Here's our summary of key economic events overnight that affect New Zealand with news China is going on the offensive over commodity prices it sees as too high.
But first, we start today noting what most media is noting - that crypto currencies went on a very wild ride overnight, almost all of them. After falling steadily all week, bitcoin touched US$40,000 and then basically collapsed to US$30,000 to more than -50% below its high in early February. Then it recovered just as fast, but not quite all the way back, leaving holders with a big -9% daily loss.
Perhaps the trigger this time was a set of unofficial warnings in China that using cryptos is illegal - and that penalties and prosecutions are about to get harsher. Three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued warnings on social media. Cryptos are a favoured way to launder money and avoid China's outbound capital controls. Beijing is also cracking down hard on bitcoin mining operations.
This car crash happened in the absence of any other major economic news or drivers, so it is getting outsized media coverage today.
The American mortgage market seems to be rising, even if it is at a measured pace. The number of mortgage applications are rising, average mortgage application values are up, and benchmark mortgage interest rates are rising too, now at 2.94% plus points.
The US Treasury auctions a 20 year bond overnight, raising US$32 bln, $5 bln of which was bid by the Fed. The median yield was 2.215% which is slightly lower than the 2.24% achieved at the equivalent March event.
The US Fed released the minutes of its last meeting, and these revealed that some FOMC committee members started to talk about tapering their bond purchases. They are looking for the 'right moment'. They also see very strong corporate bond issuance activity.
In Canada, they released April CPI data showing a rising inflation situation there at 3.4% which was higher than expected, and well above the 2.2% pace reported for March. Fuel prices drive this rise.
And in Europe, they also released inflation data, this set coming in at 1.6% as expected and up from 1.3% in March. Again, petrol prices are the core reason for the rise. In the German engine room, prices rose 2.1%
In China, more evidence they are worried about high commodity prices and a clear suggestion Beijing is working to roll-back those that have happened. And an odd outcome of these efforts is that they are now encouraging more coal production. Raising output is their preferred way to "balance supply and demand". These moves helped send the ASX lower yesterday. And markets are wavering for a number of key commodities.
And staying in China, the average gross annual salary of China’s urban employees in the private sector rose +7.7% in 2020 from the previous year to ¥57,727 or NZ$12,500, according to the latest data.
Internationally, the IEA says the global oil industry must stop new oil and gas projects if it is to reach net zero by 2050. It seems unlikely China will sign up to that.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 164,388,000 people have been infected at some point, up +622,000 in one day, and still largely driven by rises in India and Brazil. Global deaths reported now exceed 3,408,000 and up +14,000 in one day. Vaccinations in the world are also rising fast, now up to 1.53 bln (+28 mln in one day), and in the US almost half of their population (48.2%) have had at least one dose as they struggle to keep up the pace of vaccinations. Now approaching 40% of Americans have been fully vaccinated (126.1 mln people). The number of active cases there has fallen to 5,922,000 with fewer new infections than recoveries recently and steady progress.
Wall Street is in risk-off mode, fascinated by the crypto volatility, and the S&P is now down -0.6% although it was much lower earlier. Overnight, European markets closed down about -1.5% across the board. Yesterday, Tokyo ended its session down -1.3%. Hong Kong was closed for a public holiday. Shanghai closed down -0.5%. The ASX200 ended -1.9% lower and the NZX50 Capital Index ended down -1.2%.
The UST 10yr yield starts today at 1.69% and up +5 bps from this time yesterday. The US 2-10 rate curve is at +151 bps and a little steeper. Their 1-5 curve is unchanged at +78 bps, while their 3m-10 year curve is still at +165 bps. The Australian Govt ten year benchmark rate is unchanged at 1.73%. The China Govt ten year bond is down -2 bps at 3.14%. And the New Zealand Govt ten year is down -2 bps at 1.89%.
The price of gold starts today little-changed from this time yesterday, but soft at US$1863/oz. This commodity has also been volatile overnight.
Oil prices start today -US$2 lower at just under US$63.50/bbl in the US, while the international Brent price is just under US$66.50/bbl.
The Kiwi dollar opens today at 71.9 USc and more than -½c lower overnight. Against the Australian dollar we are soft at 92.7 AUc. Against the euro we are down at 58.9 euro cents. That means our TWI-5 starts today at 73.4 and a -40 bps retreat.
