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

Fed wants to see more inflation; US trade deficit swells; more US stimulus coming; RCEP gets Japan's ok; China tries to push steel production offshore; UST 10yr at 1.62%; oil and gold up; NZ$1 = 72.2 USc; TWI-5 = 74.2

Fed wants to see more inflation; US trade deficit swells; more US stimulus coming; RCEP gets Japan's ok; China tries to push steel production offshore; UST 10yr at 1.62%; oil and gold up; NZ$1 = 72.2 USc; TWI-5 = 74.2

Here's our summary of key economic events overnight that affect New Zealand with news of a green twist in beggar-thy-neighbour economic policies.

But first, in today's review of its policy settings, the US Federal Reserve has changed nothing. It did acknowledge the greatly improved economic prospects, and it said it wants to see inflation running ahead of its target 2% for some time before it will make any changes. And it gave no indication of any tapering its bond purchases and QE support. The equity markets have ignored the statement. Bond markets have seen yields fall, but only marginally.

Some analysts are saying the US economy is in for a sustained rise in inflation, rather than the transitory increase that Fed policymakers are suggesting. And that markets are underestimating the Fed’s tolerance for higher inflation, meaning rates will be kept near-zero until late 2023 – later than many expect – which in turn means that real interest rates will remain negative for years.

Meanwhile, the US merchandise trade deficit swelled to -US$85.6 bln in March, and far above the March 2020 deficit of -US$60 bln. But this one is on the back of fast-rising exports, up +12%, and even faster rising imports, up +22% year-on-year. No doubt, their services surplus will be rising as well, but that is not included in this report.

The new Biden Administration is set to announce a US$1.8 tln program of new spending on safety-net issues like child care, education and paid leave and extensions of some tax breaks. It wants to fund it with new taxes on about 500,000 uber-wealthy Americans. The proposal follows on the heels of a US$2.25 tln infrastructure plan that has yet to be taken up by Congress and a US$1.9 tln pandemic relief plan that Biden has already signed into law. If they all get through Congress, that is fiscal stimulus of almost US$6 tln over a number of years, or more than 25% of one year's US economic activity (GDP).

Canada reported February retail sales and those came in considerably better than expected.

Japan also reported a good retail sales rise, their data being for March. Maybe there is a COVID basis factor here, but the result beat analysts expectations.

Japan’s parliament approved joining the world’s largest free-trade deal, a key event for the Chinese-promoted Regional Comprehensive Economic Partnership (RCEP). Signatories which includes New Zealand, aim for it to come into effect from the start of 2022.

The Asian Development Bank is forecasting that China will grow by +8.1% in 2021, but the following year the expansion will be a more modest +5.4%. It also sees a good recovery in the wider developing Asian countries.

And in a shameless beggar-thy-neighbour policy, China is to lower taxes on steel imports, and raising them on domestic producers. (It's the green version of beggar-thy-neighbour strategies.) The aim is to increase steel imports - so that China can reduce its emissions from an industry that produces 15% of all China's GHGs. This policy will push those emissions on to other countries. Changes were expected but they are more aggressive than expected.

In Australia, their CPI came in lower than expected in the March quarter, even if it was higher than Q4-2020. And that was despite sizable increases in beef and petrol prices. The ABS data show prices rose an average of just +1.1% over the past year. Analysts were expecting +1.4%. This probably keeps the pressure on the RBA and fiscal authorities to maintain more stimulus than they were expecting at this time.

And Australia has recorded a goods trade surplus above AU$8 bln, as imports and exports both increased +15% in March 2021. China accounts for 37% of all exports from Australia, and iron ore helped push exports to the Middle Kingdom up by +17%. (New Zealand exports 29% of its trade to China.) Yesterday, the iron ore price rose again.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 148,964,000 have been infected at some point, up +901,000 in the day, largely driven by rises in India where nationwide super spreading events are underway featuring a "double mutant" strain - and a huge global risk. It is a variant that is now showing up in the US and Europe. Global deaths reported now exceed 3,140,000 and up +15,000 in a day. Vaccinations in the world are also rising fast, now up to 1.065 bln (+21 mln) and in the US more than half of their population (230 mln) have had at least one dose as they keep up their fast rollout. Almost 30% have been fully vaccinated (98 mln people). The number of active cases there remains stubbornly unchanged at 6,823,000 with just 2,000 more new infections than recoveries yesterday.

