Here's our summary of key economic events overnight that affect New Zealand with news interest rates are on the move up again.
The closely-watched US Fed decision held all settings unchanged but there was change in their forward view. Overall, they now expect two rate increases by the end of 2023, an earlier date than previously indicated. Thirteen of 18 officials favoured at least one rate increase by the end of 2023, versus seven in March. Eleven officials saw at least two hikes by the end of that year. As telling, seven of them saw a move as early as 2022, up from four.
The US dollar rose on the release of these results. The UST 10yr bond yield also rose.
US housing starts stayed high in May and the April data was revised up. Building permits as an indication of the future pipeline, also stayed high. But they now say much more housing will be required "after decades of underinvestment". And that means a huge surge in the demand for timber.
In Canada, their May CPI inflation level came in higher than expected and is now running at 3.6% pa. That is its highest in ten years. Every component (and not just oil) contributed to this rise.
The growth of China's industrial production is still high but is tailing off now and at +8.8% year-on-year it came in lower than expected. Compared with May 2019, the latest data is +6.6% higher (+3.3% average per year) which in the Chinese context is somewhat underwhelming.
The growth of electricity production in China was up to +12.6% from May 2019, or an average gain per year of about +6.3%. That seems to be much faster than industrial production so it is households that are using much more (or perhaps industry is getting quickly less efficient?).
Chinese retail sales posted a good year-on-year gain of +12.3%, and from May 2019 these are up +9.3% and also a slowing in the long run.
China is ramping up its effort to control the rises in international commodity prices that is hurting it. Their National Food and Strategic Reserves Administration said overnight it will release state stockpiles of metals including copper, aluminium and zinc. Prices for these commodities fell in response on international markets. At the same time, Beijing has been advising SOE buyers to "control risks and limit their exposure to overseas commodities".
The iron ore price however hasn't yet adjusted lower.
China is pulling back at an increasing rate in its investment in international coal field development.
Wall Street is slipping today after the Fed announcement with the S&P500 down -0.4% in afternoon trade. (Update: It ended down -0.5%.) Higher interest rates threaten the capitalisation rates of equity prices. Overnight European markets mixed at +/- 0.2%. Yesterday the very large Tokyo market ended its session down -0.5%. The Hong Kong market was down another -0.7% followed by Shanghai which was down a full -1.1%. The ASX200 ended up a minor +0.1% while the NZX50 Capital Index fell -0.9% largely at the end of the day and giving up most of Wednesday's rise.
The UST 10yr yield starts today up +6 bps at 1.56%. (Update: now at 1.58%.) The US 2-10 rate curve is steeper at +136 bps. Their 1-5 curve is also steeper at +79 bps, while their 3m-10 year curve is steeper as well at +152 bps. The Australian Govt ten year benchmark rate starts today at 1.55% and up +5 bps. The China Govt ten year bond is still at 3.15%. And the New Zealand Govt ten year is now at 1.67% and up +2 bps.
The price of gold starts today at US$1839/oz which is down -US$18 from this time yesterday. Update: The price has fallen an additional -US$27 since, and is now at US$1812/oz.
Oil prices are softish at just under US$72/bbl in the US, while the international Brent price is under US$73.50/bbl.
The Kiwi dollar opens today at 70.7 USc and down -¾c since this time yesterday on the US Fed reaction. (Update: now 70.5 USc.) Against the Australian dollar we are softish at 92.7 AUc. Against the euro we are also softish at 58.7 euro cents. That means our TWI-5 starts today at 72.8 and a new two month low.
The bitcoin price is now at US$38,943 and down -3.6% from this time yesterday. (Update: little change.) Volatility in the past 24 hours has been high at +/- 3.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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59 Comments
"As telling, seven of them saw a move as early as 2022, up from four".
That's tea-leaf reading, in extremis. These folk cannot raise interest-rates without curtailing activity. Yet they already haven't been able to stimulate activity at THESE rates; last I checked it was taking $3.50 of debt to 'generate' (I always smile when economics steals a phrase from physics) $1 of GDP. And that even with GDP avoiding a ton of inconvenient counts.
https://www.capitalplanningadvisors.com/wp-content/uploads/2016/06/Capi…
"That’s about $3.50 in new debt for every $1 new dollar of GDP, which is not out of line with what has happened in recent history. In fact, it has taken on average over $3 of new non-financial sector debt to generate an additional $1 of GDP since 2000."
