Here's our summary of key economic events overnight that affect New Zealand with news central banks may be maintaining crisis stimulus and a view that this recovery is fragile, but the world's largest economies are experience a V-shaped boom the likes of which we haven't seen in two generations.
The latest May updates of American factory PMI's shows them expanding faster, in fact to a series high. And their service sector is expanding faster than that. Both are in full recovery mode. With all key categories rising (new orders, employment, etc.) the main interest in these surveys is on the price pressures. This survey noted: "The steep rise in costs fed through to the sharpest increase in output charges since data collection began in October 2009, with record rates of inflation registered for both goods and services as soaring demand boosted firms’ pricing power." The inflation genie may be out of the bottle.
But some Fed officials are now warning that a softer period may be ahead - especially for employment.
Consumers may be flush and buying, and factories roaring - but there was a surprise in their residential real estate market. April sales volumes were expected to rise +2%, but the data shows they actually fell -2.7%. April was supposed to bounce back from the -3.7% retreat in March but it compounded the earlier month fall. That is six straight months of declining sales since October 2020. It is as though Americans are shunning their housing market as mortgage rates start to rise - even though those rises are quite minor. "Supply" has been the excuse for a while now and that may be the case. Median prices are +19% higher than a year ago. Further, mega corporate landlords are snapping up many homes before the public can see them.
Canadian retail sales in March were stronger, up at an annual rate of +3.6% when a +2.3% rise was expected. (The year-on-year gains is pandemic-affected of course.) From March 2019 they are up +8.6%.
In China, their tax take surged sharply in 2021, basically split between Beijing and local governments. Income taxes are up an impressive +27%, and their GST is up +24% year-on-year. This is clear evidence the Chinese economy is on a good upswing.
In Japan, there is also some evidence that consumers are feeling more bullish that they have for a long time.
In Europe, we may be seeing a revival in their overall economy too. The May flash PMIs shows demand surging at its fastest rate for 15 years. Both manufacturing and services are benefiting, with strong rises for new orders, and employment growth seems to be following. They also recorded their sharpest rise in output price inflation on record. The German rise is at the core of these gains, although other countries are now showing faster expansions. The UK and France are also expanding faster.
All this positivity among business prospects is improving consumer sentiment - but they haven't yet got to the stage where optimists outnumber pessimists. A net scepticism still pervades Europe's consumers.
Globally, iron ore and copper prices look like they have topped out. And shipping prices are showing the same. After hitting an index level of 3200 and its highest in more than ten years, it has settled back to over 2800.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 165,694,000 people have been infected at some point, up +644,000 in one day, or +3.3 mln over the past week and still largely driven by rises in India and Brazil. And an outbreak of black fungus is piling on the misery in India. Global deaths reported now exceed 3,434,000 and up +14,000 in one day and +85,000 in a week. Vaccinations in the world are still rising but at a slower pace, now up to 1.59 bln with only +180 mln doses given in the past week. In the US almost half of their population (48.8%) 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 (128.4mln people). The number of active cases there has fallen to 5,874,000 with fewer new infections than recoveries recently and steady progress.
Wall Street is little-changed, with the S&P is up +0.1% in afternoon trade. For the week it is an insignificant -0.3% lower. Overnight, European markets all rose about +0.5% - except London which booked a small loss. Yesterday, Tokyo ended its session up +0.8% on the day giving it a similar weekly gain. Hong Kong was flat yesterday. Shanghai closed down -0.6% and ending the week where it started. The ASX200 ended a mere +0.2% higher and the same net gain for the week. The NZX50 Capital Index which also ended up +0.2% on the day with the weekly rise was +0.7%.
The UST 10yr yield starts today unchanged at 1.63% from this time yesterday and unchanged in a week. The US 2-10 rate curve is at +147 bps and a little flatter. Their 1-5 curve is unchanged at +78 bps, while their 3m-10 year curve is also unchanged at +163 bps. The UST 30day bill is back down to yielding 0%. The Australian Govt ten year benchmark rate is down -1 bp at 1.68%. The China Govt ten year bond is down -4 bps at 3.09% and building an unusual flattening trend. And the New Zealand Govt ten year is also down -4 bps at 1.84% making it a -7 bps fall in a week.
The price of gold starts today up +US$6 from this time yesterday at US$1880/oz. This is a rise of +US$38 in a week.
Oil prices start today recovering all of yesterday's US$1.50 fall and now just over US$63.50/bbl in the US, while the international Brent price is just on US$66.50/bbl. But this is a fall of -US$2 over the week.
The Kiwi dollar opens today at 71.7 USc and lower since this time yesterday. Against the Australian dollar we are marginally firmer at 92.7 AUc. Against the euro we are unchanged at 58.9 euro cents. That means our TWI-5 starts today still at 73.2 and that is -84 bps lower than at this time last week, a -1.1% devaluation.
