Here's our summary of key economic events overnight that affect New Zealand with news markets are brushing off signs of rising financial risk, preferring to accent the positives. They are aided by some generally hawkish central bank comments.
But first in the US, their debt ceiling negotiations have come down to the wire with the traditional bipartisan resolution now very unlikely. The Democrats will have to do it on their own.
Meanwhile, new US initial jobless claims rose last week to +306,000 in a surprise bounce. And the total number of people on these claims rose also, up to 2,535,000 which as also an unexpected rise. It doesn't really help however that the four week moving average is now at its lowest since the start of the pandemic.
The August report by the Chicago Fed of the national activity index notes a slowing economic expansion even if it is still expanding well above average.
The Kansas City Fed factory survey backs that up, reporting a good but slowing expansion. But cost and price rises remained very high, they said.
These reports reinforce the latest PMI reports for the US factory sector - fast expansion but just not as fast in September as in August. Except for costs and prices which were reported as rising faster. In the services sector, the overall picture is very similar. Costs are a problem there too, but optimism is rising faster.
New June data out from the US Fed shows that American household net worth hit a record high of US$ 142 tln, up +20% in a year, driven by surging home values. (Sound familiar?) This is the second consecutive quarter their net worth gains have exceeded +US$20 tln in a quarter.
There were flash PMIs reported in the EU as well where there was slower growth as bottlenecks curb activity and their input price gauge hit a 21-year high.
In China, it looks like the Evergrande crisis hasn't passed after all. There are reports that Beijing has decided to let the company fail, and it is racing to prepare all its national and local agencies to brace themselves "for the possible storm" and wait to handle the aftermath after a failure, not prevent it from happening.
China is also facing sharp but regional output cutbacks amid a shortage of electricity supply as authorities respond to Beijing directions to achieve targets for lower overall energy use. They need to act now so that they aren't embarrassed in the coming winter surge.
Taiwan's central bank reviewed its monetary policy position and left all its settings unchanged. The country is in a period of strong export-led growth.
Turkey's central bank stunned markets overnight by cutting its key interest rate a full -1.0% to 18%, which immediately caused their currency to plunge to record low levels. And that will sharply raise inflation. It was a cut demanded by their President, who has fired the past three central bank governors for keeping interest rates higher than he wants.
In England, their central bank left all its settings unchanged as expected as well, but two officials there called for an end to its QE program. This is despite the regulator downgrading its economic growth expectations.
There was a September PMI report out for Australia too, and that reported a continuing contraction in both their manufacturing and services sectors, even if it was slightly less in September than August.
And staying in Australia, there were another 1064 new community cases in NSW reported yesterday with another 851 not assigned to known clusters, and these numbers are no improvement. They now have 12,434 active locally acquired cases. Victoria reported another 766 new cases yesterday, and worse again as an far-right anti-vax plague rises there. Queensland is reporting one new case again. The ACT has 16 new cases yet again. Overall in Australia, more than 48% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The S&P500 is up another +1.6% in afternoon Thursday trade in a broad rally, but it is not yet quite back to a record high. That follows an strong +1.0% rally in European markets everywhere except London which fell -0.1%. Yesterday, the very large Tokyo market was closed for a public holiday, but Hong Kong was up +1.4% and Shanghai was up a more modest +0.4%. The ASX200 ended up +1.0% and the NZX50 Capital Index ended the day up +0.7%.
The UST 10yr yield opens today up sharply at just under 1.40% and +9 bps higher from this time yesterday. The US 2-10 rate curve is steeper at +114 bps. Their 1-5 curve is also steeper at +84 bps, while their 3m-10 year curve is steeper at +135 bps. The Australian Govt ten year benchmark rate starts today at 1.33% and also up +8 bps. The China Govt ten year bond is at 2.88% and unchanged. But the New Zealand Govt ten year is now at 1.83% and down -6 bps from this time yesterday.
The price of gold will start today sharply lower again, down -US$24 at US$1752/oz.
But oil prices have moved higher again overnight and compared to yesterday's levels are up +$1 to just over US$73/bbl in the US, while the international Brent price is even higher at just under US$76.50/bbl.
The Kiwi dollar opens today at just on 70.8 USc and more than +½c firmer since this time yesterday. Against the Australian dollar we are little-changed at just over 96.9 AUc. Against the euro we are +40 bps firmer at 60.3 euro cents. That means our TWI-5 starts today at 74.1 and back at the top of the 72-74 range of the past eleven months.
The bitcoin price has risen again today, and is up at US$44,860 and a +3.7% gain from this time yesterday. Volatility in the past 24 hours has been moderate at just under +/- 2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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Problems in Blighty...
https://www.independent.co.uk/news/uk/home-news/uk-petrol-shortage-live-updates-bp-b1925717.html
Petrol being rationed, rapidly rising gas prices, shortage of CO2 (for meat and drink production ) and some empty supermarket shelves due to shortage of HGV drivers (because the eastern Europeans have left basically) and it looks like a new wave of covid starting now the unis and schools have gone back with restrictions lifted....
