Here's our summary of key economic events overnight that affect New Zealand with news the new Biden Budget charts a sharply different path for the US.
But first in the US, household personal income fell by less than expected in April as pandemic support started to be withdrawn from households. Personal spending was unaffected by that pullback, rising the expected +0.5% as their jobs market picked up strongly and covered the transition.
However most economic interest in this data was on the PCE number for April, the inflation measure the Fed is reportedly more focused on for policy reasons than the CPI. It was up +3.6%. That was lower than the March level which was revised up to +4.7% (The April CPI was +4.2%.)
In the industrial heartland of America, the latest Chicago PMI paints a buoyant picture, reaching its highest level since November 1973. Demand provided a boost to business activity, but supply chain constraints remain. Among the main five indicators, New Orders and Order Backlogs saw the largest gains. Prices seemed less of an issue overall, and the Jobs indications weren't strong.
The latest American consumer sentiment survey keeps the level unchanged from their mid-month reading, but down from April. And the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Overall sentiment is much improved since January, but is still not back to pre-pandemic levels.
The new US Administration has launched its Budget with projections of spending and deficits out to 2035. The numbers are very large. It's been called a spending surge, but actually in 2020 and 2021 US Government spending ran at 32% of GDP whereas this budget takes it back to about 24%. What will be rising are taxes, from 16% of GDP to just under 20%. Both are still low by international standards. (New Zealand runs at 33%, and we are mid-pack.)
There is already partisan pushback. Maybe because it includes a massive +US$13 bln extra for the IRS for increased oversight of high income and corporate tax returns to ensure compliance; provide new and improved online tools.
The US budget deficits are expected to run at about -US$1.4 tln per year over that period and that is about -5.6% of US GDP, falling to under -4.6% by 2027. (See page 37.) (For 2022 the deficit is -US$1.8 tln.) For perspective, the New Zealand budget deficits are expected to run at -4.5% of GDP this year and -5.2% next year. Both governments are weighing against the damage the pandemic has done, and the US is also weighing against the damage done by the previous administration. Both will take years to rectify.
The US dollar is falling against a resurgent Chinese yuan, dipping to 6.37 to the US dollar now and back to levels last seen three years ago. The appreciation of the yuan will suppress their trade surpluses but it will also suppress inflationary impulses building quickly in the Chinese economy. To combat the natural instinct to import more, Beijing may have to adjust its opaque border and customs policies if the rush gets too unseemly, but that will be done secretly given its public commitment to its trade and tariff agreements, including the one with New Zealand.
Exporters in Guangdong province are facing a new threat. Not only is a rising yuan trouble for them, rising material costs are too, as are shipping costs, and now they face electricity rationing. Demand exceeds supply and that may mean more coal-fired production.
And so far, we are not seeing the price of key industrial commodities like iron ore or coal falling in price after last weekend's warnings from Beijing. However, shipping costs are easing, even if only slightly.
Flooding in the Yangtze River basin is an annual threat, but like last year, this year is also shaping up to be especially damaging.
In the EU, a strong improvement in business sentiment has been recorded in May and there are now many more optimists than pessimists in their commercial sector - unlike their consumers who are still net negative about their economy and economic prospects. However, that net negativity is evaporating fast in the EU.
In Australia, the Victorian pandemic lockdown is featuring a fast growing list of exposure sites. And it is happening at the same time the Canberra government is being accused of complacency.
On Wall Street, the S&P500 up +0.3% today in afternoon trade. That means it added almost +US$½ tln in value over the past week with a +1.4% gain. However most of that just makes back losses during the rest of May and it is heading for a tiny May gain of +0.7% of +US$¼ tln in capitalisation. Overnight, European markets rose about +0.8% with the exception of London which was unchanged. Yesterday the very large Tokyo market had a very strong day, rising +2.1% on the day and ending the week with a +2.9% gain. Hong Kong however closed flat on the day to book a weekly gain of +2.3%. Shanghai ended its Friday session down -0.3% for a weekly to lock in a weekly gain of +3.3%. The ASX200 ended at a record high, adding +1.2% in the Friday session to lock in a +2.1% weekly rise. But the NZX50 Capital Index couldn't match any of that. It fell -0.5% yesterday, adding to a weekly loss that ended down at -2.3%. So far in 2021 the NZX50 Capital Index has lost -11% overall.
