sign uplog in
Want to go ad-free? Find out how, here.

Central banks wait; Alibaba slapped hard; US inflation pressures; Canada's housing worries; UST 10yr at 1.66%; oil unchanged; gold small gain; NZ$1 = 70.3 USc; TWI-5 = 72.7

Central banks wait; Alibaba slapped hard; US inflation pressures; Canada's housing worries; UST 10yr at 1.66%; oil unchanged; gold small gain; NZ$1 = 70.3 USc; TWI-5 = 72.7

Here's our summary of key economic events over the weekend that affect New Zealand, as much of the world and its central banks appear to be going into a 'watch and wait' mode on inflation.

That's watching and waiting of course while inflation in many part of the world seems to be kicking up strongly, along with house prices.

In New Zealand this week on Wednesday we will get another reading from our central bank on how it is seeing inflation and other matters as it has its regular Monetary Policy Review. No change is expected to either the 0.25% Official Cash Rate or the $100 billion large scale asset purchase programme, but Governor Adrian Orr's comments will be scrutinised for any change in the bank's view.

Major bank economists expect the RBNZ will put the Government's recent property investor crackdown, trans-Tasman bubble, slowing growth and higher inflation expectations aside, and take a breather before changing monetary policy. So, watch and wait in other words, even though signs of inflationary pressure are building.

One place where inflation's perhaps not so generally prevalent yet is China, where their consumer inflation rate for March showed 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%.

Back in China the authorities are continuing to come down hard on e-commerce giant Ali Baba. Over the weekend they slapped it with a record 18.23 billion yuan ($2.8 billion) fine, which was the equivalent of about 12% of the company's profits last year. Remember, Ali Baba founder Jack Ma had launched stinging public criticism of the country’s regulatory system in October. Then in November regulators did an abrupt u-turn and torpedoed what looked set to be a record-breaking stock market listing for Alibaba's financial unit Ant Financial, which operates the Alipay smartphone payment service.

The State Administration for Market Regulation, the competition watch dog launched the probe into the e-commerce giant in December, charged Alibaba with abusing its market dominance. The watchdog said its investigation concluded that Alibaba had hindered online retail in China, affected innovation in the platform-based internet economy, hurt the lawful rights of merchants and damaged consumers' interests. Alibaba said that it "accepts the penalty with sincerity and will ensure its compliance with determination".

There's reports that China’s competition watchdog is adding staff and other resources as it ramps up efforts to crack down on anti-competitive behaviour, especially among the country’s powerful companies.

Back on the inflation theme and back in the USA, 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%.

In an interview with CBS' 60 Minutes programme over the weekend, Fed chair Jerome Powell said the US. economy is at an “inflection point” with expectations that growth and hiring will pick up speed in the months ahead, but some risks remain, particularly any resurgence in the coronavirus pandemic.

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 their central bank is warning that while strength in the housing market is contributing to Canada’s economic recovery from the pandemic, it may also be intensifying housing market imbalances and household indebtedness. In an analytical note released over the weekend the Bank of Canada said the evidence suggested "vulnerabilities" have increased in recent months. "In particular, house price growth and mortgage indebtedness have risen amid an increasingly strong housing market. The Bank of Canada will continue to monitor these developments closely and will provide further updates in the next Financial System Review to be published in May 2021."

Remember, in Canada there have been recent sharp house price rises in Toronto and Vancouver. Bearing that in mind, 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.

Meanwhile, 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?

And this all comes as 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.

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 staged a small rally, undermining the expectation that prices are past their top and likely to fall. Complicating matters in China is 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.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 135,617,000 have been infected at some point, up +1,312,000 in two days. Global deaths reported now exceed 2,931,000 and +21,000 in two days. Vaccinations in the world are still rising fast, now up to 755 mln (+21 mln) and in the US half of their population (177.3 mln have had at least one dose) have now had this protection as they achieve a very fast rollout. The number of active cases there rose to 6,877,000 and up +6,000 overnight as new hotspots emerge with problematic variants. In NZ another worker at a central Auckland MIQ hotel has tested positive for Covid - a close contact of the hotel security guard who tested positive last week.

