Here's my summary of the key events overnight that affect New Zealand, with news of improving investor sentiment.
The latest dairy auction this morning saw prices rise a modest +1.4% from the last event two weeks ago. But masked in that was a +5.5% rise in WMP.
In New Zealand dollars, prices are only +0.5% higher than the last auction. Since the beginning of the year they are -9% lower; since this time last year they are -23% lower and that is aided somewhat by the fall in the exchange rate. In US dollars, year-on-year, prices are -33% lower.
In the US, February car sales reports showed no signs of decelerating as most major automakers posted big gains from a year ago (which weren't too shabby themselves), and this was despite fears of an eventual slowdown after a record 2015.
American construction spending in January surprised on the high side as well.
If you needed evidence the world's financial markets are in an odd place, there is more today. Japan, the world’s most heavily indebted nation, is now getting paid to borrow. The Japanese government for the first time overnight issued benchmark 10-year bonds with negative yields, meaning it is effectively charging investors for the privilege of lending it money. This auction was 3x oversubscribed! Maybe the situation is not so risky internationally; 90% of their debt is held by Japanese 'investors', and more than a third of it is held by their central bank.
In China, we are seeing private sector moves to address air quality concerns. Commercial rooftops are sprouting solar panels in a trend that seems long overdue. Everywhere.
In Europe, their jobless rate fell for a third consecutive month in January, dropping to its lowest rate since August 2011. It was 10.3% in January from 10.4% in December. The number of people unemployed fell by 105,000 to 16.6 mln. But the variation between countries is large. In Germany, the unemployment rate is 4.3%; in France 10.2%; and in Spain it is just over 20%.
On Wall Street this morning, equities are up almost +2% as investors return to a risk-on mood. This follows healthy rises in Shanghai, Tokyo and Australia yesterday. There are also some signs commodities are back in favour.
In New York the benchmark UST 10yr yield is essentially unchanged again today at 1.75%. (Update: They have jumped to 1.84% in a later rise.) CDS spreads are falling noticeably, even for Australasian corporates. Local swap rates will start today even lower than the record lows we saw yesterday; and the two year is also almost at a record alltime low as well. We could well achieve that distinction in today's trading.
The oil price is marginally higher again today at US$34.50/barrel in the US while Brent is at US$37/barrel.
The gold price is slightly lower at US$1,230/oz.
The NZ dollar will start today at 66.2 US¢ with a minor bounce from the dairy auction, at 92.3 AU¢, and at 61 euro cents. The TWI-5 is at 71.4.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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18 Comments
Auctions work extremely well in bull markets (we need look no further than along the streets of Auckland). It was Fonterra that cut the volume available at auction in an attempt to force prices higher. Transparent bollocks. They have been caught with their pants down , they and most NZ economic commentators misread the markets. Zero risk analysis , only the belief that prices would remain high
The world is always going to need heaps more protien...... rising middle class in China........... growing consumer demand.......
Or, are those meme's a bit dated now? How about, apples, thats what the world can never get enough of, or carrot seeds, or beef, what about NZ wines? Let's just hype the sht out of whatever is doing well today, and forget about the string of busts rural NZ has put itself through.
On Wall Street this morning, equities are up almost +2% as investors return to a risk-on mood. This follows healthy rises in Shanghai, Tokyo and Australia yesterday.
I wouldn't bet the farm. Lifting protective hedges is not the same as buying.
Stimulus that doesn’t “gain significant traction” axiomatically isn’t stimulus. The passive phrasing also belies the extent, as there has been clearly no traction or effect in any capacity – monetary or fiscal. Tense always matters in these things, as when the PBOC initiates a rate cut (especially the double shots of the deposit rate and reserve requirement) it “will be” a powerful act, but then when the data inevitably disappoints it remains stimulus “yet to gain significant traction.” Read more
Yeilds don't matter. It's all about capital appreciation, or as I call it, the 'Greater Fool' theory. According to this theory, people get dumber over time, and are always desiring to pay a higher price. So if people are paying 0.024% in order to let the government look after their money, it's only because they know that next year people will be willing to pay even more. This actually works quite well, beccause of the dumbing down.
If you are actually interested in making a cashflow return, you're totally fkde, because the price of pretty much every asset on the planet has been pushed so high, by the greatest of the greater fools, that there is nowhere to start. You can look all day, and struggle to find a positive cashflowing proposition, nobody cares about making a profit, and why would you, when you have an endless supply of greater fools?
Hi Skiduv,
I buy stocks for their yield first,their potential to increase the yield second and their potential for growth last. There are still a good number of NZ equities on reasonable P/Es.I won't name them,because people need to do their own work.Of course,in the event of a market crash,their prices will fall too,but that will create buying opportunities.During the GFC,share prices fell a long way,but dividends fell by much less and recovered quickly.Strong balance sheets matter.
Heavily geared property and land is another matter altogether.I simply don't understand the farming model,where the return on capital is very low and the whole edifice rests on tax-free gains.A recipe for disaster,I would have thought.
Yeah I should have said 'risk adjusted return,' and hopefully you are aware of the difference between P/E and dividend yield. I will add, that those stocks with the lower PE's have a low PE for a reason. It's not as if we have just come out of a tightening cycle. People have been buying hand over fist. It's really scraping the bottom of the value barrel.
I made a descision to buy a farm freehold, and a couple of rentals. I'm not going to be the richest guy in the graveyard, but I know I'll always have a few dollars comming in every week, and I'll always have my own organic food to eat. So I now have security and freedom, but I never played the game. My income is only based on 'sale of stock' and I always base my wealth on that cashflow, not capital appreciation. The value of my assets could fall to zero, and I could still collect rent every week, sell a few cows, and chuck a lamb in the freezer. Whereas if the value of stocks fell, in the same way that milk prices have fallen (lower for longer-er) most people would be up sht creek, and no paddle. Can that happen? Who knows? Certainly it's not something anyone would ever predict, just like noone was predicting the crash in milk prices.
I think the article is broadly right. There are a lot of bad provisions unaccounted for particularly in the property sector(think ghost cities). It is a time bomb waiting to happen. When it will explode is more difficult to predict as the Chinese Govt will do everything they can to prevent it but ultimately the truth will out.
The Chinese people know it. That's why they have been getting money out of China as fast as they can whether legally or illegally.
In fact, a fair argument can be made that virtually all of the global nominal GDP gain since 2008 is simply the pass through into both investments and consumption of the huge new borrowings enabled by the central bank money printers. That is, total global debt outstanding has increased from roughly $145 trillion on the eve of the great financial crisis(GFC) to $225 trillion at present or by $80 trillion——-a gain that dwarfs the $16 trillion of GDP gain during the last seven years (from $63 trillion to $79 trillion).
That’s right. The global economy incurred about $5 of new debt for every $1 of additional GDP. Given the fact that most of the world was already at peak debt the implication is quite clear. To wit, this was phony GDP that is not organic or sustainable; it will be clawed back in the coming global deflation/recession, meaning that the world’s true leverage ratio has only gotten dramatically worse than it was in 2008.
http://davidstockmanscontracorner.com/the-g-20s-big-fat-zero-now-comes-…
Those numbers aren't too bad, if you consider how extreme they will become if future growth is to continue. When you have debts growing on average 5x faster then the economy, the numbers get crazy really fast. In another seven years we'll be at 350Trillion debt, and GDP at 100Trillion. If the economy can last that long. What do people think the future will hold? More of the same?
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