The bitcoin price is now at US$38,690 and down -9% from this time yesterday. But the real story is the overnight volatility. This crypto (and many others) plunged, getting as low as US$30,202 at one point before making a partial recovery. Volatility in the past 24 hours has been more than extreme at +/- 22%. 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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93 Comments
Interesting to see Australia may get a deal that includes tariff free food exports to the UK. I wonder if New Zealand farmers could get a copy and paste of the same terms?
https://www.bloomberg.com/news/articles/2021-05-19/johnson-leaves-u-k-d…
The sheer amount of energy crypto consumes will doom it, or us. Back in 2017, it was consuming more than the total of 159 countries. Lots of this will be fossil fuelled. Bitcoin uses between 0.5% and 1% of the world’s energy alone. Dystopian in a nutshell. Book me a ride on Snowpiercer.
So you are ok with gold though?
Bitcoin versus Gold
Bitcoin isn’t competing with countries, however, it is competing with rival assets such as the fiat currencies issued by central banks or more comparatively as a store of value, with gold, a precious metal that is mined on an industrial scale every year.
An analysis by Simone Brunozzi, Operating Partner at tech investment firm Cota Capital, suggests that gold-mining is 50 times more expensive than mining bitcoins and running the bitcoin network. Producing gold for the wedding band on your finger alone generates 20 tons of waste.
Ms Brunozzi would say that, wouldn’t she. And your claim is apples and oranges. Gold mining does not use 50 times more power than crypto mining. And how much waste is generated/other resources used in mining the fossil fuel needed to provide the power to mine crypto. I’m no great fan of gold as an investment, by the way.
Anyone who's ever watch Aussie Gold Hunters knows how environmentally destructive gold mining is. All that heavy machinery doesn't run on fresh air and sunshine, they scrape the ground bare of vegetation and wildlife, and some use mercury as part of the extraction process.
Lost of people think they own gold ..but it does not exist in the real world. Did you not know that?
Here is some help for you -
There are 5,500 tonnes of paper gold exchanging hands on paper each day, but there are only 300 tonnes of gold vaulted in London outside of the reserves for ETFs or the Bank of England.
Whether fiat or dodge coin, Its all just 0s and 1s, created out of thin air according to a set of rules concocted (out of thin air) by those who create it.
The only difference is that normal currency is backed by taxes, industry, laws and legal systems.
Cryptos are backed by media hype.
Its usless as a store of value with such high price volitility and its not going to replace any major national transaction currency without subjecting itself to the same government oversight as fiat.
Tulip
More than 60% of China’s energy comes from coal, the US still produces most of its energy from gas, coal and oil. Both are major crypto mining nations, as is India, which has a huge emphasis on coal fired energy. Few countries are 75% renewable, and if they are, energy needs to be conserved and used carefully. Crypto is a contributor to climate change on a much greater scale than NZ, methane emissions et al. One figure floating around claims its emissions equal that of the lowest emitting 159 countries.
And China is cracking down on mining. Doesn't worry the bitcoin network. Bitcoin is borderless, decentralized and relatively cheap to move for the utility it offers as a store of value. Bitcoin is the most efficient means of converting energy into monetary value. Certainly, gold and the fiat system do not compete as reserve assets when we look at the overall cost of these alternative networks. Gold requires an order of magnitude more energy to mine, while moving it incurs a huge cost and counter party risk e.g. putting tons of gold on a train or boat is an arduous process requiring security and duties to rent seekers. The floating exchange rates that are a part of our fiat system have a frictional cost of ~$5Trillion p.a. in speculation alone and this is climbing. If you don't think the infrastructure behind such a system uses inordinate amounts of energy you haven't thought about the problem in any detail. Bitcoin is expensive but not as expensive as its outdated competitors.
It all seems a bit fanatical to me. And the behaviour involved is very ponzi like. Once your in on it, you become a salesperson for it trying to attract more and more people to buy and HODL - is that how it goes?
LOL - and watch out for the FUD and whales. The FUD thing seems like cancel culture. Anyone that disagrees with you need to be labelled as anti HODL and therefore is FUD. Haha it makes you laugh.
