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US producer prices surge; Canada adds loads of jobs; More house price pressure; UST 10yr at 1.67%; oil steady, gold down; NZ$1 = 70.4 USc; TWI-5 = 72.8

US producer prices surge; Canada adds loads of jobs; More house price pressure; UST 10yr at 1.67%; oil steady, gold down; NZ$1 = 70.4 USc; TWI-5 = 72.8
Kaikoura

Here's our summary of key economic events overnight with news that inflation pressures are continuing to increase.

US producer prices increased much more than expected in March, according to official US stats, resulting in the largest annual gain in nine-and-a-half years. The PPI increased 1% in the month, which was double the expected rate, and also double the February figure (0.5%). On an annual basis the PPI moved up 4.2% - the biggest increase since September 2011.

Such prices will almost inevitably fuel inflation though the US Federal Reserve - like our central bank the RBNZ - is currently expressing the hope that these inflationary pressures will be short term only and will fade away. Time will tell.

Goods prices accounted for more than half of the increase in March. They rose 1.7% - the largest increase since the index began in December 2009. A big factor was an 8.8% jump in petrol prices. The indexes for diesel fuel, residential electric power, industrial chemicals, steel mill products, and processed poultry also moved higher. In contrast, beef and veal prices fell 4.3%.

And on things agricultural, the latest USDA assessment of world agricultural trade shows they expect the US to get a lower supply of beef from Australia, and along with changing domestic dynamics, the price of beef is expected to rise. (pgs 31,32) They also see rising exports of US skim milk powders in response to global prices rises.

Across the border in Canada there's further signs of economic recovery, with employment rising faster and unemployment falling much faster than expected in March. The labour underutilisation rate fell 1.9 percentage points to 14.7%, the lowest level since February 2020.

Employment rose 303,000 (+1.6%) in March, and was within 1.5% of its pre-Covid February 2020 level. The unemployment rate fell 0.7 percentage points to 7.5%, the lowest level since February 2020. Both full- (+175,000; +1.2%) and part-time (+128,000; +3.9%) employment increased. Self-employment rose for the first time in three months, up 56,000 (+2.1%), but remained 5.4% (-156,000) below its pre-Covid February 2020 level. Total hours worked rose 2.0% in March, driven by gains in several industries, including educational services, retail trade and construction.

Putting all this in some perspective though, there were 1.5 million Canadians unemployed, up 371,000 (+32.4%) compared with February 2020. Compared with February 2020, there were 296,000 (-1.5%) fewer people employed in March 2021, and 247,000 (+30.4%) more people worked less than half of their usual hours.

Still in Canada and bearing in mind the recent sharp house price rises in Toronto and Vancouver, Canada’s financial regulator is proposing a tighter mortgage stress test. The Office of the Superintendent of Financial Institutions (OSFI) is proposing that the new benchmark to determine the minimum qualifying rate for uninsured borrowers would be either the greater of a range of rates submitted by lenders plus 200 basis points or 5.25%, according to a letter to lenders.

And still in Canada, Canadian Imperial Bank of Commerce Chief Executive Victor Dodig urged policymakers to focus on measures to boost the supply of homes amid calls for them to intervene to cool a surging housing market. “Part of the short-term aberration you’re seeing here is low interest rates, lots of liquidity, but not enough supply,” Dodig said. Does that sound like anywhere else you can think of?

In China, their consumer inflation rate for March shows no sign of resurgence there for households. Food prices are falling because pork prices have retreated sharply after their ASF-boosted gains. But interestingly, lamb prices are holding, retaining an +8% year-on-year rise whereas beef prices are retreating along with pork. Milk was one of the few food prices to rise in March. But factory prices are rising fast.

Across the water in Taiwan figures for March show their total exports expanded 27.1% year on year to US$ 35.89 billion; total imports rose by 27.0% from a year earlier to US$ 32.23 billion. The trade balance was a surplus of US$ 3.66 billion.

In March 2021, compared with the same month of last year, exports of electronics rose 24.5%, information, communication and audio-video products rose 38.9%, base metals grew 21.4%, plastics & rubber rose 39% and exports of machinery grew by 29.3%.

In Britain they are mourning the death of Prince Philip, who has died at the age of 99. 

Elsewhere in Britain there's a theme becoming very familiar around the world. House prices are surging. The culprit for the latest surge in the UK is seen as the extension of a property purchase tax cut over there last month. Mortgage lender Halifax said house prices rose 1.1% in monthly terms during March, the biggest increase in six months, after a flat reading in February. In annual terms, prices rose 6.5%, the strongest reading in four months and taking the average house price to a record high £254,606, Halifax said.

In Australia, their central bank has released is latest Financial Stability Review. It is focused on risks from their residential property boom, but says its banks could cope with any shock.