And this suggesting/hinting has been going on for years. It's all they can do. There would seem to be a possibility for a short-term squeeze, which would hurt the poor (foreclose on them) while advantaging the rich - but it couldn't be done for long without total collapse. How about an article on that debt/GDP ratio globally, and trends? And why? This isn't magic or rocket-science; it needs discussed.
http://www.robertcostanza.com/wp-content/uploads/2017/02/2016_J_Ward_De…
"to demonstrate that growth in GDP ultimately cannot bedecoupled from growth in material and energy use. It is therefore misleading to developgrowth-oriented policy around the expectation that decoupling is possible. We also notethat GDP is increasingly seen as a poor proxy for societal wellbeing. GDP growth is there-fore a questionable societal goal. Society can sustainably improve wellbeing, including thewellbeing of its natural assets, but only by discarding GDP growth as the goal in favor ofmore comprehensive measures of societal wellbeing."
"Flick Electric has launched a petition and public campaign calling for the break-up of Meridian, Genesis and Mercury, in the same way Telecom was broken-up in 2011.
Flick is inviting people to “join the revolt to reform New Zealand's broken electricity market” by signing a petition calling for the structural separation of the big power firms into generation and retail businesses."
https://www.stuff.co.nz/business/125444715/national-taking-fresh-look-a…
Can anyone find where Flick are hosting this petition? Nothing obvious at https://www.flickelectric.co.nz/ - although found an interesting read around the CCC reforms:
The cost of clean power: can Kiwis afford it?
https://news.flickelectric.co.nz/2021/04/08/the-cost-of-clean-power-can…
It was very calm on Saturday, last weekend when i went flying up the coast from Whanganui. I thought the wind farm at Waverley (Tilt Resources) looked a little odd until I realised that it was so calm that none of the turbines were turning. Reinforces a point that a number of commenters on this site have made about wind power. Modern molten salt nuclear reactors anyone?
Doesn't happen very often at all Frazz. But this year in this area we have seen unusual weather patterns that are warmer, and more calm periods than I remember from earlier years. Still, our dependence on power is such that can we stand even just the occasional blackouts?
Complementary technologies are the key to resilience. I run micro-hydro and solar (don't get enough wind, often enough). Those two are entirely complementary; no sun means rain (this last week being an example), no rain usually means sun. I'm nearly 20 years off-grid one way and another; all I can say is that you learn to fit with nature, rather than fight it. Sunny day? Do the washing. Rainy day? Don't. My next tweak will be a second nozzle on the pelton-wheel, which can be switched-in during long rain/no sun events.
It reflects the change in attitude we need in the bigger arena; a respect for nature and physics, rather than an arrogance. And it's a ton of fun....
Tilting at windmills. 'These cost estimates significantly exceed the marginal operational costs of renewables and likely reflect costs that renewables impose on the generation system, including those associated with their intermittency, higher transmission costs, and any stranded asset costs assigned to ratepayers. The estimated reduction in carbon emissions is imprecise, but, together with the price results, indicates that the cost per metric ton of CO2 abated exceeds $115 in all specifications and ranges up to $530, making it least several times larger than conventional estimates of the social cost of carbon.'
https://epic.uchicago.edu/wp-content/uploads/2019/07/Do-Renewable-Portf…
profile,
Have a look at the Total Lifecycle Greenhouse Gas Emissions of Electricity Sources(gCO2e/KWh) from the International Energy Agency. It was reproduced by Craigs Investment Partners. Quote; "However, even taking into account the entire lifecycle emissions, solar and especially wind are much, much greener alternatives than fossil fuels".
The quote from the Craig and Co blog post (?!) is addressed in the linked paper - namely "The estimated reduction in carbon emissions is imprecise, but, together with the price results, indicates that the cost per metric ton of CO2 abated exceeds $115 in all specifications and ranges up to $530, making it least several times larger than conventional estimates of the social cost of carbon."