Dogecoin to the moon?
Cryptocurrencies could well be the future and who knows what their price will be going forward. It just alarms me as to how fanatical people are who have got involved with it. Almost cult like.
The Bitcoin network is inherently designed to be anti-fragile. It has to survive and overcome huge odds to become the new global reserve. After 12 years it's still continuing on this journey. It's "crashed" over 5000 times, with multiple 30-40% drops. It gives zero f's about FUD. The bitcoin maximalists are the ones who understand these fundamentals. They're also the ones who will be the wealthy elite in 15 years time, with the vision and sticking power to reshape the planet. And maybe, but it's a big MAYBE the human race will avoid extinction and survive as a species for more than another 50 years.
Just waiting on Rastus to throw some shade on this also. But Rastus is down the thread talking about being pro-nuclear and environmentalism. If you can see the irony, go figure. Our future is inextricably linked to energy production, and the elastic scale of hash-rate vs difficulty (power consumption) that Bitcoin democratically enables for every human is the only way to reliably value it.
The context of that comment from memory was it was a tiny dip not worth commenting on. This is a proper 40+% dip which occurs only once or twice during a bull run. It brings opportunity by way of halting alt season, liquidating noobs, and much of the crypto market dominance flows back to BTC. Don't worry I'm fully awake MTP. Last night I liquidated all my alts back into BTC at a bottom of 38k ready to redistribute and consolidate when alt season kicks off again. Bitcoin is the most predictable asset on the planet.
Every single thing in the technology space seems like magic to people who don't understand how it works...
https://media.giphy.com/media/W5eNbniUYKoyk/giphy.gif
// Edit - You changed your comment MTP
Go back and read what I said. I asked you a question. In Ezy terms, what would be a bear market for BTC?
https://moneyweek.com/investments/alternative-finance/bitcoin-crypto/60…
You might be right - but looking at twitter last night while bitcoin was crashing, there are a lot of fanatics out there who are doing the promoting of it.
I'm sure you're not a fanatic right despite posts like the above?
What happens if you're wrong and its simply a fad/craze?
Aren't you better off to just own bitcoin and be quiet....not justification required/necessary if all bitcoin holders are so certain that it is to be the new global currency?
The comments section is usually to foster debate. If people make ill-informed comments, there are counter arguments. Nothing fanatical about it. There seems to be a lot of closed-minded people who don’t understand the tech enough and ridicule others opinions. If you don’t believe in the tech or the possibilities, fair enough. But we all enjoy the internet, email, and other forms of dematerialised tech because smarter people have ignored the naysayers and changed the world.
A bit like the housing market in NZ. The obsession people have is nauseating. Seems to be all that fills the comments section on this site. Typical tall poppy syndrome that we have to ridicule people who try to do things different to the currently failing s**tpile that is being left for future generations. It’s a shame that some are so myopic and whinge and moan all day, but offer no alternatives.
You focus only on the conversion of energy. What about lost productive capacity, equipment, health and safety, the wild swings resulting in enormous losses, the potential for fraud? Fiat currency is flawed, but is the most secure, flexible and liquid way of storing value and providing a means of exchange. I often think that investment in crypto is like backing Wishful Thinking, a 100-1 shot at the Feb 30th Lakaland meeting. Or going for the trifecta with Ponzi Pete and Dodgy Dealer.
"Internationally, the IEA says the global oil industry must stop new oil and gas projects if it is to reach net zero by 2050. It seems unlikely China will sign up to that."
The joke is that new projects are so far down the EROEI chain that they'll have difficulty obtaining development 'finance' at levels society can afford. In essence, we can't afford our way of life anymore. Debt and zero interest on it, extended and pretended; we got another decade out of it. But it had to falter. The Elite know it, muttered about a Great Reset, but their 'wealth' is embedded in the current system. So they won't.
Whether we sign up to cuts or whether the low energy-return cuts us first, we are looking at doing less. Much, much less. When I see a sentence like: It seems unlikely China will sign up to that" I assume the issuer is giving themselves a cranial 'out' (they won't, so there's no point in me'.......)
Interesting to watch Crypto's; they are no 'store of wealth', any more than fiat. Panicked lemmings are interesting to watch from afar. Real stocks of real stuff are the only hedge in the long term.