(I noticed yesterday that that FTSE is still at the level it was in 2016....)
https://www.bbc.com/news/topics/c9qdqqkgz27t/ftse-100
So in real terms it's actually lower over 5 years...i thought that wasn't supposed to happen with stockmarkets...?
Brexit?
Buckle down folks, we will be here for a while. Parker just announced that the govts 'crystal clear' vaccination target is 90% before we open up.
Deploy the reporters:
Question 1, 90% of what exactly?
Question 2, why not open up at 80%? We have just seen how vaccinations ramp up quickly when people are motivated by the theat of the virus circulating.
Question 3, why can't you just give a straight answer to question 1 and 2?
The protection the jabs gave the people who completed their two jabs a few months back will be long gone by the time we get to 90 percent.
It's a bit like the missile shield on video games. You push the key and it protects you for a few seconds. Hit the key too early and the shield finishes right in the middle of a missile barrage and you blow up.
Because Peeni Henare was a bit blunt, suggesting Maori have to take responsibility.there is a suggestion that if opening up happens before 90% of Maori are vaccinated that would be genocide
“The buck stops with our people to come forward and get vaccinated. We’ve done iwi campaigns, we’ve done health provider campaigns, but ultimately the buck stops with our people,’’ he says.
It's 90% politics. Its a target forever just out of reach and a group to blame when things go wrong. As with all govt covid modelling the plan can be thrown out when we get "new" data on vaccine effectiveness. I don't see this as the actual plan which is why there are no answers.
Look to Israel to see how this plan plays out, same vaccine and similar sounding plan. If we try to follow this plan that's where we end up in about 6 months, if we fail to contain the virus to small out breaks in Auckland. Failing vaccines and endless misused statistics and coercion to encourage the next booster. I'll give it a month into the first wave before the PM is delivering the same talking points as Naftali Bennett.
In August, PM Bennett appealed to the public with a national plan to tackle Delta. He argued that:
Lockdowns are only a last resort. It would be very easy to declare a lockdown and give money to the closed businesses and the workers sitting at home. But the policy of lockdowns has a terrible price.
....
For example, we thought about the people killed in traffic accidents. It would be possible to reduce to zero the number of fatalities from traffic accidents by banning travel on Israel's highways. But we all understand that we have to live and allow traffic in Israel. Thus it is with the Delta strain: Daily routine is part of life and we must find a responsible balance between all the needs....
This is our money, yours, and our children's and great-grand children's. If we continue with the policy of lockdowns and economically destructive restrictions, we will simply collapse economically. The immense amount that we spent on lockdowns, the effectiveness of which was low in any case, is a sum that was taken from important goals for you and for your children.
...
How many children and older people would we not be able to send to life-saving operations?
How many MRI machines would we not be able to finance and thus we would miss thousands of cancer patients at early stages?
How many lessons in science, mathematics or English would we be unable to finance?
How many old-age pensions for elderly without means would we be unable to provide?
If Ardern were a real leader, she would have given a similar speech already. I will respect her immensely if she ever delivers the same talking points as Bennett, but I suspect she will never have the courage to do so.
I was meaning his attitude to vaccine fanaticism (translations):
"People who received two vaccine shots walk around feeling like they are protected... they don't understand that the second vaccine has faded against the "Delta" - they must quickly get vaccinated with the 3rd dose!"
“I want parents to fight with each other. Simple. I want that the parents who vaccinated their children will pressurize the parents that didn't vaccinate their children”
Our PM is just a fanatical but has not reached this point yet.
Without too much thought, just using an excel regression analysis based on the last month of data, I make the the trend limit 83.4%. They might be able to offer a little incentive (I think other countries offered sports tickets and supermarket vouchers) to add a couple more %.
Government might suggest that being unvaccinated makes someone less employable so make it a prerequisite of unemployment benefits. After all they are about to fire existing government employees for the same reason.
You just need to go and look at the health target data on the MoH website to see that this might be about right. There is a pretty significant variance in immunisation rates for children between the DHBs. No idea how they'll close the gap in the under performing regions if the current immunisation rates is any predictor to where they might end up with covid jabs.
There are a few 'groups' in NZ who are lagging behind in vacc rates. And these groups (one especially) constantly complain that they are hard done by and everything is everybody else's fault.
jacinta is terrified that opening up will result in this smaller group getting smashed by covid and she in turn smashed by them.
We are being held to ransom by a group with no self responsibility.
I'd say clear; vis 10/10.
The problem isn't the Governments fault.
If we can sheet blame to anything/anyone, we can sheet it to the intellectually-challenged folk who swallowed - and peddled - the growth-mantra, this last few decades. Covid is merely too many people travelling too far, too fast, too often. And most politicians advocate even more.
China is the exception; they see it coming and are lining up to surf the wave. The rest of us? Still in thrall of the current religion.
Most overlook that Xi Jinping rose for nothing (a peasant) to become a chemical engineer. He values science and is surrounded by such people. So putting politics aside, China appears to have a leadership team that would leave most of the Western mob for dead - fancy another turn of Trump anyone?
