US PPI rises strongly; Canada building permits slip; US wholesale trade strong; Xi talks of reform, tariff reduction; IMF sees global housing market; UST 10yr at 2.81%; oil leaps and gold up; NZ$1 = 73.7 USc; TWI-5 = 74.8

US PPI rises strongly; Canada building permits slip; US wholesale trade strong; Xi talks of reform, tariff reduction; IMF sees global housing market; UST 10yr at 2.81%; oil leaps and gold up; NZ$1 = 73.7 USc; TWI-5 = 74.8

Here's our summary of key events overnight that affect New Zealand, with news of conciliatory comments out of China, but sharp rises in oil prices.

But first, you should know that our offices are without power this morning, so there will be no video version today.

In the US underlying protucer prices rose more than analysts were expecting, another sign that American inflation pressures may be building. Year on year, these March prices are up +3.0%.

In Canada housing starts came in slightly better than expected in March, but building permits came in much weaker than expected. That indication of future building is a worry.

US wholesale trade is expanding vigorously. It was up +6.8% in February from the same month a year ago. Inventories were up a lesser +5.5%, so sales-to-inventory ratios improved. This was a better result than analysts anticipated.

In a speech the Americans see as a sign he is attempting to diffuse the current, serious trade spat (and a view the Chinese are encouraging), President Xi promised to open the country's economy further and lower import tariffs on products, including cars. But the actions promised were vague, timing uncertain, the talk of 'reform' contrasting with recent authoritarian actions. Prices on Wall Street are rising sharply (+1.75%) on the expectations that the trade tussle may ease.

The IMF is warning that the world's housing markets have become global, increasing the risk that our local property prices are vulnerable to unexpected foreign shocks.

In Australia, suggestions by the Westpac CEO that mortgage broker commissions incentivise bad behaviour and outcomes for borrowers, promoting a fiduciary conflict-of-interest, has the mortgage broking industry squirming and hitting back. Mortgage brokers write more than half of all mortgage business in Australia so there is a lot [of BMW payments?] at stake.

The UST 10yr yield has recovered slightly today and is now at 2.81%. The Chinese 10yr is at 3.73% (down -2 bps) and the New Zealand 10yr is at 2.82% (+7 bps).

Gold is up +US$2 to US$1,339/oz.

Oil prices are up strongly today, leaping by more than +US$2.50, with the US benchmark now just under US$66 and the Brent benchmark just over US$71/bbl. On top of yesterday's sharp rises, this is a very fast, strong move up. Behind the rally is said to be "geopolitical unrest' in Venezuela, Iran, Russia, Syria, N Korea, and of course the US-China trade tension. The Brent price over US$70/bbl is its highest since November 2014.

Our currency is higher by +½c today and now at 73.7 USc, its highest since mid February. On the cross rates we are also high at 94.9 AUc and 59.7 euro cents, a six week high. That puts the TWI-5 at 74.8 and a new high for 2018.

Bitcoin is up slightly to US$6,848 to US$6,743 which is a +1.6% rise from this time yesterday.

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19 Comments

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Its just a matter of time until the global property bubble springs a leak.

X2, it's a tiny exit door for speculators to squeeze through at once when confidence suffers an even bigger hit.

Which is also why the foreign buyer ban needs to pushed through with expediency, to protect the economy from these shocks, although unfortunately that horse has bolted.

My thoughts exactly

If the bubble bursts don't we want as many foreign buyers as possible to be the ones being popped?

Example: 100 kiwis sell 100 homes to 100 Chinese for $1m ($100m gain to NZ).

Bubble bursts (as has been predicted on this site for the last 100 years) and the prices crash to $100k. Kiwi FHBs swoop in like majestic eagles (or vultures depending on who's telling the story) seeking to assert their God given right to own a home.

$100m poured into NZ, $10m leaves... What's not to like?

Surely a win for real Kiwis?

