Factories expanding globally; US mortgage applications grow, car sales beat estimates; US inflation near 2%; German inflation over 2%; China shuts factories; UST 10yr yield at 2.46%; oil and gold lower; NZ$1 = 71.4 US¢, TWI-5 = 77

Factories expanding globally; US mortgage applications grow, car sales beat estimates; US inflation near 2%; German inflation over 2%; China shuts factories; UST 10yr yield at 2.46%; oil and gold lower; NZ$1 = 71.4 US¢, TWI-5 = 77

Here's my summary of the key events overnight that affect New Zealand, with news there are signs 2%-plus inflation is emerging in the world's large economies.

But first, global factories are in good shape with the global PMI hitting a 69 month high in February, led by strong new order growth. In the US there was a slight easing from a high rate in one survey but a faster expansion in another. Europe had another strong gain to a 70 month high. China is managing to hold on to a small expansion, while Japan achieved another uptick and is now at a 35 month high.

In the US, data out for mortgage applications rose strongly with the average mortgage rate now at 4.30%.

American car sales, an early-month indicator of consumer spending, fell slightly in February but remained strong as pickup trucks and SUVs led the way. Both GM and Nissan had sales rises while Ford reported lower sales. All beat analysts expectations. But profitability might be an issue. Discounts exceeded 10% of the average selling price, the highest level since 2009.

All this American optimism, and the PCE inflation reading close to 2%, has US Fed officials signaling that a March rate rise by them in two weeks is very much "on the table".

Across the Atlantic, Germany’s annual inflation rate has accelerated at its fastest pace in more than four years, rising to +2.2% in February, and now above the ECB’s 2% target rate for the eurozone.

In China, apparently officials there have ordered steel and aluminium production cuts in an effort to control run-away pollution. This is an area China's public policy has been woefully ineffective.

In New York, the UST 10yr yield is up strongly today at 2.46%. And risk premiums are falling in the credit default swap markets.

Oil prices are down marginally today and now just over US$53 for the US benchmark, while the Brent benchmark is just over US$56 a barrel. American crude inventories are now at a record high.

The gold price is also a lower, down US$10 at US$1,246/oz.

And the New Zealand dollar starts today almost 1c lower on a stronger greenback at 71.4 USc. On the cross rates we are at 93 AU¢ after yesterdays surprisingly strong Aussie GDP growth report, and against the euro at 67.6 euro cents. The NZ TWI-5 index is down to 77, a seven week low even though it is still in its narrow range.

If you want to catch up with all the 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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16 Comments

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New York today - Dow Jones opening print opened +147 points higher than previous days close, cracks 21000, goes straight through, no hesitation, Trump re-emphasises corporate tax cuts, will cause serious disruption to the tax-haven industry as US corporates can bring their overseas stash home, but not yet. Another surge sure to come when legislation is passed and promises become fact

How will that affect the U.S. Fed rates?

All this American optimism, and the PCE inflation reading close to 2%, has US Fed officials signaling that a March rate rise by them in two weeks is very much "on the table".

Yes,but,

Finally, as a result of surging inflation, and disposable incomes suddenly unable to keep up, the real annual growth in disposable income per capita fell to just 1.5%, the weakest in over 3 years and a red flag for those calling for another renaissance for US consumers. Read more

Hence,

On Wednesday morning, this divergence was noticed by the Atlanta Fed, which after forecasting Q1 GDP as high as 3.4% one month ago, revised its forecast sharply lower and moments ago reported that its GDPNow model forecast for real GDP growth in the first quarter of 2017 is 1.8 percent on March 1, down from 2.5 percent on February 27. The forecast for first-quarter real personal consumption expenditures growth fell from 2.8 percent to 2.1 percent after this morning's personal income and outlays release from the U.S. Bureau of Economic Analysis. Read more

I have completely lost faith in Monetary economics.... in the beliefs of Central Bankers.
I think the evolution of our Monetary system , into what it is now , is a complete travesty for you and I, but an absolute golden era for the FIRE economy.
It is the biggest transfer in wealth I have ever witnessed.
It is culminating in the biggest Asset Boom of All time.
It is accelerating the division of Wealth.
Since the GFC ...I have been staggered at how Central Bankers have sacrificed Savers, without any remorse.
I am dumbfounded at what seems like ignorance..??
I thought the GFC was a chance to learn and change.. ( to realize that debt Capitalism is destructive in the long run )

I realize now that meaningful change only happens when things are at an extreme... hit the wall
In the meantime I/we must use my own knowledge to survive and prosper , in what I see as a dysfunctional and wealth appropriating Monetary system...