Be prepare for real fear porn all over again, stories of people not vaccinated in ICUs that regrets not to be, people vaccinated with breakthrough infection being glad having been vaccinated because otherwise it would have been so much worse you know, and people injured by vaccine but they still happy somewhat and glad they did it.
90% of eligible people. they've made this quite clear several times.
At 80% the modelling, even the other models, still show an issue with the spread. Personally i think there will still be an issue at 90% because those who are resisting (in other words no health reason) don't like the rules and will spread it it regardless. Plus the new variants that are popping up are looking even worse than Delta. The penalties for not being vaccinated and breaking the rules need to be harsher because those groups are putting everyone else at risk.
Of course it hasn't passed. All sorts of clowns have been experiencing premature celebration.
The thing is, even if the *system* doesn't collapse, it's going to have nasty consequences for the Chinese economy, and at least some impact of significance internationally.
Never believe what the MSM says.
Luckily there are some good non-MSM commentators out there.
Overnight Reverse Repurchase Agreements hit new record highs 5 days in a row.
1218.3B
1224.3B
1240.5B
1283.3B
1352.5B
Lenders want the most pristine or close to it collateral in exchange for their cash.
(From Comments on that thread)
"QE is designed for asset inflation only.
Reserves and Reverse Repos are designed to sop up the excess and remove the dollars from circulation, while paying Wall Street and large banks for their collection efforts. Only real loan demand would provide better income than IOER and Reverse Repos.
Anyone who claims QE is intended to create inflation is lying or stupid - Or a working economist.
Common sense and a casual observation makes it clear that QE can never create inflation other than asset inflation.
It's all a sham, but everyone knows that already."
- Meanwhile, Treasury Secretary Janet Yellen warned of “economic catastrophe” if the U.S. fails to raise its debt limit before next week’s deadline. In a Wall Street Journal op-ed, Yellen implored Congress to act, urging that “[defaulting] would likely precipitate a historic financial crisis.” Her plea comes as the government’s debt, as a percentage of GDP, has reached the highest level ever recorded.
Was listening to a Richard Werner interview yesterday - he seems to think the world is heading towards an old school style soviet banking system where individuals open up bank accounts with the central bank and have loans to buy things like houses. Retail banks wouldn't be allowed to lend for residential property because what they have primarily been doing is lending for non-GDP qualifying activities (primarily residential property) which is resulting in asset bubbles and growth issues.
Haha, from the satellite zooming in on the GPS microchip embedded under your skin I can see what your up to, even before your neighbour dobs you in (they would be in trouble if they didn't) and that whistling sound you can hear getting closer and closer, are not your egg laying chickens coming home to roost.
Winston might be making a comeback, but it will be Winston Smith, not Peters or Churchill.
In the old old days trading banks were not allowed to lend for housing and scarcely at all for personal loans. All kept tight and strict in what was termed then as the RBNZ corset. Lending for housing, State Advances with capitalisation of family benefit, building societies, savings banks, unities such as the Druids, and solicitors. Wasn’t at all possible to avail any of that without a reasonable deposit though.
The UST 10yr yield opens today up sharply at just under 1.40% - Now ~1.43%
I/R Swap 10-Year (SWAADY10.RT), I/R Swap 30-Year (SWAADY30.RT)
Hey Jay, Maybe Check The Swaps Before Committing to Taper
The swap spread is itself a very simple matter: the raw difference between the quoted fixed leg of a vanilla interest rate swap and the same maturity nominal US Treasury yield. Interpreting this resulting spread, that’s the problem. By all textbook accounts, the former would never be less than the latter because if that ever happened this would seem to suggest the market pricing the US government as riskier than the financial counterparty on the floating side of the swap.
Yes, blasphemy but especially so only starting in October 2008 and continuing every month thereafter.
For this mainstream approach, such financial products are analyzed through this improper lens of generic “credit risk.” Throw that nonsense out the window; a negative swap spread isn’t about credit risk but liquidity and balance sheet capacity.
Quite simply, it takes some financial institution’s balance sheet capacity to take on an interest rate swap (the farther the maturity, the more capacity it requires). If balance sheet capacity (the real money in the system, therefore liquidity) is systemically impaired, as in a crisis, or a crisis that doesn’t really end, then to get dealers to give up their precious balance sheet capacity and engage on the other side of a swap someone would have to pay a hefty premium to make it worth it (risk-adjusted) for the dealer to do so.
In a swap, it would mean discounting the price of the fixed leg even to the point this fixed leg yields less than a UST of the same maturity. A negative swap spread, therefore, an indirect but reliable indication of systemic liquidity and balance sheet elasticity.
World econ headed back to normal
As in 2019 which was when repos were exploding and growth was dropping. The splurge was temp and huge and caused massive problems. Now all the parabolic curves are headed down again and commentators are as usual surprised as well as surprised at Xu meaning what he says. The delusions are manifest
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