To end the week in China, the prices of iron ore and coking coal stages a small rally, undermining the expectation that prices are past their top and likely to fall. Complicating matters in China ius their new-found drive for cleaner air, with some large steel mills in their rust-belt regions being shut. Their iron ore stocks are high, but the other mills in other regions are now scrambling to stock up for the rise in demand they have suddenly got. That is pushing steel prices up, and along with it iron ore and coal prices.

On Wall Street, the S&P500 is up +0.7% in early afternoon trade. European markets were generally very flat overnight. However, the UK market fell -0.4%, while German stocks rose +0.2%. Yesterday, the Shanghai market ended down -0.9%, Hong Kong was down further, with a -1.1% fall, while the very large Tokyo market closed up +0.2%. The ASX200 was pretty flat, dropping less than -0.1% yesterday, and the NZX50 Capital Index fell -0.5%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 134,305,000 have been infected at some point, up +915,000 in one day, mostly in Brazil (+89,000), Turkey (+55,000) and India (+132,000). Global deaths reported now exceed 2,908,000 and +15,000 in one day. Vaccinations in the world are still rising fast, now up to 734 mln (+23 mln) and in the US half of their population (173.4 mln have had al least one dose and up +3.4 mln in one day) have now had this protection as they achieve a very fast rollout. The number of active cases there rose to 6,871,000 and up +13,000 overnight as new hotspots emerge with problematic variants.

The UST 10yr yield is up +4 bps to 1.67%. The US 2-10 rate curve is flatter at 148 bps. Their 1-5 curve is also flatter at +78 bps, as is their 3m-10 year curve at +162 bps. The Australian Govt 10 year yield is also rising, up by +7 bps at 1.73%. The China Govt 10 year yield is stable at 3.24%. But the New Zealand Govt 10 year yield is lower at 1.72% and a retreat of -4 bps.

The price of gold starts today down -US$12 from this time yesterday at US$1744/oz and off its recent high.

Turkey is selling down its gold stocks in response to its domestic financial crisis. That means that overall demand for gold from authoritarian regime central banks is now unusually low.

Oil prices are little-changed from this time yesterday, now just under US$59.50/bbl in the US, while the international price is now just under US$63/bbl.

The Kiwi dollar opens today marginally softer at just on 70.4 USc. Against the Australian dollar we are little-changed at 92.3 AUc. Against the euro we are unchanged at 59.2 euro cents. That means our TWI-5 is still at 72.8.

The bitcoin price will start today at US$58,399 and up +1.3% from this time yesterday. Volatility in the past 24 hours has been modest at +/- .2%. 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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38 Comments

15
up

“ US Federal Reserve - like our central bank the RBNZ - is currently expressing the hope that these inflationary pressures will be short term only and will fade away. ”

Why is the expectation that this will fade away? Do the US Feds and RBNZ want a recession? I don’t understand? I am really confused as to what they are so artificially trying to force achieve?

Yes, that was my first question.

Negative real five year Treasury Inflation Protected Securities (TIPS) yields (-1.81% ) are a professional corroboration of this thinking.

No economic good is expected when benchmark real yields are negative.

.

I thought they needed inflation to inflate away the massive debt?

11
up

Because if inflation takes hold they will be obliged to raise rates. This will increase the price of debt and lower asset prices leading to the whole interest rate fueled asset bubble to collapse.

The alternative is run away inflation. In short the CB's GPS reads "between a rock and a hard place"

Ok the Fed have this all under control - will do whatever it takes to keep this house of cards stable.

History tells us governments and institutions neither have the skill nor the stomach to make the right decisions in times of crisis to correct the markets. But the markets will correct themselves as usual. QE and the GFC 08-23 are about to become another footnote in history - the same story told over and over throughout time from Rome to the Weimar Republic.

Passerby: since lockdowns started there has been a forecast for a short term spike in inflation due to the logistics of reopening. Unfortunately supply chains don’t just turn on again with the flick of a switch and will always create shortages. This combined with pent up demand should cause a short term inflation spike.
Whether it will remain is the question, but i would say the most likely outcome is no it won’t. People usually only think of the things that cause inflation when trying to predict it. But you also have to think if the huge factors bringing prices down. Mainly technology and invention. These aren’t going anywhere.

The biggest thing that brings inflation down is defaults (or credit destruction)....and they arnt going away either.

Interesting Canadian authorities have ability to stagger or tier interest rates for mortgages. Perhaps that should apply in some shape here. For instance mortgage rates for households are often the same as mortgage rates for property investors and/or landlords. Yet the latter are businesses. Should they not then pay commercial interest rates equivalent to other businesses. Just asking.

"outweighed the only notable sale of gold, by Turkey (-11.7t). Year-to-date, this puts total global central bank net sales at 16.7t, the weakest start in over a decade."

That's the thing about liquid savings - they get realised when push comes to shove.
It's the illiquid ones that cause the really big problems....

Indeed - demand for pristine liquid collateral to support funding for not so liquid securities remains unabated.