After starting off enthusiastically on Wall Street, the S&P500 is now flat in afternoon trade. Overnight, European markets ended up about +0.3%. Yesterday, Shanghai and Hong Kong ended their sessions up +0.5%, but Tokyo only rose +0.2%. In Australia the ASX rose +0.4% and the NZX50 Capital Index rose +0.2%.

The UST 10yr yield starts today at 1.62%, down -1 bp overnight. The US 2-10 rate curve is a little steeper at 146 bps. And their 1-5 curve is also steeper at +83 bps, as is their 3m-10 year curve at +164 bps. The Australian Govt 10 year yield is down -5 bps at 1.66%. The China Govt 10 year yield is unchanged at just on 3.22%. The New Zealand Govt 10 year yield is up +1 bp at 1.63%.

The price of gold starts today at US$1780/oz and that is up +US$3 since this time yesterday.

Oil prices are up +US$1.50 today at just under US$64/bbl in the US, while the international price (Brent benchmark) is just under US$67/bbl.

The Kiwi dollar opens today at just on 72.2 USc and a small firming since this time yesterday. But at this level, it is at its highest since mid-March. Against the Australian dollar we are up at 93.3 AUc and the highest since early March. Against the euro we are slightly firmer as well at 60 euro cents. That means our TWI-5 is at 74.2 and also a mid-March high.

The bitcoin price is now at US$54,918 and a mere -0.1% lower since this time yesterday. Volatility in the past 24 hours has been modest at +/- 1.7%. 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.

25 Comments

14
up

Well, China is just doing to us, what we did to them.

I remember Bernard Hickey and Giles Beckford overlooking that on RNZ, a while back. Offshoring is a good accounting trick, but physics has no respect for borders.

exactly! exporting your emissions...

Hot potato is the name of the game

NZ exports carbon emissions also, we supply the dairy for 100 million people for a start. Our net imported embedded carbon is a lot lower than many developed countries.

I think you have that wrong, when Fonterra has farms in South America, rather than here, producing dairy, those carbon emissions exist in South America so that is an example of exporting the Carbon emissions.

If the demand stays the same or grows for any product, the emissions to produce that will exist somewhere on earth, it sort of makes a joke of the Kyoto Protocol as it just shifts production to emerging nations that have lower standards to meet

Is the answer to this to split emissions evenly between exporters and importers?
That might make importers choose products from less carbon intensive countries

The provided link to Chinese steel policy is about removal of export tax rebates, not import tariffs. As such, it is about removal of a steel export subsidy.
KeithW

Gee Camel, you had better call the Minister for Social Development.
- Remember many people see the Minister as an idiot.

https://www.newshub.co.nz/home/politics/2021/04/officials-not-tracking-h...

Unknown sums of money are being handed over to moteliers to cover damages caused by emergency housing clients - officials aren't keeping track of what's being spent and can't put a total figure on it.

That's "not ideal", admits Minister of Social Development Carmel Sepuloni, who wants a system that can better monitor those costs and the damage being caused.

Impressed by Biden. He walks the talk, unlike our PM.

Aye, he is being sensible. Quite refreshing. Polls so far, seem to agree.

11
up

$6T in spending in just 4 months, hardly sounds responsible to me.

On the upside the Fed will get the inflation they want, but they should be careful what they wish for....

I agree. I will say he may have an issue with inflation in the near future but that's more a problem with the federal reserve "overcooking" things.

Demand for pristine US Treasury collateral pushes the repo rate down to 0.0%, while demand at the Fed reverse repo window rises to $166.732 billion. Safety and liquidity preferences are paramount. What's up?

The Fed’s models like mainstream commentary can ignore real monetary issues that the real economy and the bond market simply cannot. You’d think that, over time, models and commentary would have to adjust to what bonds are indicating, but, again, ideology not science.

No one has wanted to believe it, protestations as regular and dependable as collapsing curves, yet here we are. The government gets broker by the minute, by the second, and the bond market cares nothing about it stepping up for every last penny on auction. Deflation comes first because deflation remains the likely case (over the intermediate- and long-term).

