Here's our summary of key economic events overnight that affect New Zealand, with news we may be entering a commodity 'supercycle' again, one that may set the scene for a return of product price inflation.
But first in the US, the Fed has announced that its looser capital requirements for banks during the pandemic will expire at the end of this month, a signal that they expect the US economy to speed out of its COVID funk.
In Canada, that recovery is mixed at best. Their retail sales are still shrinking on a month-on-month basis, even if they are up a minor +1.3% above the pre-pandemic level a year ago in February 2020. Those year-on-year gains are shrinking.
In India, they may be getting on top of their pandemic spread and their economy is returning to a more normal state. Vaccination rates are rising fast. But for India, "normal" isn't a helpful term. Consumer confidence isn't high and there remains a lot of industry slack. Inflation, perhaps a localised case of 'stagflation', is embedded and unlikely to go away, meaning their central bank has few opportunities to lower the cost of debt in India. That makes it an expensive place to invest.
India is the world's fifth largest economy with a high growth rate. But that hides an inefficient structure that policymakers are finding it hard to reform. However it is making economic progress, especially if viewed from a longer perspective, and there are many economic stars in their economy. Despite this, it is unlikely Indian growth will be at the forefront of leading the global economy out of its pandemic setbacks. It is more likely to be a beneficiary of others (US, Japan, China) than a driver on its own. It remains an underperformer, is a long way from emulating the economic success of South Korea or Taiwan or even China. But its sheer size means it gets a seat at the global table of policy makers.
In China, trading in iron ore futures shows buyers are failing to drive the price lower, as Beijing wants. Yes, it took a small dip a week ago, but has risen since and although it is not quite back to prior levels it certainly hasn't retreated significantly and remains +85% higher than a year ago and +30% higher than at the start of 2021.
If the US and Japan economies rise in 2021 as anticipated, this could put the squeeze on China. It won't then be the dominant buyer of many key commodities and that will likely raise prices, itself an inflation-fueling event.
In fact, analysts are now seeing key commodities like copper with huge upside. Miners are reluctant to bring on more capacity due to being restrained by regulation, and being burned the last time they did that through an oversupply rush. For them, a better strategy is to rise what they thing is a new "supercycle". Similar industry tracks are in place for lithium. If it turns out like that, it will be inflationary - the age of product deflation may be ending..
Australian retail turnover fell at a -1.1% in February from January in a surprise retreat. A rise of +0.4% was expected to build on the +0.3% rise in January, but that is not what they got. Their snap lockdowns in the period had a larger impact that assumed. However on a year-on-year basis, February 2021 retail turnover was +8.7% higher than for February 2020. This will be the last of the 'fair' year-on-year comparisons for a while. (We will tend to compare with two years ago from now on.)
In Australia, the AFR is reporting that parents (the Bank of Mum & Dad) are lending, giving or underwriting record amounts for houses purchase deposits to help their adult children buy their first home. The claim is that the Bank of Mum and Dad is Australia’s ninth-biggest mortgage lender with a "loan book" of AU$34 bln (estimated from a sample). This support is now averaging more than AU$89,000, an increase from AU$74,000 in the past 12 months, and enough for a 20% deposit in most of the nation’s postcodes outside Melbourne and Sydney. The AFR quoted data is according to an analysis by researcher Digital Finance Analytics. (For perspective, Australia's largest home loan lender (CBA) has a loan book of AU$468 bln across both owner occupied and investment properties. The total market is AU$1.806 tln.)
In New York, Wall Street is lower in early afternoon trade today with the S&P500 up +0.3% on the day, but down -0.4% for the week. In between however it reached an all-time record high on Thursday (NZT) but only just. Overnight European markets were sharply lower, down an average of -1%. Yesterday, all the main Asian markets closed with even larger retreats with Tokyo down -1.4%, Hong Kong also down -1.4% and Shanghai down -1.7%. For the week these markets were mixed with Tokyo up +0.2%, Hong Kong up +0.9%, and Shanghai down -1.4%. The ASX200 ended yesterday down another -0.6% for a weekly loss of -0.9%. However the NZX50 Capital Index was the outlier and ended up +0.2% for a weekly gain of +0.5%.
The latest global compilation of COVID-19 data is here. The global tally is still rising and at a fast pace, now at 122,044,000 and up +617,000 in one day. Global deaths reported now exceed 2,695,000 and +21,000 in one day, and much of that from the raging situation in Brazil. Vaccinations in the world are rising fast however, now up to 410 mln and in the US a third (114.7 mln) have now had this protection and they are achieving a very fast rollout. The number of active cases there fell yesterday to 7,283,000 (-14,000 more in a day), resuming the reducing trend and taking the number currently infected down to under 2.2% of their population.