The disconnections are fascinating though. Along side this call to stop oil exploration, there is still NO discussion on population limits. It's like there is some unspoken belief in some miracle that will allow us to continue as we have, just using something else in the place of oil??! The limits that are evident, I suggest are on almost everything, not just oil, but so far the discussion is just about oil.
And
A fresh design for a compact nuclear power station being developed by hundreds of Rolls-Royce engineers in Derby has been revealed.
Nuclear power experts in the city have also helped increase the power of the small modular reactors (SMR), working as part of a large consortium led by Rolls-Royce.
https://www.derbytelegraph.co.uk/news/derby-news/new-rolls-royce-mini-n…
Lets see if Shaw & Co are pro, or anti science.
Sure for ease of transport build it then at Tarras on pristine natural landscape alongside the new wide bodied jet airport which, despite the pious and profound declaration of a climate emergency, the government has sanctioned and the Greens are strangely silent about.
perhaps (i don't know). However the debate has begun -
As Brand puts it in a new documentary, Pandora’s Promise, which explores the conversion of antinuclear activists to the pronuclear side: “The question is often asked, ‘Can you be an environmentalist and be pronuclear?’ I would turn that around and say, ‘In light of climate change, can you be an environmentalist and not be pronuclear?’ ”
Bit of a joke really. The simple answer is, you aren't actually an environmentalist if you are pro nuclear. A techno utopian industrialist who has zero vision of the actual predicament humanity faces, maybe? Environmentalist? No. Less is the answer, not more clever gadgets designed to help consume the planet.
It’s hard to look past nuclear. Wind and solar just won’t cut it, no matter how desperate we are for them to succeed.
Electrifying everything, cars, planes, trains, boats, haulage trucks, lawn mowers, and so will be a logistical nightmare, with job losses, a disproportionate burden on lower income people, sever curbs on travel, and more than likely a huge transfer of wealth to countries burning coal to make EVs.
Time for a reality check. I suspect renewable diesel will be a good option for private vehicles in the medium term while electrification/hydrogen power is phased in.
The Aussie government's automotive R&D scheme seems to be paying off. An easy-to-install piece of tech known as HYDI injects hydrogen as a hybrid fueling mechanism in diesel-powered motors.
https://www.stuff.co.nz/dominion-post/wellington/125009780/wellington-b…
The independent testing on a generator showed the unit reduced diesel consumption in the range of 5–13 per cent, lowered diesel particulate matter emissions by 25–80 per cent and removed 7–25 per cent of carbon monoxide
"It’s worth noting, however, that the range of estimates for nuclear’s EROI is very large indeed, ranging from an estimated 40 to 60 – from the World Nuclear Association – to less than one. Inman tells us he used a paper that reviewed many studies, which puts nuclear’s EROI at five."
https://www.carbonbrief.org/energy-return-on-investment-which-fuels-win
Take in the clean up and the EROI starts to look very negative.
A married worker with two children paid just 5 per cent of their income in tax in New Zealand in 2020, compared to an OECD average of 24.4 per cent. That is a reflection of support such as Working for Families.
https://i.stuff.co.nz/business/300307246/heres-how-new-zealands-income-…
Seems like vast swaths of the middle class will have to stop having children, given they are so dependent on the support of others.
Wall Street is arriving into Bitcoin with a show of force. 500k still on the cards according to Cathie Wood.
https://finance.yahoo.com/news/ark-investment-cathie-wood-says-16540485…
People seem to think Bitcoin is immune to the position-taking that plagues some small-cap Alts. It's not. Wall Street's muscle can easily flex enough to play silly buggers with prices for BTC, and paper hands will follow it. It's all the same game but just on a much larger scale.
"During the interview, Wood briefly addressed Tesla CEO Elon Musk’s environmental concerns on bitcoin mining, explaining that the adoption of solar energy in mining will accelerate dramatically."
Solar tech in mining
classic stuff
Wall street loves a casino
and Bitcoin is a casino
Hopefully the crypto fan boys will be more circumspect going forward. The silly laser eyes meme and juvenile language like 'have fun staying poor' seen across the internet (Twitter primarily) should be gone. Also, the almost religious-like soapboxing has to go. People are simply ape-ing their crypto gurus and not keeping an open mind.