The UST 10yr yield is down -1 bp at 1.66%. The US 2-10 rate curve is marginally steeper at 150 bps. Their 1-5 curve is also a little steeper er at +81 bps, as is their 3m-10 year curve at +165 bps. The Australian Govt 10 year yield is unchanged at 1.73%. The China Govt 10 year yield is stable at 3.24%. And the New Zealand Govt 10 year yield is also unchanged at 1.72%.

The price of gold starts today at US$1744/oz and off its recent high, but with a small gain for the week.

Oil prices are little-changed from this time Saturday, 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 70.3 USc. Against the Australian dollar we are unchanged at 92.3 AUc. Against the euro we are little-changed at 59.1 euro cents. That means our TWI-5 is still at 72.7.

The bitcoin price will start today at US$59,837 and up +2.5% from this time Saturday. At one point between then and now it reached US$60,588. Volatility in the past 24 hours has been moderate at +/- 1.9%. 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 ».

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

50 Comments

11
up

Zimbabwe Stock Exchange (ZSE) up 61% year to date. Based on the same fundamentals driving house prices and US share market; a Biblical flood of credit.

11
up

From p. 7 of the FSR: "Housing price growth has increased in many economies since mid 2020, in part reflecting expectations that interest rates will remain very low for an extended period (Graph 1.3). Price growth accelerated in the latter part of 2020 and in recent months annualised rates of growth were 5 per cent in the United Kingdom, 15 per cent in Norway, 20 per cent in Sweden and the United States, 30 per cent in Canada, and 40 per cent in New Zealand."

Woo, number one!

Have NZ houses gone up 40% since mid 2020 though?

'Sustained moderation' in action.

Zachary
Just twisting statistics.
The data refers to "recent months annualised rates of growth" - not a good measure and care needed in drawing conclusions as the article does.

10
up

In December data confirmed that house price rose by appox 20% and in February- just one month by appox 10% so official confirmation from NZ which is conservative is 30% but all in the field know that it has been from 30% to 60%, so not surprised.

AND

Government is waiting for advice from RBNZ, what advise......and RBNZ is still thinking.......what a farce.

Earlier government and such agencies could get away with lies and manipulation but in today's time with internet, communication and active social media, stand exposed.

Jacinda Arden may be a good communicator but : You can fool all the people some of the time and some of the people all the time but cannot fool all the people all the time.

If intelligent, she should know that with coronavirus not their ( hopefully) to distract is bound to lose third term so she atleast now beyond her coterie ( which she is surrounded by) and act in the interest of the country, breaking status quo as she is in the best posistion that any prime minister has been in NZ in last two or three decade or let it pass by.

Great comment meanwhile, Mr Orr is still thinking.

It's a very good time to aggressively pay down debt.

12
up

Why?
When even the Central Bankers and politicians are telling you to 'borrow to the max, and go out and spend'
Paying down debt is the last thing they want.
"Buy low, sell high' and in this case debt is dirt cheap.
If you have debt, by all means save any cent you can, but don't 'repay the debt' because when things get tough, who is going to lend it back to you? And if they do, at what price?
But those savings you've put aside? Those can be drawn down on.

Check the fine print on most loans - can be recalled immediately "payment on demand"

Quite right.
But if you have the savings to do so, you can.
That's the point of 'not paying down debt now'.

I'd rather just pay off the debt and not pay a cent of interest to the cartels

But thats the point Frazz, at current rates of 2.4% or so, you are effectively paying 0 real interest. esp if inflation starts cranking up. Look at the real rate of return the banks are making on the loan compared to the asset price growth.
The whole fiat system is geared around borrow as much as you can, because money is only getting easier so asset prices will continue to rise.

DP

Are Central Bankers and politicians telling you to 'borrow to the max'?

10
up

Of course!
What else are interest rates at artificially engineered, rock-bottom levels telling us?
Don't tell me - Save! Right?
Saving; Offsetting Debt, may be what I'm suggesting, but that's not the message being touted.

Now some may see 'saving' as buying another renter. Regardless, it's the same message and why we are staring at the economic disaster we all are.
(NB: If 'it' worked today - Financial Repression - then why are we where we are; consumed by unpayable net national debt(s)? 70 years ago, when it was effective, the World was an entirely different place in any way imaginable)

by Audaxes | 23rd Sep 20, 3:27pm
However, on Wednesday the Committee agreed it could try to speed up the process of lowering interest rates even further by deploying the FLP first.
“Members noted staff advice that deploying an FLP before the forward guidance period for holding the OCR ends could provide additional stimulus to the economy sooner,” it said.