"...omparison of LCOEs misses three key ways in which renewables impose costs onthe electricity generation system that need to be covered and are reflected inretailprices but canbe difficult to observe directly or measure systematically. First, and most obviously, renewables bytheir very nature are intermittent sources of electricity. Solar plants cannot provide power whenthe sun doesn’t shine and wind plants cannot provide it when the wind isn’t blowing. On average,utility scale solar plants have a capacity factor (i.e., average power generated divided by its peakpotential supply over the course of a year) of about 25% and wind plants are not much higher a 34% according to the EIA. This means that a comparison of LCOEs between these intermittentsources and “baseload” technologies that “always” operate (e.g., natural gas combined cycle plantshave capacity factors of 85%) is very misleading with respect to total system costs, because theydo not account for the additional costs necessary to supply electricity when they are not operating.For example, given current cost structures, the installation of renewables are frequently paired withthe construction of natural gas “peaker” plants that can quickly and relatively inexpensively cycleup and down, depending on the the availability of the intermittent resource.Second, renewable power plants require ample physical space, are often geographically dispersed,and are frequently located away from population centers, all of which raises transmission costs abovethose of fossil fuel plants. A literature review of transmission cost estimates for wind power by theLawrence Berkeley National Laboratory (LBNL) finds a median estimate of about $300 per kW,or about 15% of overall wind capital costs (Mills et al., 2009). This is approximately equivalent toadding 1.5 cents per kWh to the levelized cost of generation for wind. More generally, a separateanalysis by the Edison Electric Institute in 2011 found that 65% of a representative sample ofall planned transmission investments in the US over a ten-year period, totaling almost $40 billionfor 11,400 miles of new transmission lines, were primarily directed toward integrating renewablegeneration.4The highly disproportionate share of transmission requirements for renewables relativeto their share of generation highlights the importance of accounting for the associated costs as partof the total cost of renewable energy.Third, RPS driven increases in renewable energy penetration can also raise total energy systemcosts by prematurely displacing existing productive capacity, especially in a period of flat or de-clining electricity consumption. Adding new renewable installations, along with associated flexiblydispatchable capacity, to a mature grid infrastructure may create a glut of installed capacity thatrenders some existing baseload generation unnecessary"
Nymad. The point you missed. Where Murray was describing a quiet day for windmills, and generated a discussion. I just informed folk that while wind varies a lot year on year it was very reliable. Not everybody knows that.
You might sneer, but such bits of info help us work out how to best to do stuff.
KH - I was at a lecture yesterday which asked more questions than it answered.
https://www.otago.ac.nz/news/events/otago829218.html
It started with the premise that GDP would increase to 2050! Apparently an MBIE projection. And this is a University! Garbage in, garbage out, they say. The researcher had done a good job of what she'd been asked to do, but this late in the game https://surplusenergyeconomics.wordpress.com/ one has to wonder.
The discussion concluded that electricity can displace fossil energy (fudgingly identified as 'carbon') but because it is more efficient, only a 50% increase in generation capacity will be needed. While presumably retiring Huntly. And that's with the best dam and wind sites already taken, and a 15-year ship-order lead-time to lay Cook Straight cabling (assuming BAU trust-continuance). I'm skeptical.
The only logical conclusion one could take away, is that we are going to have to change our societal construct ('rights', consumption, timetabling) to fit what we can actually achieve and maintain. My guess is that we will push Onslow through after a Manapouri-like angst, but not much else. Tiwai going will help, the SI in particular. Legislating for passive solar housing (and subisidising refits) is getting urgent. Methinks we'll be overtaken by events.....
Broken ? its not broken. Nothing wrong with Trustpower, got electricity and gas and internet with them and they gave me a free washing machine when I signed on. I flick a switch and the light comes on that's the main thing I'm interested in and that happens to be a reliable supply without any cuts to it.
New weapons to fight on the front lines of our existential threat.
“The Seaborg reactor is small enough to fit in a shipping container, making it remarkably easy to move around even for ground installations. It'll run for around 12 years without refueling. Its fuel cannot be used in nuclear weapons. It's capable of being run on refined, recycled nuclear waste from older reactors – although there will be some regulatory hurdles there, says Schönefeldt. You can draw heat straight from the reactor even more efficiently than drawing electricity, so it'll be useful in ways other than just being a power station.”
https://newatlas.com/energy/seaborg-floating-nuclear-reactor-barge/
"Real Estate Institute data released yesterday showed national house price inflation accelerated to 29.8% in the year ended May from an annual pace of 26.8% in April. Excluding Auckland, prices were up 32.7% in the year ended May."