The biggest irony for me is that the primary mandate for Central Banks is maintaining the "store of value" quality of money...ie.. maintaining its value......AND YET...... the reality is that they are not.

AND...the biggest irony of all...is that Central Banks' biggest enemy is "wage rate inflation"... They percieve that as a dangerous inflationary pressure and pull on the economic brakes to slow the economy if it gets heated..
The ordinary Man simply can't win..

Big institutions are extremely slow to adapt, they are quite literally dinosaurs. The current thought process is designed to deal with the problems of the 1970s when a global debt based currency lost it's anchor to reality. The central banks will eventually be able to admit the folly of their ways, long after it serves any purpose.

Despair not, individuals are much more adaptive and the tide has turned. There is a world wide movement afoot to return power to the people for a little while, even if those in the big institutions don't understand or like it. Before you know it we will have wage inflation, full employment and higher interest rates. Give it threee years and there will a short but sharp recession where the debt excesses are deal to and then a period of rising productivity and lots of technological progreess for a good few (seven?) years.

Sorry - incorrect. The central banks know exactly what they are doing - they are trying to keep end demand (ie affordability) from crashing. You are ignoring the big (time) advantage of debt - it brings consumption forward and helps lift the price of commodities and capital. You cant turn around and then "deal to debt excesses" because

1) the debt is what gives pensions / insurance funds etc any value...!!
2) the debt is what gives capital & commodities their value

The Central banks have no choice - the system isnt built for backwards - debt MUST increase. So its either pump the debt in (to try and hold demand up) or the whole system goes bust.
The reason that the increased wealth/debt is skewed is because the resources to back up the increase in paper wealth don't actually exist. So money is losing its value (per unit of resource) but at the same time real wages arent increasing at the same rate...... which leads back to an affordability problem.

Simply then - increase real wages I hear you say ... problem; the resulting bankruptcies would show the system is now only a Ponzi.

"The reason that the increased wealth/debt is skewed is because the resources to back up the increase in paper wealth don't actually exist" very much so, but I am left wondering is this on purpose ie the CBs actually understand this fundamental? or they are clueless? either makes them look bad.

i would be surprised if they are clueless. They want to be able to increase interest rates (& give some yield/return on capital) ... they (must) know you cant sustain a situation where yield = 0.
But their big problem is they cant have a sustained influence on the demand side ... they are fighting physical laws/limits and diminishing returns

Ignores some fundamentals, the biggest of which is peak oil followed by household debt rounded with inequity. ie what money there is isnt backed with anything tangible its just 1s and 0s in a bank account. So really the "good times" that Trump's supporters want back wont be coming back IMHO. I doubt the sharp part of short and sharp more like very deep and very long, think 2nd Great Depression.

Gambling underwritten by RBA enforced cheap credit keeps Australia afloat for the entitled few.

Dwelling values in Australia’s largest city rose at the fastest annual pace in 14-years in February as record-low interest rates outweighed regulatory efforts to avert a housing bubble.

Average values in Sydney surged by 18.4 percent, the biggest jump since December 2002 when the nation was at the tail-end of the early 2000’s housing boom, according to data provider CoreLogic Inc. Across the state capitals combined, values rose by 11.7 percent.

Despite tighter lending restrictions aimed at discouraging speculative buying by landlords, the runaway housing market shows few signs of easing amid strong economic growth, historically low borrowing costs and a tax system that offers perks for property investors. Read more

So Sydney was a huge over-inflated risk what 2 years ago? and since then its climbed 1/5th again. So what is the wages to price ratio now 11 to 1?

Also Trump features positively in the news! Unbelievable.
Maybe readship numbers have been dropping recently, as the Media has been super-saturated their 'news' with anti-Trump stories?

Dont worry too much , Trump is deliberately controversial , he kicks the hornets nest , and then stands back while everyone (over) reacts from righteous indignation to outrage , from hand-wringing to protests to outright panic .

Its going to be an interesting 4 years

We'll , as we all know, MSM is deeply committed to balanced reporting.

This 90 at 9 is good news all round , but we need to WATCH THE FED !

This is a good time to start very slow tightening which, when it starts , is going to be fraught with issues.