Here's our summary of key economic events overnight that affect New Zealand with news markets are struggling to make sense of a world economy in transitions, both out of a pandemic, and into a new era where sustainability is a key policy driver.
But first, a Federal Reserve official said overnight that he sees the first rate hike by the American central bank coming as early as 2022. This is way earlier than the recent indications from the Fed's own meeting dot-plot. Some people like the new shift. But it is a view that unnerved Wall Street, delivering an almost -1% retreat. Oddly, bond markets reacted by driving down yields, an unexpected shift.
More technically, the US Fed's balance sheet rose above US$8 tln for the first time this week, a rise of +$113 bln. A key driver is banks stashing cash there, rising +US$200 bln in a week, so without that surge the Fed's balance sheet would have shrunk. As confidence in the prospects for the US economy rises, bond spreads between risk-free debt and commercial bond yields are falling, and quite sharply. But that renewed rush to invest in commercial opportunities is seeing banks park the funds allocated temporarily at the Fed before they can be disbursed. It means that 9.3% of the Fed's balance sheet are these parked funds, up from 6.9% last week, quite a move.
Along the US-Canada border, there are two events to report that affect trade. First, the Americans are unhappy the Canadian government is keeping the border closed to people movements based on the pandemic risks. But perhaps more importantly, the Lake Onartio/St Laurence Waterway levels are now so low they are affecting shipping in one of the world's busiest waterways. This is adding to supply-chain difficulties and adding to shipping costs with echos internationally.
Canadians took out almost C$18 bln worth of new mortgage debt in April, the fastest monthly increase on record and enough to bring their total housing debt to almost C$2 tln and a +7.8% annual rise. (In Australia, and economy just slightly smaller than Canada, total housing debt exceeds AU$1.8 tln, and it is rising at about +6% pa.)
In China, reports are filtering out that Beijing is detaining and arresting analysts who report on crop yields. This sort of work is very hard to do unless you tour and observe crop regions first hand (which is how it is done is most countries). But independent reports have been snuffed out in China over the past few weeks. It does raise the question about why Beijing needs to be so heavy handed on this arcane, technical corner of market assessments.
China is still not getting iron ore or coal prices down. Threats against 'speculators' are growing, but so far it seems this latest rise is more a reaction to regulators limiting supply.
In Germany, producer prices are zooming higher, with input prices up +7.2% in May from the same month a year ago. That is their steepest annual rise in 13 years.
In Australia, an influential economist now says their official cash rate will start rising in 2023.
Separately in Australia, their largest home loan lender has told brokers that they will assess borrowers on the basis of a 6.77% mortgage rate. This is now well above the assessment floors of the other major banks in Australia where ANZ is at 5.1%, Westpac 5.05% and NAB 4.95%. (We have an update of New Zealand serviceability test levels here.)
Wall Street is trading -0.91.3% lower on the S&P500 in afternoon trade and heading for a weekly loss of -1.9%, which may be the worst week of the year for them. Overnight European markets all fell quite hard and by about -1.8%. Yesterday the very large Tokyo market ended its session down another -0.2% for a weekly retreat of -0.7%. But the Hong Kong market was up +0.9% and reducing its weekly loss to -0.2%, while the Shanghai ended little-changed on the day for a weekly but suffered a rather large weekly loss of -2.5%. The ASX200 ended up a minor +0.1% but that is a weekly gain of +0.9%. The NZX50 Capital Index rose a minor +0.1% on Friday to end a week with virtually no net change.
The UST 10yr yield starts today down -6 bps at 1.45% and giving up all of its gains since mid-June. The US 2-10 rate curve is very much flatter at +118 bps. Their 1-5 curve is unchanged however at +80 bps, while their 3m-10 year curve is much flatter as well at +140 bps. The Australian Govt ten year benchmark rate starts today at 1.53% and down -2 bps. The China Govt ten year bond is still at 3.15%. And the New Zealand Govt ten year is now at 1.80% and unchanged at its higher level.
The price of gold starts today at US$1770 which is down another -US$9 from this time yesterday. And that makes it down -US$111 or -5.7% in a week. Silver is unchanged today.
Oil prices are up +US$1 today at just under US$71.50/bbl in the US, while the international Brent price is on US$73/bbl.
The Kiwi dollar opens today at 69.4 USc and down another -½c since this time yesterday. That makes it a -1¾c fall in a week taking this key rate to its lowest since November 2020. Against the Australian dollar we are little-changed at 92.6 AUc. Against the euro we are soft at 58.5 euro cents. Currency commodities are out of favour. That means our TWI-5 starts today at 72.1 and a six month low.
The bitcoin price is now at US$35,613 and down another -5.9% from this time yesterday and -4.9% lower than this time last week. Much of today's fall has come in the last hour. Volatility in the past 24 hours has been very high at +/- 4.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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29 Comments
https://braveneweurope.com/steve-keen-what-is-the-role-of-public-debt-a…
Banks have been squeezed between the physical-limits ceiling and the need to keep climbing the ladder. Keen gets the bigger picture too:
https://hiddenforces.io/podcasts/steve-keen-climate-economics-limits-to…
So it's a displacement issue now, an either/or rather than a how-much-each. This is why the push to eliminate cash, and will be behind the lobbying to illegitimise alternative claims on future physical acquisition (bitcoin included). The interesting reconciliation is the current-debt divided by the forward underwrite, which means that even if banks gain a bigger percentage of the cake, they'll get less. In terms of relative social status, that might work for them. All other things being equal.......