Low rates do not signify stimulus nor abundant liquidity, they often describe just this sort of monetary tightness and chaos. Abundant liquidity means everyone gets funding; lack of liquidity, which does show up in low rates, means that money dealers are being prohibitively discriminating.

Low rates are not, repeat, NOT STIMULUS. They are the signal that "stimulus" doesn't work. If you have to keep doing something over and over, year after year, is that a sign of success? Nope. Bonds are kind enough to identify the cause, too. Tight money.

Low interest rates aren’t a central bank providing accommodation, they are instead its worst nightmare being shoved right back in their face. Well, our worst nightmare because for one thing despite repeated failures, rates that never rise testifying to that failure, central bankers are never held to account.

To correct this view, Friedman pointed out the basic, non-trivial distinction between a liquidity effect and an income effect. Low rates can be stimulative in the short run (the liquidity effect), but over the long run their persistence means something far different. A yield curve is supposed to be upward sloping given the core time value of money and investing. That arises from opportunity cost, meaning the more plentiful the opportunities the greater the time value and the steeper the curve (the income effect). Yield and/or money curves (the eurodollar curve and even the history of the OIS curve) that collapse and remain that way unambiguously demonstrate that "stimulus" deserves only the quotation marks. Courtesy of Alhambra Partners

"Low interest rates aren’t a central bank providing accommodation, they are instead its worst nightmare ..."

Many of us may have a different perspective on what's happening at the moment, but if there's one unifying theme, it's written in that sentence from your post. Thx.

Zachary
Agreed, of course central banks and politicians are not telling you to borrow to the max as claimed.
Clearly the Government's recent 23 March announcements and RBNZ LVRs are designed to actively discourage one to do so.
Some posters need to get over their bitterness and envy as it is clouding the validity of their statements. :)

So.
Do we as a country - public and private - have more nominal debt now that we ever have done?
If so, then to me that's a maximum - until the net amount gets bigger; then that will be the maximum.
Would we have as much if the OCR was 10%? We don't know. But I'll suggest that at 10% it's far less a rallying cry to borrow than at 0.25%.
Apply that across the Globe, and what does that tell us?

nktokyo
A very, very sound comment that many need to note.
Pity that some feel the need to make flippant comments undermining it.

Experience is the best teacher.
If you ever need to go into your bankers and ask for a loan, knowing that your fully capitalised, and you are told "No", you'll understand why retaining liquidity against existing debt makes sense.

Decades back, one of my biggest clients had a rule of thumb "Never, ever pay off debt!" and that was when the cost was about 15% p.a. (At a rough guess I'd say they're paying 0.15% p.a. for it today)
It didn't make sense at the time. But now it does.

Yes. Get rid of the debt. Owners have options and control of their situation that borrowers just don't.

Ali Baba: doing business in China - the Govt can bring you down at any time, block your products on a pretext and/or put you in jail for ‘corruption’.
Re Inflation: Bob Jones always said that there’s nothing wrong with some healthy inflation, keeps things ticking along, increases desire to buy now, and far better than deflation.

Well Sir Robert did contribute markedly to the success of Labour in 1984. We all sure as hell got a burst of inflation after that. Recall my mortgage peaking about 18.5%. Still the lid had to be let off the Muldoon stagnation one supposes. Don’t think any sector, industry or individual carrying debt today would be prepared for a repeat performance of that nature.

13
up

Bob jones had a strong bias in saying that.
His book ... Prosperity denied elaborates his philosophy ( borrowers are activists, savers passive )

Monetary inflation is essentially a wealth transfer mechanism, a hidden tax, that transfers wealth from savers to borrowers....
A form of stealing, in my view.

I dont believe a little inflation is good. Only becomes necessary in an economy that grows gdp thru debt .ie. Debt Capitalism

In an economy that is largely debt free, and largely free of monetary inflation , then we would have benign deflation, where the productivity gains would manifest as a higher standard of living for all, in the form of lower prices. Ie the economic pie would be more evenly shared, in comparison to an inflationary environment , over time.
Over time , we would reintroduce lower denominations of money, which reflects the increasing purchasing power ( standard of living ) . Eg 5 cent piece
We could, largely, get rid of the " financial economy", in an economy that keeps its money supply stable.
Maybe , there would be a natural shift away from consumerism/materialism toward quality of life measures.