The bitcoin price is now at US$35,686 and -10.3% down from this time yesterday. Volatility in the past 24 hours has still been extreme however at +/- 10.8%. Over the past week, bitcoin has slumped -26% or -US$14,372. Janet Yellen's US Treasury Department announced that it is taking steps to crack down on crypto currency markets and transactions, and said it will require any transfer worth US$10,000 or more to be reported to the US IRS. This will probably cause further flight of international crypto holders from US crypto exchanges. 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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64 Comments
So, if bank reserves don’t actually sit as the lodestar of the monetary system, effective money in it being something more and so far unknown, what else is open for (renewed) questioning? Pretty much everything that follows, from finance into economy which only begin with interest rates and inflation.
No wonder policymakers have been so reluctant to acknowledge the mountain of evidence – including much gathered on their part – against QE and its misunderstood byproduct of bank reserves. Once you pry off the lid of this particular rabbit hole, sticking your head only partway inside, you quickly surmise an incomprehensible depth inside. Link
Further reading: Inflation Huge: Jay Powell Did Blink, But It Had *Nothing* To Do With ‘Taper’
If ample central bank reserves are adequate to stimulate an economy why are pristine collateral securities such as US TBills and US Treasury coupon securities in high demand?
Dealers exchange cash earning 0.0% at the Fed reverse repo window for $369.046bn US government securities
US Tbill rates at the zero lower boundary.
Repo rates trade below the negative boundary because of outsize demand for safe liquid collateral.
Large US banks hoarding US government guaranteed securities
Some of the more interesting TIC data (by accident) captures the most pertinent shadow money stuff - approximate proxies for all the (deflationary) activities you don't otherwise see.
Like why US banks are *borrowing* so many Tbills from foreign nonbanks
https://alhambrapartners.com/2021/05/18/tic
Link
If the emergency is over or immediate crisis is over, what is the exit strategy of reserve bank to bring back normalcy.
Do they even have one.
Whenever they start thinking ( not act) - just give a indication that are thinking, market will react wether it is now or after two years or five. They have dugged themselves in a hole that will be near impossible to come out.
The only option central banks have if inflation continues to grow is to raise interest rates. But they won’t do that as it will cause a recession at the same time as the interest costs on all the debt they own and treasury has to pay rises, while needing even more stimulus to stop increasing bankruptcies and debt defaults in the private sector.
IO you sum up well what I fear greatly for NZ and its people. I am no economic expert but I know my history and proven consequences. NZ has been rushed into a blind canyon by blind reasoning in denial of the undermining of its society by the extreme escalation in the cost of being able to house itself. First basic principle & necessity of humanity has been being able to find shelter, not so now in this nation, not anymore.
If you care to look, the crash is occurring in the natural would.
As the human economy grows it effectively replaces nature with roads, suburbs and factories.
Any wobble in this process is met with lower interest rates and faster money creation in accordance with the high priests (economists) wishes and their belief in infinite growth on a finite planet.
Interesting week for crypto. The argument that it could one day be a functional currency is being undermined by wild value swings, imagine trying to price something or write a contract using a "currency" that fluctuates so rapidly in value.
Edit to add: It's clear that cryptocurrency needs some form of automatic value stabilisation to be of utility to most of society and greener in production. I see the current generation of cryptocurrencies as an interesting experiment, we've learned a lot, but it's time to think about the next generation of currencies.
Don’t be distracted by short term price fluctuations of the asset. If you really want to understand the bigger picture of what is happening behind the scenes, Ross Stevens of NYDIG paints the macro view driving institutional adoption that most people don’t see.
If you have the time IO, I’d recommend giving it a watch. Since we were talking about this stuff yesterday. NYDIG handles over 20bil of bitcoin only digital asset management for large institutional investors, so he knows who is on the order books in the months/years ahead. Also interesting insight as to who has been sniffing around (hint: 3 big central banks). Also note, John Dalby recently left his role as CFO at Dalio’s Bridgewater to join NYDIG, so definitely a company to watch.
What is this, kindy? I ain’t spoon feeding you.
Do I get a discount on the sign-up page if I watch the full video? If you're going to go ultra-orthodox on Bitcoin, you need to expect public reaction. And this is a public space. No different to reactions if you were inviting people for free personality tests on Queen St.
https://www.oneroof.co.nz/news/from-burning-hot-to-ice-cold-in-just-12-…
"The Government predicts the housing market will stall in the next 12 months, but economists and real estate experts are not too sure."
When not sure and if intend to control the ponzi....Why Wait and Watch policy Mr Orr.
