach 19,809,000. The US remains the global epicenter of the virus. The number of active cases is still rising and now at 7,763,000 and that level is up +15,000 in one day, so many more new cases more than recoveries. Their death total is up to 344,000 (+3,000). The US now has a COVID death rate of 1035/mln and approaching the disastrous UK level (1051).

In Australia, their Sydney-based community resurgence seems to be stretching out further. There have now been 28,350 COVID-19 cases reported, and that is +15 more cases overnight. Now 189 of their cases are 'active' (+1 overnight). Reported deaths are unchanged at 909.

The UST 10yr yield will start today at just on 0.93%, a -1 bp slip overnight. Their 2-10 rate curve is flatter at +80 bps, their 1-5 curve is unchanged at +27 bps, while their 3m-10 year curve is also unchanged at +85 bps. The Australian Govt 10 year yield is down -4 bps at 0.96%. The China Govt 10 year yield is down another -1 bp at 3.22%, while the New Zealand Govt 10 year yield is up +1 bp at just under 1.00%.

The price of gold is up a minor +US$2 today to be now at US$1,878.

Oil prices have slipped slightly and are now just under US$48/bbl in the US, while the international price is stable at just over US$51/bbl.

And the Kiwi dollar is more than +½c higher today at 71.6 USc. Against the Australian dollar we up also, now at 94 AUc. Against the euro we are firmer too at 58.4 euro cents. That has pushed our TWI-5 up to 73 and a twenty-one month high.

The bitcoin price has fallen back -2.7% today and is now at US$26,424. The background for the recent jump is here. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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15 Comments

The Ukraine Govt are after Joe but I guess this news will be ignored by the msm.
https://www.zerohedge.com/political/ukraine-press-conference-explicitly-...

^^^ It pays to investigate sources before posting. The lack of bylines on that site is a giant red flag. Re Swiss Policy Research (SPR): "The site has been criticised for spreading conspiracy theories, especially relating to the COVID-19 pandemic. Christoph Neuberger, a professor at the Free University of Berlin, stated that while the SPR website attempts to present its message as objective and neutral, it is clearly political, and its content is pseudoscientific ("pseudowissenschaftlich"). The site has been categorized as a propaganda tool. Due to the persistent use of the German letter ß, which is not commonly used in Switzerland, it has been suspected that the creator is not from Switzerland, contrary to what the website title suggests." https://en.wikipedia.org/wiki/Swiss_Policy_Research.

In bond markets, the UST breakeven rate is almost at 2% today, it's highest in two years
Are US Treasury bond futures shorts losing their nerve?
Certainly, there is in no variation in US bank demand for government guaranteed securities.
And yet: Home Prices Soar At 3 Times The Fed's Inflation Target Across All US Cities

The Most Splendid Housing Bubbles in America: December Update on House Price Inflation Gone Wild.

https://wolfstreet.com/2020/12/29/the-most-splendid-housing-bubbles-in-a...

further proof that it’s all about central banks, money printing, low interest rates, etc. money is now worth less (hidden by CPIs that ignore assets); it’s not that house prices have risen in real terms.

Impressive looking graphs. Seems we don’t learn lessons from past when those making the calls don’t ‘feel’ the pain as the proletariat

I wonder how Houston is doing. Used to be the example for those going on about the supply of housing and ignoring the supply of credit.

Your article states that California house price index rose by 212 percent over 20 years. That compares to NZ house price median which rose by similar percent over same time frame.

STOP PRESS: Australia's hotel quarantine to remain for 'years to come' despite travellers getting vaccinated

https://www.smh.com.au/politics/federal/federal-government-considers-non...

The World Health Organisation's experts say people who have been vaccinated would still need to take the same precautions as now - including quarantine arrangements - until a level of herd immunity is achieved.

& regarding the health event that has been postponed to date:

"At some point you've got to open up and accept that it is going to come through the population and just make sure that the vaccines have been distributed," Dr Khorshid said. "There is no doubt these vaccines are not the silver bullet for our borders and we're going to see quarantine stay in place for many months to come ... if the government decides it wants the whole population vaccinated before we open up."

If true, this is third world stuff.

The standoff continues into Wednesday night with negotiators withholding food and water in a bid to starve out the remaining 17 inmates.

https://www.newshub.co.nz/home/new-zealand/2020/12/a-third-of-waikeria-p...

Shout out Kelvin. Minister for Corrections
https://mobile.twitter.com/ngatibird?lang=en
And:
Minister for Children.
https://i.stuff.co.nz/national/crime/123809851/oranga-tamariki-is-leavin...
And:
Maori Crown Relations.
https://i.stuff.co.nz/national/politics/300186442/ihumtao-deal-announced...

Can we afford him? If he's the fall guy, best he fall. Winston would never have done any of this.

Inflation bet coming? in NZ, everything that potentially coming are to be anticipated in excessive actions, even when it's not coming to fruition. But anything that already happening become an issue, are to be down played, side sweep or put under the carpet like it doesn't exist. All keep on continuing, until...

'Unfortunately for them, higher interest rates also mean a very much larger claim on their Federal budget.'

NOPE!

Vast majority of Fed bonds are sold at *fixed* interest rates (Pa). What investors pay for bonds on secondary market is irrelevant - Govt payout remains the same. So Govt interest payments are known for bonds that have already been sold, and higher interest rates will only have an impact if Govt is stupid enough to push up the interest rates it *chooses* to pay on the new bonds it *chooses* to sell. This is Govt finance 101 - do some homework!