The latest global compilation of COVID-19 data is here. The global tally is still rising, now 168,130,000 people have been infected at some point, up +577,000 in one day. India is on track to pass the US, as the country that has had the most infections, by the end of June. Global deaths reported now exceed 3,514,000 and up +12,000 in a day. Vaccinations in the world are still rising but at a slower pace, now up to 1.81 bln. In the US half of their population (50.5%) have had at least one dose. More than 40% of Americans have been fully vaccinated (134.4 mln people). The number of active cases there has fallen to 5,692,000 with fewer new infections than recoveries recently and steady if slow progress.
The UST 10yr yield starts today -3 bps lower at 1.58%. The US 2-10 rate curve is at +144 bps and a bit flatter that this time yesterday. Their 1-5 curve is at +75 bps and flatter, while their 3m-10 year curve is at +158 bps and also flatter. The Australian Govt ten year benchmark rate is up +2 bps at 1.63%. The China Govt ten year bond is also up +2 bps at 3.11%. However, the New Zealand Govt ten year is down -2 bps at 1.88%.
The price of gold starts today up at US$1902/oz, a gain of +US$5 since this time yesterday. Over the past week, the gold price has risen +US$24 or +1.3%.
Oil prices start today little-changed at just under US$66.50/bbl in the US, while the international Brent price is just over US$68.50/bbl.
The Kiwi dollar opens today lower against a sinking greenback, now at 72.5 USc and almost a -½c retreat. Against the Australian dollar we are down at 94.1 AUc. Against the euro we are down at 59.4 euro cents. That means our TWI-5 starts today at 74.1, still well above week-ago levels but by much less than yesterday.
The bitcoin price is now at US$35,301 and a sharp -9.9% drop from this time yesterday. Volatility in the past 24 hours has still been extreme again at +/- 5.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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The UST 10yr yield starts today -3 bps lower at 1.58%.
The month-over month reading for personal consumption expenditure. (PCE) inflation in April rose to 0.6% while the core reading (excluding food and energy) rose to 0.7%.
The numbers were approximately in line with economists’ median expectation of 0.6% for both readings.
Year-over-year numbers jumped sharply due to the impact of rolling off April 2020’s sharp deflationary decline, with core PCE inflation now at 3.1%–its first foray above 3% since 1992.
The Fed Is the Perpetual Janitor, Cleaning Up After Itself
Inflation’s dead since 2007 with the Fed no more than an ineffective janitor coming in only after collateral, the real monetary element, makes such a global mess and keeps dealers harried and on edge forever after for how many times this happens, in big and small ways.
Casino Economics:
Geroge Soros called this #reflexivity when you create economic reality out of stock market hype/crash. #AMC’s bonds due 2026, which were trading at a low of 5 cents in Nov, were up a cent to nearly 99 cents on the dollar Friday after the latest rally in AMC stocks. Link
The comeback of a Meme stock: AMC defies gravity as retail investors propel gains to 1,150%. Rally pushed company’s market value to a record $13bn. Stock has nearly tripled from quarterly earnings on May 6. (via BBG) Link
I've got 'The Road to Ruin' (Rickards) and 'Crashed' (Tooze) on my bookshelf.
Along with 'When the money runs out' (King).
But the best ones are 'Collision Course' (Higgs) and 'Blip' (Clugston). Those tell you that those who 'understand markets'............ don't.
pdk,
I have some question marks over Rickards. I have his book Aftermath(2019) and in it, he very clearly supports Trump's trade policies. He quotes the US steel industry as an example, but the figures I have seen suggest that there was no net gain in employment levels over this period and the US/China trade figures continue to make dismal reading-from a US standpoint.
He also proposes a theory that China and Russia are developing a gold-backed cryptocurrency to unseat the US$. Is that credible? However, in other areas, I think he makes valid arguments.
In regards to he China and their gold back crypto, yes China has some of the worlds largest gold stockpiles and yes they might be looking at launching a gold backed cryptocurrency.
But that does not solve any of the problems related to having to trust a third party. This is why the gold standard failed in the first place, you have to trust a central depository to assay and store the gold safely, but also to not over issue the claims on that gold, aka rehypothecate it.
When the USA abused their power as the holders of the gold and issued more notes/claims to the gold than there was gold, they just pulled the plug and broke the gold peg.
Now would you really trust China of all countries to hold this responsibility, I mean hows this for a start https://news.bitcoin.com/83-tons-fake-gold-bars-china-scandal/
Just because it is a "cryptocurrency" this does not change the underlying dilemma, it is just another layer on top of the gold base layer.
That is why Bitcoin is trustless, the whole ethos is "Don't trust, verify". I can verify every single transaction in its entire history to confirm that there have been no double spends or other nefarious activities on the network by running a node. You control your own keys so you do not have any third party exposure, and you know that you are the only one with a claim to that Bitcoin. It is the purest collateral in the world.