Hear hear. The evangelical zeal too often means that any logical discussion is impossible
Yes. As someone who is pro-crypto, that evangelical zeal bothers me too. Some of it is almost like Scientology, and some of what people are saying sounds like it's parroting some of the messianic figures of the space.
And too be honest, people who are masquerading as crypto experts, but using EasyCrypto as their primary platform, you're kidding yourself.
Usually you have a few wobbles on the way to peak valuation in, that said there is so much money looking for a carpark out there anything seems possible:
https://www.researchgate.net/figure/Main-Stages-in-a-Bubble-Rodrigue-nd…
Hope you're not trying to wind me up. That graph is annoying. Seen it before. This comment seen today far better sums up the reality:
Crypto markets are an A/B test on what happens when you're able to let the markets clear on their own. All the leverage is cleared in one day and a healthier ecosystem is created. The counterfactual to 2008 & 2021 government intervention.
The Austrian business cycle explains it quite well.
"According to the theory, the boom-bust cycle of malinvestment is generated by excessive and unsustainable credit expansion to businesses and individual borrowers by the banks.[5] This credit creation makes it appear as if the supply of "saved funds" ready for investment has increased, for the effect is the same: the supply of funds for investment purposes increases, and the interest rate is lowered.[6] Borrowers, in short, are misled by the bank inflation into believing that the supply of saved funds (the pool of "deferred" funds ready to be invested) is greater than it really is. When the pool of "saved funds" increases, entrepreneurs invest in "longer process of production," i.e., the capital structure is lengthened, especially in the "higher orders", most remote from the consumer. Borrowers take their newly acquired funds and bid up the prices of capital and other producers' goods, which, in the theory, stimulates a shift of investment from consumer goods to capital goods industries. Austrians further contend that such a shift is unsustainable and must reverse itself in due course. Proponents of the theory conclude that the longer the unsustainable shift in capital goods industries continues, the more violent and disruptive the necessary re-adjustment process.""
The proportion of consumption to saving or investment is determined by people's time preferences, which is the degree to which they prefer present to future satisfactions. In a stable money environment[8] the interest rate is the price signal reflecting the balance of consumption and saving. If the goods and services presently on offer encourage people to spend, interest rates will be higher, reflecting people's short-term time preferences. If the goods and services presently on offer do not encourage people to spend, interest rates will be lower, reflecting people's desire to save their money (and spend their money on goods and services in the future). Thus, interest rates in a stable money environment[9] are determined by the time preferences of depositors""
Duncan Garner is correct and it indicates that though data suggests price rose by 25% to 35% but is actually 50% and more and importantly everyone is aware of the rise except when trying to void taking action on ponzi will quote 25% to suit their narrative even though 25% is high in less than a year.
https://www.newshub.co.nz/home/politics/2021/05/duncan-garner-budget-20…
Evidence less, claptrap.
Sure, life's been challenging, but you're still winning - because this Government has overall spent an eye-watering $62 billion on COVID-19. That's kept us alive and in pole position to have a strong post-COVID recovery.
This government recently raised $62.685bn by issuing net new debt, but ~ $40.00bn lays idle on the RBNZ Crown settlement account - most recent data. Furthermore, $11.309bn financed the redemption of old high coupon debt on 15 May 2021.
The US Fed released the minutes of its last meeting, and these revealed that some FOMC committee members started to talk about tapering their bond purchases. They are looking for the 'right moment'. They also see very strong corporate bond issuance activity.
It seem as though Japnese banks have already tapered their eurodollar redistribution because of implied China risks.
The Chinese Money Behind Global Inflation Baseball
TIC Reflation Rolling (Over?)
The Chinese are turning on Tesla. More and more negative press over there. The love affair is over - they have probably got what they wanted.
"....a car accident in China that local police said caused the death of a police officer and injured another.."
A video circulated on China's Twitter-like Weibo and in local state media showed a Tesla Model X next to two police officers lying on the ground after an accident.
https://www.reuters.com/technology/tesla-cooperating-with-chinese-autho…
What do people think of DFINITY
I'm buying the dip
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