Last week had seen a news that Mr Orr is sick....on sick leave but are you actually a Sick men. !!!!
Has the shortage changed in last one year for house price to jump as much as 50%.
Was their a shortage when people were fighting over toilet paper.
Supply is important but economy is not just spply but supply and demand. Supply will always be an issue even after ten years though one must try to increase but at the same time all efforts should be made to control demand specially speculative demand.
Check tradme and will find number of houses listed have been bought in last few months - flipping.
A friend was just mentioning that a meth positive house, sold in January has again come to to the market with touch up and after been treated but still is containmeted though legally can sell as tolerance threshold has been increased ten times by politicans to suit their purpose but still..... is containmeted though reading is low.
What would you call the vendor - speculator or investor.
Is it not trying to exploit FOMO. RE agent will convince some FHB with certificate and FHB will end up paying a premium for high risk house.
RBNZ should act.
Not just anecdotes, the data shows it's hardly ever being paid, and enforcement is somewhere between feeble and nonexistent. Pretty pathetic really.
Place near us just went for $2.5m. Previously sold 2 years ago for $1.7. Nothing done in the meantime. Pretty mad...
Not very hard to go after provided have the will.
Like buyer who have to sign a declaration when buying a house, why can't have a form asking vendor to declare if they own any house either individually or in joint name or as a director in a company and most important in a trust and IF YES details.
Any second house should be treated as investment and no one should be allowed to manipulate and get away by saying than selling owner occupied house and not the investment house or selling owner occupied house and will be moving to invested house or any loop hole should be removed.
Should be simple, have two or more houses and selling one, while retaining other should be treated as investment transaction.
Its funny if you follow the crypto traders forums, they're now asking (because the price is crashing) if crypto losses are tax deductable against personal/business income.
I'm guessing that if they've made profits, they've been declaring those the last few years! Perhaps not.
Likewise - I've meet a few tradies etc saying I've made $5k this year on crypto...sold recently to lock in gain. I just say watch out that the IRD might be keeping an eye on you sarcastically...
Clearly when there is no income generated, crypto is capital speculation so capital gains tax applies. Or if you're a trader, then you know that already that trading is your income and therefore taxable income.
Shows your lack of crypto understanding or stocks for that matter. You only have to pay tax if you’ve realised capital gains on your portfolio. If you haven’t cashed back into fiat there’s no tax to pay on profit. Same with houses. If you don’t sell, you don’t make a profit therefore no capital gains tax to pay
All it actually takes to understand the situation is reading the IRDs site: https://www.ird.govt.nz/cryptoassets/individual/buying-selling
There is little room for interpretation, leaving an inconvenient truth.
I thought it was only crypto owners that knew which way assets are heading and which (exact asset) to buy? I’m not arrogant enough to answer that question and would be a fool to do so. I can tell you that share prices have only been this expensive a few times in history before and that has been prior to historical crashes.
Be careful being so certain of things, you might want to look into the financial arrangements tax rules. Which cover taxation of unrealised gains in foreign currency holdings. Is crypto a foreign currency, I don't know but it's certainly not a NZ one.
Also re shares, most definitely unrealised gains can be taxable depending on circumstances. If not, the IRD owes me several tens of thousands, and my accountant will be getting a call.
The IRD treats crypto like they do gold, unless it generates an income and income was the purpose when it was bought, but most don't generate income, so it's hard to escape the tax.
Yes sometimes you have to pay tax on unrealised gains because of the very annoying foreign investment rules. Some people like to make up convenient tax law in their head without bothering to read the guidelines given by the IRD.
Lucky we are pulling our weight on our rounding error CO2 virtue signals.
"The post-pandemic surge means China’s emissions reached a new record high of nearly 12bn tonnes (GtCO2) in the year ending March 2021. This is some 600m tonnes (5%) above the total for 2019."
https://www.carbonbrief.org/wp-content/uploads/2021/05/china-emissions-…
The Biden administration waived sanctions on the company behind Russia's Nord Stream 2 gas pipeline to Germany
...Laid-Off American Pipeline Construction Workers Dress Up As Russians In Hopes Of Getting Job On New Russian Pipeline
How easy is it these days for Babylonbee.com
Well it all depends on the Science.
- as liked by New Zealander of the year 2021.
https://mobile.twitter.com/taramcallister4/status/1395844191394025473
Instead of saying: "Māori have low participation in the sciences"
We should say: "Māori continue to be excluded from the science system because of institutional racism and the continued privileging of western knowledge and white people"
8:49 AM · May 22, 2021·Twitter for iPhone
273 Retweets 11 Quote Tweets 1,707 Likes
- never been to Silicon Valley.
- nor N Ferguson's TED.
https://youtu.be/xpnFeyMGUs8
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