Interesting to see this inflation v.s. disinflation debate with every man and their dog chiming in but most only looking a year or two ahead. We live at an interesting time when globalisation and technology have reduced inflation for decades. However I would remind people that some aspects of our wealth in Western countries are built on very temporary or limited resources that advances in technology likely won't ease much. One of the most pressing is fresh water, from the Central Valley of California to the Ogalalla Aquifer and drying Colorado River the most productive US farmland is living on borrowed time. We enjoy an abundance of low cost food that will not persist forever.
And that is where NZ has a competitive advantage. We have a basically endless amount of fresh water, we just dont store or manage it very well, or at all.
Imagine if we went on a massive damming project and dammed a bunch of river valleys up and down the country. benefits include:
- Sustainable base river flow levels
- power generation
- water availability for irrigation, urban water supplies, export by tanker (with a fee of course)
- recharge reservois that have been depleted due to over use or sustained periods of drought (eg Hawkes bay)
- water security for year round primary production from agriculture, viticulture, horticulture etc to feed the world
- job creation
and the list goes on
But what do we have instead, a small minority bitching about some bush of questionable quality (such as the ruataniwha dam) of which they were going to give the crown twice as much conservation land of much better quality.
https://www.rnz.co.nz/news/national/334558/conservation-land-can-t-be-d…
or it would have "significant impacts on the natural character of the area, the intrinsic value of the area and people's enjoyment of it." https://www.stuff.co.nz/national/115349596/mt-cook-of-rivers-will-not-b…
how god damn short sited and idiotic are these people?? We have plenty of rivers and river valleys to enjoy, and we cant have human development without using some natural resources.
How are we going to get anywhere with this sort of logic lacking reasoning form the people in charge!?!?
Huge plunge in the number of people who say it's a good time to buy a house. Interestingly, the ASB opinion survey has also showed the proportion of people who think the same reaching its higher ever in the history of the tracking.
https://www.bloomberg.com/news/articles/2021-05-28/the-number-of-people…
"and the US is also weighing against the damage done by the previous administration."
Come on, David. The US hegemony had peaked, and it's the last one that can get that big, within the Bounded System known as planet Earth. Trump was a symptom, not a cause. And Biden won't do anything materially different; he'll increase debt, which means he'll increase physical-resource theft from future US citizens.
Although, citizen might not be an apt description, given the social constructs we'll see by, say. 2050.
Insurmountable.
It would take s---loads of fossil energy to go where they want to go. And they're carrying more infrastructure than has ever been carried; never older. They won't make it, and the effort will see their magical 1.5 degree target firmly in the rearview mirror. I guess you have no choice when stuck between rising expectations and lowering opportunities.
Yes, expect a lot more of the same;
https://www.nytimes.com/2021/05/13/us/mississippi-bridge-crack-memphis…
In the statement, the president said the document is “a budget for what our economy can be, who our economy can serve, and how we can build it back better by putting the needs, goals, ingenuity, and strength of the American people front and center.”
We suspect the fact that they released this late on Friday before the long Memorial Day break says lots about the various aspects of the bill and the hope it can all be buried beneath the veneer of big spending government here to save us all Link
Govts do not really borrow, they create new money when they spend it, and destroy it when they tax it back. The difference is 'the deficit' - or the non-Govt surplus. Biden's team are starting to understand this and they are dropping artificial fiscal contraints (like debt targets) and focusing on more of the things that actually matter - e.g. *real* full employment. If our Govt wasn't trapped in neoliberalism they would be doing the same - rather than planning to choke the economy and prevent full employment by aiming for a completely irrelevant 'balanced budget' in a few years time.
Of course, what Govt spends money on is important. However, I would argue that an investment in human capital (training, education, public health, community assets etc) can return just as much real value as typical 'infrastructure investments' like sewerage, housing, green industries etc.
Standard spin comment - as per Jim Mora about Al Gore.
Try something original?
Yes, she and her echelon are barking up the wrong tree. But it's the same tree HT is perched in the branches of. Carr has given no indication he grasps the predicament - although there is a hint here and there if you know what you're looking for in the otherwise-patter.
Here is a 3 point plan
1. The Ministry of Health abandoned an effort to secure all district health board computer systems citing budget constraints.
2. The Government also has not followed through on its Cyber Security Strategy 2019 which promised annual reports around cybersecurity breaches.
3. “They [Waikato DHB] said they hadn’t backed up in the past year, across the whole domain.”
https://i.stuff.co.nz/business/125180968/ministry-of-health-abandoned-c…
The stuff articles comments offer further context.
Question. Is this all because of bad ideas or bad characters, or both.
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