The UST 10yr yield is unchanged from yesterday at just on 1.73% and a rise of +9 bps in a week to a 15 month high. The US 2-10 rate curve is staying steeper at 157 bps. Their 1-5 curve is also steeper at +81 bps, while their 3m-10 year curve is holding at +171 bps. The Australian Govt 10 year yield is down -7 bps at 1.83%. The China Govt 10 year yield is softer by -1 bp at 3.27%. And the New Zealand Govt 10 year yield is going the other way, up +3 bps at 1.83%. That is a net rise of +9 bps in a week.
The price of gold starts today up +US$10 in New York at US$1743/oz. A week ago this price was -US$22 lower.
Oil prices are holding at the lower level it dropped to yesterday, now at just under US$61.50/bbl in the US, while the international price is now just under US$64.50/bbl. American drillers are recommissioning wells at a faster rate now.
The Kiwi dollar opens today at over 71.7 USc and almost exactly where it was this time last week. In between it got up to up to 72.7 following the US Fed meeting but couldn't hold that halo for more than a day. Against the Australian dollar we are firmish at 92.6 AUc. Against the euro we little-changed at 60.2 euro cents. That means our TWI-5 opens today at 73.8 and very little different to where it was a week ago.
The bitcoin price will start today at US$58,868.94 and down -1.2% from this time yesterday. But for the week it is up +2.2% and in between reaching a record high of US$61,557 on Monday. Volatility in the past 24 hours has been +/- 2.7%. The bitcoin rate is charted in the exchange rate set below.
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41 Comments
PVC doubles in price. "The February freeze that triggered mass blackouts in Texas led to chemical plant shutdowns that are disrupting global supply chains, causing a shortage of the raw materials needed for everything from medical face shields to smartphones.
The power outages brought the world's largest petrochemical complex to a standstill, forcing more plants in the Gulf of Mexico region to shut down than during Hurricane Harvey in 2017. A month later, many remain offline, and analysts said it could be months more before all are fully back.
Prices for polyethylene, polypropylene and other chemical compounds used to make auto parts, computers and a vast array of plastic products have reached their highest levels in years in the U.S. as supplies tighten. For example, prices for polyvinyl chloride, or PVC, have more than doubled since last summer, according to S&P Global Platts."
https://www.bangkokpost.com/business/2086151/texas-freeze-triggers-glob…
We manufacture using PE100 resin sourced from the UAE. From what I understand, these shortages from said petrochemical complexes is causing plastics manufacturers in America to source PE100 from the UAE as an (overkill) alternative raw material. We are seeing some considerable upward pressure on rates.
But first in the US, the Fed has announced that its looser capital requirements for banks during the pandemic will expire at the end of this month, a signal that they expect the US economy to speed out of its COVID funk.
Well, that will get everyone’s attention, at least for now. Should something happen to the crude oil rocketship, there goes inflation. A day after the FOMC releases substantial upward revisions to inflation rates its models now project for this year, the NYMEX pits jump all over them with oil’s worst day since just after last April’s negative price turmoil. Link
... so , if we're entering a commodity supercycle , does that mean we'll be paying alot more for all the coal we're now importing ... 'cos , someone thought it'd save the planet if NZ destroyed its natural gas industry , the high paid jobs , businesses , export earnings ...
Jacinda ??? .... Julie-Anne ??? ... anyone got an answer .... no ? ....
... meanwhile , over in the US of A , one third of the entire population have received Covid-19 vaccines ...
Back in N of Z , at " the front of the queue " , we're still waffling , and flapping our hands as if they're semaphore paddles ... flap flap , waffle waffle ...
The coal we are importing is for Huntly power station , and it started under National . We will not need it once the extra wind , gas and stored hydro comes online.
We won't be worried about the international price of oil or coal then , though i expect coal will be history anyway in the next 10/15 years,
For the scary, oft cited RCP8.5/SSP5 scenarios to come to fruition everyone has to sixfold increase their coal consumption.
"Yet, AR5 scenarios consider an even more dramatic change in coal use is on the horizon, which leads to as much as a 640% increase in per-capita coal consumption from recent levels by 2100. ...This evidence indicates RCP8.5 does not provide a physically consistent worst case BAU trajectory that warrants continued emphasis in scientific research"
So you can ignore all the RCP 8.5 scenarios that the chicken littles of this world love to trot out as BAU.
I was just reading my way through this:
https://escholarship.org/uc/item/9js5291m
Then I read the inanities above. Interesting dissonance.