Wow official house price have shot up by one third in a year in Auckland and still Mr Orr using tricks to play with time :
"Orr said the central bank will be discussing the feasibility of using DTIs with the banking industry over the coming months."
This shows Mr Orr's intend, why months and why not weeks, does it has to take so looooong to discuss and decide.
Just maybe a core issue, demand outpacing supply, has been involuntarily addressed, part of the way, by the pandemic shutting off that incredible peak in immigration in 2019. That then asks the question how fast and at what cost can new construction start catching up? Whatever impact and on what scale, won’t be seen in the near future though. Still would not be surprising if soon , some identity in this government comes out and claims that the reduction in immigration that they have overseen is assisting with the supply of housing for FHBs?
House Price growth and rising by as much as 60% in a year is everyday news .......is reserve bank governor the main culprit as Robertson on his part is ready for DTI and it is For who is playing with time as he is hell bent on supporting the ponzi, obviously he could not be blind to everyday data and news that is pouring for him to still pursue the policy of Wait And Watch
https://www.newshub.co.nz/home/money/2021/06/new-zealand-housing-the-pr…
It is a good article but I struggle with the basic premise "There’s an increase in aggregate wealth only if there’s an increase in expected value-added output and deliverable cash flows. Otherwise, a change in the valuation of a given stream of cash flows merely reflects a change in the expected rate of return." While this is a fact the premise is broken. The valuation of future cash flows is fundamentally affected by the discounting of quantative easing on the base token, cash. I am in no way as learned as Audaxes let alone Dr Hussman but I struggle to see why this is not an important factor.
Little bit of irony there. Parts of the world coke would be a safer drink than the local water, certainly the tap water. Strange too how NZ can give away free clean untreated water, bottled for sale in say China, yet NZrs are required themselves to drink heavily chlorinated water and pay to do so.
Strange too how NZ can give away free clean untreated water
I see no harm in setting up a few bottling plants along the rivers of West Coast.
There could be merit in raking in high royalties in bottling a small portion of the billions of litres heading into the Tasman sea. This could invigorate the declining economy of the region and pay for upgrading 3-waters infrastructure throughout the country. Win-win?
Exactly, damn up some rivers and use that to export water year round.
Make it export by barge only, so that it is more efficient space wise than bottles, and it can be packaged at the destination. can still be sold as NZ water.
Sell it to pay for infrastructure. But of course I can imagine the local iwi kicking up a fuss that they should get a cut of the proceeds, rather than it going to every kiwi https://www.rnz.co.nz/news/te-manu-korihi/429731/ngai-tahu-takes-the-go…
NZ is stupid, we dont invest in future infrastructure or self sufficiency. we have an essentially endless amount of fresh water, but we do nothing to harness it responsibly.
I do, philosophically.
It is doing something biodiversity-wise, right now. One species has irrupted itself unsustainably, on the basis of out-competing and drawing-down. That process has become habitat-altering to the point where our thermostat-tolerances won't cope - to say nothing of other draw-down impacts (fisheries rape-to-extinctions, for instance).
Yet what you're advocating is 'more'. More displacement and, by assuming you will 'buy 'stuff with 'proceeds', more demand for 'stuff'.
This from a species that is 5-7 orders of magnitude overshot already. Just has to be wrong, logically wrong. Funny how deep that flaw in out DNA is wired; it was a survival technique when we were marginal - thus it bred the cranial software to grow/hoard/store - but we have to overcome that instinct to continue. Interesting to watch - maybe we could sell off the damp carpets down on E-deck; they're doing nothing........
philosophically, undoubtedly from your perspective, but realistically if said water is to be exported , whether given away gratis or purchased for that purpose, then it is still outflow and IF that should become a fact, a function legislated accordingly, then from my perspective the former would be downright stupid.
I think this is an excellent example of how the extreme values we have across the whole market cause unexpected consequences. I think we are currently valuing shares on their price momentum and banking on the fintect automation to scale the effect. Unfortunately when that gun is pointed downwards minutes later you are in free-fall.