Facetiousness aside Heavy D, the issue we have is that NZ has a tiny population, that earn a limited amount of money. China has almost as many USD millionaires as we have adults, and it's not just China, Russia's wealth held offshore amounts to 75% of their annual GDP, the US, UK, Australia, Canada, France, Germany, Spain all have over a million USD millionaires, that's not even allowing for the Oligarchs, Sheikhs and multi-billionaires. By allowing property to become an internationally traded commodity the tax payers, the people that live in this country, can't compete. Government job is to run a country for its people, not for the benefit of an asset rich few

Wait a minute, your first comment related to protecting the economy and now you've shifted the goal posts to protecting the NZ poor from rich foreigners. No problem with you believing banning foreign buyers is necessary to protect Kiwi home buyers from foreign competititon but don't conflate two different concerns to justify your first conmment.

Straw man argument.

Can we have the REINZ data now, please?

Yes, pretty please

I see inflationary forces brewing..
Commodity prices .... particularly oil
https://finviz.com/futures_charts.ashx?t=CL
Shifts in Chinese policy away from adhoc investment in Capacity. ( China is no longer a global deflationary force)
The Deflationary forces of a secular decline in interest rates is over. (ie. cheaper interest rates that lead to over investment in production/investment).

It is interesting , to me, that Labour is behaving as if inflation is a forgotten dinosaur. ( for me, broadening the focus of the RBNZ to include employment levels , kinda suggests this. So does increasing the minimum wage to $20/hr by 2021, without regard to inflationary contexts )
They are about to go on a spending spree, just when Global inflationary forces seem to be strengthening , and at a point in the NZ business cycle, where we are , kinda, running at full capacity..
Will be interesting to see if CPI inflation in NZ starts to pick up soon.
.

one of my favorite economists is Peter Warburton.
Hard to see any threat of deflation out there at the moment. ( keeping in mind the threat of the Global debt burden )
https://www.economicperspectives.co.uk/6-per-cent-global-nominal-gdp-gro...

Most of my friends think we are still in a deflationary world... so I'm sure many people will disagree with me.

I think we moved into an inflationary world a few years back, based on LIBOR bottoming in 2014:
https://fred.stlouisfed.org/series/USD12MD156N

Rising interest rates create inflation, at least that's what Antal Fekete seems to suggest. It means the cost of working capital goes up for all producers (ie the interest on the parts and work in progress in stock), which is the same as the cost of parts going up for all producers.

Metals have been rocketing up, look at Rhodium, Manganese, Cobalt, Molybdenum, etc, all needed for the electrification of transport worldwide :
https://tradingeconomics.com/commodities

Politically there has been a swing to more interventionist (ie big spending) governments worldwide, whether it's a Trump or an Ardern. So thirty years of the inflation ratchet as in the 1960s, seventies, and eighties seems likely to me.

To all fellow followers of Monetary and Credit aggregates, here is an interesting article by Peter Warburton.

...However, bank credit no longer occupies the central position in the financial system and the stock of bank deposits is recursive to other asset allocation decisions.

Until there is a crack in the credit edifice, the capacity of the global private sector to finance faster nominal growth in the global economy and sustain elevated equity market valuations is unchallenged. The money-ness of non-bank credit is currently very high and the incentive to own bank deposits is correspondingly low. Worry about a long-overdue turn in the credit cycle, not about the slowing of the monetary aggregates.

https://www.economicperspectives.co.uk/a-message-to-the-money-worriers.html

Thanks for the links Roelof, much appreciated.

Yes very interesting indeed. However, this is really financial repression for the hoi polloi, even thought they probably don't understand why and how. What he suggests about the credit cycle should be noted and I think there are subjective signals that the end is possibly nigh.

JC... Are u able to share what u see as "subjective signals"...?

I don't see too much "stress" out there , at the moment.... but I'm always looking for signs.

cheers

BBQ stuff really, but I don't think it is unusual to point out that credit growth is falling noticeably. Furthermore, on the BBQ tip, I was involved in a conversation including Katherine Rich as to how consumers are stretched right now simply because they're "tapped out." The argument swayed towards zero income growth + low credit growth is negatively impacting the food industry. Just like the boom in new car sales, credit growth also impacts our staples and the health of core needs.

Does this mean that actually Trump was right, and he didn't start any trade war?

China has made such promises before. Will be interesting to see whether anything eventuates.