Put very simply, bonds don’t see that anything of substance has changed; in every meaningful way, there’s nothing truly different. Thirteen-digit government “rescues” aren’t actually different. You don’t have to take my word for it. The fact that the market keeps literally buying is, as it has been, more than a dependable forecast signal.Link

Some analysts are saying the US economy is in for a sustained rise in inflation, rather than the transitory increase that Fed policymakers are suggesting. And that markets are underestimating the Fed’s tolerance for higher inflation, meaning rates will be kept near-zero until late 2023 – later than many expect – which in turn means that real interest rates will remain negative for years.

Indeed - the 5-Year Breakeven Inflation Rate recovered last weeks losses to trade at 2.58%.

Meanwhile anyone can get 5-30% ROI providing liquidity in the blockchain space. This is a real threat to banks as a decentralised mass of citizens take over the liquidity role in finance, providing billions in market cap and reaping yields that have previously been banks bread and butter via wholesale settlements. Zero custody, rock bottom liquidity risk, and great ROI are a real threat to the status quo as it sucks in collateral from every maligned saver. Does the FED really think institutions will keep buying their bonds in an artificially sustained market whilst the purchasing power of the dollar is continually eroded, when a real market (crypto) grows to 10s of trillions of dollars and quantitatively hardens? The real question here isn't "will the old system fail or not", but rather "how fast will it happen"?

.The unregulated shadow banks are now the owners of even the regulated big banks, but also of, for example, all the big digital corporations. At the same time, BlackRock & Co have managed to remain virtually unknown to the general public. Link

Wow this is 'Black Mirror' stuff (which I highly recommend watching if you haven't already). With comments like:

The alternative [to government] is to build a new private power structure, with multinational private companies and private foundations at its core

from BlackRock CEO Fink.

The need for a decentralised autonomous solution to replace these rotten custodians is greater than ever. Because blockchain is most commonly an open ledger, it's possible a lot more of these shadow bank transactions will be traceable once adoption is mainstream. Although it does make a strong case for anonymous tokens like Monero. There's no way Blackrock would want to lose the anonymity of private transactions.

But more to the point, as crypto moves into the early majority phase, it'll be interesting to see how much gets bought up by the likes of Blackrock. You'd have to speculate that Greyscale is performing a similar shadow bank function already in the crypto space.

Great read Audaxes.

Seen it.

But its all about who has the guns

BR is a significant shareholder in Meridian Energy, and recently caused the price spike, yes they overpaid for ME shares, and why? perhaps its a currency play, and nothing to do with ME. Dump a ton of money in safe investments, and wait, for what? A crash in the USD.

Also, yesterdays big news about the EU issuing bonds through the ETH network caused the price of ETH tokens to spike by about $400 USD. In the face of inflation, how long will it take for those same bonds to be tethered by tokens on the network they've been issued on? Any blockchain that hosts government bonds will become as rock-solid as the bonds themselves. From there it's a matter of price discovery for the network token.

Also, yesterdays big news about the EU issuing bonds through the ETH network caused the price of ETH tokens to spike by about $400 USD.

According to who? If the EU announcement about bonds really was the driver of ETH's price movement, I would be selling my ETH. As I explained y'day, the use of the ETH network for the issuance of bonds is quite unnecessary and doesn't make any sense except for some kind of propaganda stunt.

Your bombastic religiosity on all things crypto demonstrates the strength of your faith and of many others. And I understand that and why many communicate the way you do. But don't let that fervor get in the way of the 'real world'.

Next it will be tulips

Until it collapses

From 23:30 - 25:30

https://www.youtube.com/watch?v=RYfmRTyl56w

Indeed

https://extranewsfeed.com/bitcoin-24b3efd58ec

"The rising value of bitcoin is a form of hysteria. Money can only ever be a token of energy. Bitcoin is not underpinned by energy, therefore has no actual monetary value. It is worth only what the next buyer thinks it is worth."

China offshoring emissions surely indicates they have moved to developed status? When you can pay to import dirty manufactured goods cheaply to move emissions off the books it indicates you have hit a certain level of exploitation and development normally associated with developed country status.