China is ramping up its effort to control the rises in international commodity prices that is hurting it. Their National Food and Strategic Reserves Administration said overnight it will release state stockpiles of metals including copper, aluminium and zinc. Prices for these commodities fell in response on international markets.
What happens when supply drips out? This has been the looming hammer; in lumber, that has finally meant new supply of new material. In copper, this could take the form of de-hoarding huge built-up inventories that were stockpiled, on low prices, in the immediate wake of last year’s collapse. If prices threaten to go too far in the wrong direction, we’d expect this destocking to pick up and maybe snowball.
While we obviously can’t say for sure which one it is, no one knows in the short run, the fact that it’s now a more probable possibility only raises the stakes for “transitory inflation” (which, again, isn’t inflation). This had always been the baseline case, even as commodities were screaming into the stratosphere, but the probabilities have been further boosted by several recent developments – now including lumber and copper.
For one, as pointed out in yesterday, the huge difference between US inflation and Europe’s (or Japan’s and China’s). Consumer prices throughout the rest of the world are solidly uniform in being unable to break out, instead it has been the American set which continues to be the outlier. If what we are seeing right now had been actual, legit monetary inflation – all that “money printing” – then European consumer prices (as well as those in China and Japan) would be sticking right with their high-level US counterparts. Link
Think of it as a displacement. Demand dropped off but didsn't disappear, same as it hasn't magically spiked to deliver the official recovery they have been looking for.
Same as was predicted with the virus, and looks to have finally manifested. USA mortality, all causes, is now below the pre-covid levels. Mortality displacement.
Anyone have any idea what is going on in the reverse repo market? Last year in the quadruple-witching hour or whatever they called it the overnight agreements reached $300b and it was all over the news. It's spiked up massively, hitting $583b this Monday and I haven't seen a peep.
I think Jeff Snider via Audaxes offers the best explanation.
At its core is a collatoral issue. There is plenty of money swishing around for lending, but an absence of credit worthy borrowers that have the collatoral to post. You could relate this to what Powerdownkiwi says above, all the borrowing for the last 20 years isn't going into things that increase real wealth, or an ability to pay back loans.
When you see gold being slammed, the only real collatoral of quality left, at the same time you see RRP problems, then to me it adds weight to what Snider says.
Lobbying to prevent DTI.
https://www.newshub.co.nz/home/money/2021/06/broker-warns-poor-will-get…
Mr Orr will be consulting with whom, whose interest............law maker consulting with law breaker to advise on law......Banks primary interest is to give loan as much as and any restriction will harm their vested interest, so what advise is Mr Orr expecting from them....may be need validation of seven times DTI - which in itself violates the purpose of having DTI. Does it also means that currently DTI is actually seven, why otherwise Orr will advocate for seven time DTI, which he knows and media is highlighting just five times.
SO DTI MAY ACTUALLY BE SEVEN NOW OTHERWISE WHY WILL ORR BAT FOR IT.
Interesting to hear comments from Toyota [Who I think Toyota might be the largest auto manufacturer by volume currently?] suggesting it would continue to produce conventional powered vehicles until at least 2050, it did not believe that technology had matured enough to pick a winner and would be looking at the entire lifecycle energy use:
https://www.bloomberg.com/news/articles/2021-06-16/it-s-too-early-to-fo…
Interesting because Toyota where the first to bring a mass produced hybrid to market. Is it possible they could build an internal combustion car with lower lifecycle emissions than an EV? I think it might actually be possible...
Well the world record is something like 15000 mpg. Not a misprint. And pretty much any bunch of university kids can build a 3000 mpg vehicle using a Briggs & Stratton lawn mower motor with a scooter carburetor. So we have quite a bit of potential to improve things in the way we build and operate ice vehicles.
I think its the known vs the unknown with the new technology. You simply cannot easily do the long term calculations for EV. if it was easy we could all switch to an EV tomorrow and you know thats not even currently possible even if everyone had one sitting in their driveway tomorrow. EV requires a different power source and that's only the start of putting in the infrastructure to cope with that and you all know how good NZ is at "Infrastructure", hell even our roading is crap. ICE will evolve and the emissions will come down by simply using smaller engines to evade the CO2 charges. It will be a slow changeover and those that can afford the roar of a V8 will still drive one. Nothing changes, life is all about money and will be for some years to come.
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