The word sustainable on its own is ok, it's when people use terms like "more sustainable/ecofriendly/evironmentally friendly" when what they really mean is "less environmentally damaging" that grinds my gears. Sustainabilty is like pregnancy: something either is or it isn't, there is no "more" or "less". And with many more of us on planet earth the number of things which are sustainable is rapidly diminishing...
You are right JJ. Since we are "in an emergency" why is there no public education campaign showing how to meaningfully reduce your carbon footprint. But that would hurt economic growth, because ordering a new Tesla, ticking the carbon offset box on your air ticket, and recycling the packaging of the unnecessary crap you buy isn't going to save us.
Auckland Council personal carbon footprint calculator.
https://www.futurefit.nz/questionnaire
Politicians are poor at root cause analysis.
https://youtu.be/aAmE9zNmThs
Prager U.
Thinking about NZ, when electric cars need more electricity, (and no new hydro schemes built), the electric car power needs increase will come from Indonesian coal imports, as NZ margin extra energy grid power comes from now.
Somehow the PM has made all the new EV cars now coal powered.
And at no point did Zollner admit that this hangover is a direct result of her bank and the rest lending into the debt mountain that will feed the hangover. Or that her bank having created this are profiting enormously. Only little people with no or little money ever suffer from any personal responsibility.
More technically, the US Fed's balance sheet rose above US$8 tln for the first time this week, a rise of +$113 bln. A key driver is banks stashing cash there, rising +US$200 bln in a week, so without that surge the Fed's balance sheet would have shrunk.
#Fed balance sheet tops $8tn for the first time ever as Powell keeps printing press rumbling. Total assets rose by $111.9bn, most since March, due to increases in security purchases, traditional lending. Fed balance sheet now equal to 37% of the US's GDP. Link
For the week ending 16.06.21 Fed bought :
$23.88 bn Treasury Securities.
$83.854 bn Mortgage Backed Securities.
But first, a Federal Reserve official said overnight that he sees the first rate hike by the American central bank coming as early as 2022. This is way earlier than the recent indications from the Fed's own meeting dot-plot.
The Dots Are On the Move, But So Are the Dot Spoilers
Vaccines, reopening, etc.; these are the new dots. Officials are discounting re-infection, and are right to do so.
But are those the only potential downside risks? We’ve asked this question many times over the last thirteen years since. Those at the Fed say, nope, that’s all there is to worry about. Monetary policy has fixed any other lingering issues. All good to go.
Still there is no accountability for all those past times when it turned out not good to go. Inflation and recovery predicted, by dots or other communication devices previous to the plots, no dice when the time came. And in each and every case there remains the same deficiency at its root.
Collateral scarcity, leaving open the door to something worse developing right when recovery should. Collateral shortage, therefore acute global dollar shortage.
The UST 10yr yield starts today down -6 bps at 1.45% and giving up all of its gains since mid-June. The US 2-10 rate curve is very much flatter at +118 bps.
Hmmmmm...
Bear Flattener
Hmmmm..Alice’s Adventures in Equilibrium
Here’s the thing. Despite over a decade of deranged Federal Reserve policy – I use that word intentionally to mean both “wildly outside of the historical range” and “bat$%!# crazy” – bank loan growth has been utterly unremarkable. So the growth we’ve seen in bank deposits primarily reflects the fact that the Fed has replaced trillions of dollars of Treasury bills with base money. That’s really the crowing accomplishment of QE – creating a massive pool of zero-interest hot potatoes that someone has to hold at every moment in time, and that does virtually nothing but destabilize the financial system with yield-seeking speculation. The chart below shows 5-year commercial bank loan growth.
Policy makers sometimes flatter themselves with the idea that holding interest rates at untenably low levels makes it cheaper for borrowers to obtain funds. Unfortunately, it does so only by transferring income from people who are trying to save for the future. Replacing Treasury securities with base money may make savings more “liquid,” but it doesn’t suddenly make people abandon their retirement plans in favor of consuming today. Low rates also don’t magically create productive investment opportunities.
What economic activities suddenly become viable at zero interest rates that were somehow not viable before? Only projects so unproductive that any positive hurdle rate would sink them. The main activities that are encouraged by zero interest rates are activities where interest is the primary cost of doing business: leveraged real estate transactions; “carry trades” that employ enormous amounts of leverage to profit from small yield differences; and speculation on margin. Presently, margin debt as a percentage of GDP is at a historic extreme.
" It does raise the question about why Beijing needs to be so heavy handed on this arcane,"
Food surplus - or lack thereof - is not arcane, it's life and death. My guess is that they have hammered the home paddocks too hard, realise they're in a bind, and are stockpiling a cushion. Even that will only tide them over for a year (more of course as a supplementary contribution). And they don't want to publicise the extent of the degradation, nor the unsustainable nature of their systems. In that, they parallel Fed Farmers and MPI........
https://www.reuters.com/article/china-grains-security-reserves-idUSL4N2…
https://www.producer.com/news/is-chinese-wheat-demand-a-one-off/
https://www.newsecuritybeat.org/2019/05/reclaiming-chinas-worn-out-farm…
14th 5 yr Plan...... The plan is rounded out by demanding stronger communist party leadership, an unrivaled leadership role for party committees, party leaders as role models, and grass roots party organizations as "citadels in battle."
http://dimsums.blogspot.com/2021/06/sprawling-5-year-plan-for-xinjiang…
China's 14th five-year plan for Xinjiang Uighur Autonomous Region envisions great opportunities for development and westward-facing trade in the region--and the plan makes it clear that it has Xi Jinping's personal stamp of approval. The plan promises huge material economic progress, and it includes measures to ensure it is not impeded by social instability or threats to the communist party's leadership. The plan calls for expanding vocational training schools, reeducating ethnic minorities, and creating Islam with Chinese characteristics.
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