... dontcha need some light relief after all that dreary Malthusian rubbish you read ? .... April 24 & 25 , log into the Sensoji temple site , Tokyo ... the preliminary tear offs start around 5.10 pm NZ time ... the heavyweight cry babies start blubbing 4 hours later ...
Yeah, I noticed that ominous fact last night when I ran into George Gammon's latest vid on youtube. I struggle to understand all this macro stuff so as it ran I typed up some notes. Copied below, in case anyone finds them interesting:
There seems to be another Repo market drama going on in the US (the last one was in 2019, and the Fed had to do a bunch of QE to “fix” it).
Now, the Fed is buying Treasuries from the banks as part of it’s huge QE program. So the banks have got massive reserves (cash) and not many Treasuries.
This is creating a shortage of Treasuries in the banks.
And the banks want Treasuries because, despite the Fed saying they will suppress interest rates until at least 2024, they don’t believe them – they think rates will rise (ie. the price of Treasuries will fall). So they want to short Treasuries to profit from that expected trend.
But for the banks to short treasuries they need to borrow them, and they normally get them through the Repo market from Hedge Funds and Financial Institutions.
But the HFs and FIs also don’t have enough to satisfy that demand for collateral, so they are saying no thanks, we’ll keep our few treasuries and we don’t want to borrow your stinking cash.
So the Banks are like “OK, OK – we’ll pay you to take borrow our cash – we want your Treasuries that much”, i.e. Repo rates are going negative.
Of course, the Fed’s action of buying up Treasuries is making this imbalance even worse.
And on top of that, Janet Yellen is saying she is going to spend $1.9 trillion from the Treasury General Account (rather than issuing more Treasuries at auction).
Oh great everyone says – more cash and no more treasuries – we are so happy, not.
So this imbalance may drive the price of treasuries up (scarcity) i.e. yields down.
Then the banks that are already short Treasuries are going to have to rush to buy what Treasuries they can so they can limit their losses on the trade. Ie. a short squeeze (as per Gamestop). The banks may be taking a big hit.
And the above could lead to the world economy not getting the USD liquidity it needs through the Repo market because of a shortage of collateral (Treasuries) to lend back and forth.
The Repo market may adapt by trying to use riskier assets (like rehypothecated Treasuries and higher risk securities), and by going into a frenzy of borrowing and lending among themselves, which makes the system far less stable.
This could result in a global shortage of $USD, a spike up in the exchange rate, and a Global Financial Crisis.
Your ultimate sentence captures it well! And...
For the past 15 years, there are a handful of systemic forces that have taken us to the point of no return.
1. Demographics have reversed from tailwinds to headwinds.
2. The fuel of postwar prosperity, oil, is no longer cheap enough or abundant enough.
3. The balance between labour and capital has collapsed.
4. The nation's leadership elite no longer trusts the citizenry, and the spirit of your last sentence,
5. The Central Banks' magic does not work forever.
The EU will suffer another Coronavirus wave. However, as they never really got out of lockdown after the second wave, I'm not sure how much economic impact it will realistically have. Their problem has been the glacial pace of vaccination, there are literally millions of doses sitting in storage across the EU waiting to be administered.
... now we can understand the Brits desire to get out of the EU ... no shagging around , the UK has vaccinated one third of its citizens ... whilst the 400 million under the EU banner wait helplessly as their leaders engage in an endless wafflefest ... Jacinda wishes she was there ... waffle waffle , flap flap ...
I thought this article was interesting (WSJ):
https://www.wsj.com/articles/federal-reserve-to-end-emergency-capital-r…
"That will likely force banks to hold more capital or reduce their holdings of those assets, both of which could ripple through markets."
Government screwed Tourism and Now Tourism screwing Government
https://www.aljazeera.com/economy/2021/3/18/bb-once-an-outperformer-new…
"Tourism, once the country’s biggest foreign exchange earner, is reeling from a lack of overseas visitors." You wouldn't know it reading by mainstream media. Jacinda had strung hospo and tourism along for months and months with talk of bubbles, while business owners wait for the travel bubble. She had been too busy partying and rescuing toy bunnies, although she does frown and flap her hands once in a while to show that she still knows her voters exist
NZ as the leading act, will follow the Japan 30 odd years of commodity super-cycle..with a difference.
The govt. eyeing to buffer it/reduce the super-cycle term with creamy top of China's market - and for China?, their demand only: 1) open up land for purchase 2) allow migration - Even OZ think, it's too expensive/more liability if NZ to be acquired back into their federal states nationhood.
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