...just my view

Great view mate. Bring back hard money.
Buy Bitcoin.

Or Bitcoin you can actually use for payments on a day to day basis without waiting for hours, like Nano ;)

Hard money? Bitcon??

The trouble you dont appear to realise is there was a reason the Gold standard was abandoned.... we required the LEVERAGE
That's what gives INCOME to everyone now...
Hard money's great .... but theres just going to be no viable customers

Ah, the old “Wait and see” comment
heard it before...what a joke.

We have inflation already, in fact we have hyperinflation when it comes to house prices. What is unbelievable is that this is being overlooked like it just doesn't count. Nothing to see here, its not included in the CPI. We are truly stuffed if we get "Wait and see" while house prices double in record time.

* 100 billion LSAP

Thanks!

Back on the inflation theme and back in the USA, 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.

Base effects contributed much to the rate, as did commodity prices. It really is no different than the initial rebound (Reflation #1) following the Great “Recession.” And next month it will be worse; meaning the rates will be even higher given that they’ll compare to the ultimate lows set during April 2020, and so the rhetoric will certainly surpass them more than they already have for this month’s figures.

The key to inflation actually isn’t even contained in the TIPS breakevens; no, a better place to look is real yields which get set based on perceptions of gross economic shortfalls and the like, and they continue to be nowhere near recovery from recovered slack. Link

It feels as though the tectonic plates are shifting and a very long cycle is turning. The pandemic was the black swan that marked the beginning of the turn but it's financial effects have been masked by global government and CB intervention.

With pent up demand released, supply chains constrained and huge issuance of government debt are we about to see a massive rotation from asset price inflation to commodity, consumer and debt price inflation?

More than likely. And with our unelected central bankers will busy themselves finding ways to "look through" it.

Monitoring the effects of their currency debasement. No action will be taken. It's all part of the plan.

Landlord lobby group is persistent and powerfull, despite warning still going with the agenda to influence rise in rent :

https://www.landlords.co.nz/article/976518412/landlord-polls-rents-will-...

Looking after the interest of their member. One of the main reason that their has never been any change in stat quo, is as average Kiwi and FHB has no such strong representation. They may feel that they vote for government to represent them but alas ............it is a myth.

That's a good read for a bit of perspective.
Probably I didn't get the slant he wanted though.
70% of landlord's don't charge market rent?
70% is the majority of the market so I'd suggest that they are the market and are therefore deluded on that.
Judging by many of their other strategies to cope with the changes they are all running really really close to the wind, no room for any of the many possible changes that could happen. maybe the risk is coming home to roost.
So much cost plus mentality.

"70% of landlords don't charge market rent". A total BS statement, and self serving as well.
Wishful thinking.

I'm.... pretty sure that 70% charging below 'market rent' isn't statistically possible.

It's statistically possible if the other 30% are larger holders of rental properties.

Instead, many people stuff huge volumes of cash into handbags, money belts, or backpacks, in scenes analysts have said are suggestive of "runaway" inflation.

Hahahha suggestive of runaway inflation. lolol
Long Bitcoin, Short the Bankers

Bitcon ... a Fomo Ponzi ... which is why we require the constant talking it up
because you wont be able to explain how supply chains would work IF & When fiat implodes
Let alone keep the power on

ultimately, yes

A Totalitarian government cracking down on monopolistic practices.

Gotta laugh.

"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."

Haven't they been trying to find inflation for over a decade? Now it's here and they hope it will fade away. Maybe they never actually wanted inflation in the first place, just the low interest rate environment.

They have had the inflation they desired....credit inflation.

Its english....but not as we know it.

Wonder why? .. here's a clue from every natural events: There'll be pain at some stage, now the question is always how you mitigate the pain, distribute the pain or attend it in harsh/brave way. NZ is a country that love to avoid pain, deny, ... don't worry folks!, economic is bounced back better than expected, now is just unsure how to deal with massive steroids injection in 2020 - apparently, is bad for the heart.. really?