Here's our summary of key events overnight that affect New Zealand, with news we are back after our holiday break facing a sharply lower exchange rate.
But first, Wall Street is lower as a combination of rising inflation expectations and disappointing corporate earnings have pushed the S&P500 down -3% over the past week. It is a little higher in late trade today, but that can't mask the overall direction.
Still, the March data out on the sales rate of new single family homes in the US is positive, up +8.8% compared to the same month a year ago, to a rate of 694,000 per year. That may sound good, but you may recall we reported a few days ago that construction starts of new single family homes were sagging and that is because they are running at the rate of 867,000 which is far above the sales rate. Clearly that can't continue. Builders are about to have their confidence dented at a time when American mortgage rates are at a four year high.
However, a key American consumer confidence index rose in April, following a fall in March. It is back up to an index value of 128.1 but still below the 17 year high it reached in February.
Mexico and Canada are agreeing that the NAFTA renegotiations are "going nicely". Progress over car manufacturing content is a key issue and all seem satisfied. Oddly, it seems the key issues hinge around raising the percentage of vehicle components made within the bloc, not just within the US. So it seems possible Mexico could come out a winner on that front. The US Administration wants this wrapped up so it can concentrate on its trade disputes with China. NAFTA looks like it will survive, with Canada and Mexico is a better position. Who would have thought?
In Ireland, their Government and Apple are said to have agreed the process by which Apple pays back all the taxes claimed by the EU to have been avoided in an illegal arrangement with the Irish Government. That's NZ$22.5 bln. Apple is to pay all this money into an escrow account by September. Then Apple and Ireland will jointly argue in court challenging the EU ruling.
In India, new data shows they are creating new jobs at a fast pace. +2.2 mln new "formal" jobs were added in the six months to February.
The UST 10yr yield is still rising and is now at 3.03% (+5 bps), a seven year high. The Chinese 10yr is also higher at 3.62% (+2 bps) but the New Zealand equivalent is at 2.91% (down -3 bps).
Gold is at US$1,321/oz in New York, and down -US$3.
Oil prices are holding high and just under US$68/bbl and the Brent benchmark just under US$74/bbl.
The Kiwi dollar is at 70.6 USc as the US dollar keeps strengthening on the back of rising American Treasury yields. This is its lowest rate of 2018 and represents a -4% depreciation since the beginning of last week, and -½c since Tuesday. Imports are going to cost more if this keeps up. On the cross rates we are lower too although not as sharply, at 93.4 AUc and 58 euro cents. That puts the TWI-5 at 72.6.
Bitcoin is now at US$9,018 which +1.5% higher than this time yesterday..
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12 Comments
I’m sure you’re right. I’m just intrigued, after reading a couple of Jim Rickard’s books, to see what happens during the next crisis. Seems like we’re not far away now, perhaps the US has another 2 years says Martin North. In NZ credit acceleration is negative (will be interesting to see the next RBNZ C5 data point on the 30th of this month). Turmoil seems likely in the next 2 years. Interesting question isn't it, "What’s the best asset class and amount of leverage to own"?
Scary climate change scenarios being wound back. In line with typical inter-glacial warming rates. "The study in the American Meteorological Society’s Journal of Climate predicts temperature rises of 1.66C compared to one IPCC forecast of 3.1C and 1.33C compared to another IPCC study predicting 1.9C."
"These results imply that high ECS and TCR values derived from a majority of CMIP5 climate models are inconsistent with observed warming during the historical period."
NZD has dropped USD 0.05cents since Jan.
There are so many variables though, so I can understand RBNZ's rationale for treading water at this moment, so much is out of their control and there is some sound logic in the wait and see approach. Global interest rates will certainly cause imports prices to go up (if the planned hikes roll out as planned, which they might not), but if mortgage rates go up and that triggers house value drops, then that will be deflationary and possibly recessionary. It's a fiscal tightrope.
We've diversified our investments across several currencies to spread risk but so many Kiwis have simply got a stack of debt in NZD AND all their assets in NZD when there are increasing clouds on the NZ horizon.
Yes, there is a lot of noise and not much signal these days. Still some might big currency whales decided to move away from kiwi shores recently so that could be somewhat of a sea change.
Still who knows, maybe one of Roger Kerr’s bearish prediction still might come true.
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