Slight, But Only Slight, Movement In the Understanding of Rates

We’re getting somewhere. Officially, the last several decades are being slowly, painfully, belatedly rewritten ever so incrementally closer toward the truth. And that continues to be the interest rate fallacy, which not only describes what’s happening but more importantly why.

Don’t say you weren’t warned; once more, Milton Friedman in 1967:

“As an empirical matter, low interest rates are a sign that monetary policy has been tight - in the sense that the quantity of money has grown slowly; high interest rates are a sign that monetary policy has been easy - in the sense that the quantity of money has grown rapidly. The broadest facts of experience run in precisely the opposite direction from that which the financial community and academic economists have all generally taken for granted.”

So if the US does indeed throw trillions into infrastructure as Bidden wants rates are going to rise and asset prices are going to fall...and theres not much the RBNZ (or any other central bank) can do about it.....and all that 'cheap borrowing' is going to bite arse.

Those really are quite pitiful percentages from the UK. Must do better if you expect to join the best.

Its a wet weekend, time to watch documentaries about prince Philip, the royals and repeats of Harry does Meaghan . I wonder if I get an invite to any upcoming nonsense .

With respect and nothing personal, a cowpat on the royal lawn, most likely unwelcome.

Have you watched The Crown on netflix CP?

I've no interest in the royal family whatsoever but if I had the time I'd have watched all 5 seasons back to back without going to sleep.

13
up

Re looming inflation: unlike the 70s & 80s wages seem to be very stagnant (other than the recent minimum wage). Skilled admin & line supervisor staff etc earning fractionally more than the new minimum wage.
All thanks to globalisation -

26
up

Yep, not a huge selling point for debt-underwritten tertiary degrees when there's little chance of home ownership and you could have spent 3/4 years earning a not-unsubstantial minimum wage. Professional wages have been suppressed by skilled migration and outsourcing, and businesses/industries have gotten away with wage increases at a fraction of actual living costs.

Of course, if you take a two hour plane ride, all that changes, your qualification is worth a lot more and the lifestyle is a lot better. This begs the question to anyone under 25: Why stay?

Agreed, but wouldn't limit the question to just those under 25.

Low wages also subsidised by various govt schemes.

Exactly what our daughter did after finishing her degree two years ago. She now has a job she loves, is enjoying life and her student loan will be paid off at the end of the year.

Yes a young Auckland nurse or teacher or the like will be very tempted to move to Oz once vaccinated. There are full size houses available for 750k in Brisbane right now, with a salary 30k higher.

I agree.
If the housing prices in NZ (and in Auckland in particular) do not fall substantially in the near future, they will fall even more a little bit later, due to a significant exodus of skilled kiwis unwilling to subsidize parasitic housing speculators, and/or unwilling to cope with a life of mortgage servitude in order to buy a wildly overpriced house in NZ. I can easily see in the future many housing specuvestors left in the situation of trying to sell to each other progressively depreciating assets in an environment of decreasing demand and increasing supply.

Catch 22: If house prices here fall dramatically without a consummate rise in wages, and Kiwis who have endured here just finally give up and sod-off to give themselves a chance at getting some savings before retirement, even if it is just keeping their head above water until they get there.

House prices don't fall? Kiwis leave too. This really isn't the simple equation people make it out to be, we've got to have some awkward conversations about population settings, skilled migration, why we pay terrible wages and what we're going to do about it.

Oddly if you follow the FB property investor pages, it would appear that at least a 1/3 of the posts come from people who most probably don't originate from NZ. So they've moved here and go into property investment. This isn't being xenophobic - I welcome diversity and inclusion etc...but when we can't build enough houses for people, then we import people who make the situation worse, its just dumb, dumb, dumb regulations and governance.

If you haven’t seen it, and have Netflix, then I suggest you view Seapiracy and if it a true portrayal of the sea and fishing then it is very disturbing.

Plan on watching it today - still waiting for cameras on boats - Tallys fleet especially. They say the cost to fishery's is too high, 3-4 Go Pros would do the job?

Watched that with the kids last week, excellent doco!

Too many humans on the planet. The fish stocks will come back one day when the humans have been knocked back by a super virus.

I eat fish and it tastes good if you don't think about the slow way it died. What I can't get my head around though is deliberate catch and release fishing purely for fun of the fisherman. Where it is the fight that is put up by the fish that is the the aim of the exercise rather than obtaining a meal. You can't tell me the fish isn't in distress. Imagine if I did that to any other creature, I would be straight to prison.

I've been a vego for decades but if I ate fish I'd be worried about microplastics. We still don't know what effect they might have.

Rat poison back over USD60k this morning. Short positions wrecked left, right, and center.

Ratus and Gummy buying up like whales!

The PM is having a big day on Twitter.

https://mobile.twitter.com/berniespofforth/status/1380793390099542016

Implementing the ‘No jab, no job’ policy, New Zealand PM outlines that private companies will also be ‘obliged’ to ensure employees are vaccinated.

My body, my choice becomes My body, state choice.

Something for Sunday. The couple of thousand comments provide an interesting range of opinion.