Here's our summary of key events overnight that affect New Zealand, with news tensions are spreading in emerging markets.
But first, American household assets rose to US$116 tln (or 6.1 times GDP) while liabilities stayed little changed at US$15.6 tln (82% of GDP). Net wealth rose but at a slower pace in the first quarter that in Q4-2017, but passed the US$100 tln level for the first time ever. While steady gains in home prices continued to bolster household wealth, the decline in stock prices tempered the pace. But rising net worth bodes well for consumers’ purchasing power and will help sustain household spending, the biggest part of their economy. This data is the essential engine of the world economy, although the rise of the Chinese middle class will change the American dominance at some point. (For perspective, on the same basis New Zealand household assets represent 4.8 times our annual GDP.)
More US Fed data shows that the growth in American consumer credit in the year to April is now running at its slowest rate of increase since 2012 (there was one month in 2017 where the data showed a lower year-on-year change however).
In Canada they released their latest Financial Stability Report. They see an easing of household debt loads, but reckon they are still too high. It will take a long time to normalise the situation, the Bank says.
China's foreign exchange reserves stood at US$3.11 tln at the end of May, down -US$14.2 bln from a month earlier. That marks the second straight month of decline.
In South America, Argentina is getting ready for IMF bailout support. The IMF board will meet over the weekend to formally agree the package. But this comes as it's bigger neighbour also shows signs of severe currency stress. Brazil's real has dropped to a two year low overnight, sparking increased inflation fears. The backdrop is unrest after a massive truckers' strike, and they are heading toward a very messy election in October, shaken after bitter corruption convictions of a high profile strongman leftist ex-President.
This new emerging market crisis comes on top of issues in Italy, the collapse of Venezuela, and money flowing out of other emerging economies like Turkey, Argentina, Indonesia and Malaysia. The odour is spreading. Some say it is being triggered by the US Fed's 'normalisation' track, but really, far too many emerging countries borrowed far too much money 'because it was cheap' and are now suffering the consequences of expiring confidence as interest rates rise. And too many of them borrowed without hedging, accentuating their issues. At the heart of many of these countries were dominant 'strongmen' leaders who thought they knew best.
In Australia, the Chinese businessman who bought the huge dairy farms in Tasmania from the New Plymouth District Council in 2016 is in trouble, after breaching the terms of the bank debt he used to make the acquisition.
The UST 10yr yield has fallen today, now at 2.93% and down -4 bps on the day. The Chinese 10yr is at 3.69% (unchanged) while the New Zealand equivalent is at 2.88% (up a strong +6 bps).
Gold moved marginally higher overnight, up +US$2 to US$1,297/oz.
US oil prices are moving up again, now just on US$66/bbl, and the Brent benchmark is up even further at US$77.25/bbl.
The Kiwi dollar will start today unchanged at 70.3 USc. On the cross rates we are a little weaker at 91.3 AUc, and 59.5 euro cents. That puts the TWI-5 at 72.9.
Bitcoin is now at US$7,690 which is +2.5% up from this time yesterday and still oscillating around the US$7,600 level.
This chart is animated here. For previous users, the animation process has been updated and works better now.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
15 Comments
Brazil truckers are striking because of low wages. Low wages like many low income earners are suffering in NZ, low wages that are coming to middle class children with degrees when the Govt lets in more immigrants with degrees. We have orchards and other horticulture businesses building their future on low wage, Island workers, no longer restrained by the local market wages.
"The idea of a labor shortage across the entire US economy has simply gotten way out of hand in the same way as the use of convicts to harvest Washington apples. There isn’t a labor shortage in either case, there is only macroeconomic reality which precludes businesses from paying wages that would harmonize all variables to everyone’s satisfaction "
http://www.alhambrapartners.com/2018/06/06/proving-the-l-in-labor/
No suprises that these businesses and policymakers are so short-sighted when a large portion of their national economy relies on trading in bulk commodities (Sounds familiar). Prices are decided by market forces out of a single supplier's control, so all you can do to increase returns is push costs down while ramping up output. Cheap imported labour it is!
I see a similar doom and gloom scenario here in NZ.
Good news - the Southern Hemisphere temperature anomaly for May is below the 30 year average. All the virtue signaling in Europe and industry destruction in the ‘Naki has paid off. If it gets any cooler the Emperor is going to need a set of clothes.
Warming rate globally still below 1910-1940 at 0.13 dec/decade. Balmy inter - glacial warming rolls on.
https://www.nsstc.uah.edu/climate/2018/may2018/GTR_2018_MAY.pdf
His investigations led to the exposure in the Herald of the links between inflated industry forecasts of electricity demand and soaring power bills.
He exposed the practice of "gold-plating" earlier this year after investigating the structure of the electricity industry and its regulated returns, identifying the fatal flaw that the more money the industry spent on infrastructure, the higher were its financial returns.
https://www.smh.com.au/national/nsw/electricity-industry-threatens-farm…
As Brazil is in the news, how about this for book of the week
https://www.amazon.com/River-Darkness-Francisco-Orellanas-Legendary/dp/…
"House price bubbles aren’t like stock market bubbles. People don’t have to live in stocks. But they do need to live in homes. When homes get perverted into a global asset class, all kinds of things happen, including that new supply from construction can’t meet the sudden surge of financial demand from investors who might never live on those homes. Just like stock market bubbles, housing bubbles deflate. But unlike stock-market downturns, housing-market downturns wreak havoc on the real economy on a very local basis"
https://wolfstreet.com/2018/06/07/how-chinese-investors-inflate-housing…
Nomi Prins: Wall Street and Central Bank Collusion
http://www.crusoeresearch.com/quick-take/nomi-prins-wall-street-and-cen…
Why do I get the uncomfortable feeling there is a storm brewing in the Global Economy ?
Quite apart from emerging countries and their currencies taking a hit, there are ;-
- The threats of a trade war
- The stated intentions of the Fed to wind back QE, albeit slowly ( although slow could be worse than quick )
- All sorts of problems in China that are either being glossed over or swept under the carpet
- First world economies in the Eurozone that are in severe stress and all sorts of suggestions that Italy or Greece may exit the currency which could sink a few German banks
And if we are to be honest with ourselves , if interest rates start moving north after 10 years of us becoming accustomed to the comfort of very low rates , its going to be painful for New Zealanders too
you missed the probably laughing stock Trump will make of himself and the USA when he pardons himself ,his cronies and a pile of russians. That should cause a massive constitutional crisis is the USA, [global] markets will not be happy.
As for rates going North, the OCRs of the world are rock bottom, any sustained action to raise them is based on faulty dogma and ill-founded beliefs.
In terms of these points while all valid, I think its like a house of cards, ie if even one happens, all will happen ie I dont think it will be a mild recession we'll see.
Boatman.
Did you miss Anatole Kaletsky today proposing that 'what many still see as a temporary bubble, pumped up by artificial and unsustainable monetary stimulus, is maturing into a structural expansion of economic activity, profits, and employment that probably has many more years to run'. ?
"It also means that just 10% of the US population is worth roughly $90 trillion, while half of the US population was virtually no wealth, and if anything it is deeply in debt."
https://www.zerohedge.com/news/2018-06-07/household-wealth-rises-above-…
Winners & Losers ay. That's life. But for those of you who follow the heartbeats of the business worlds and have a feeling that something's up, you're right. Democracy's departure has been delayed by Mr Bernake's glorious solution of creating more debt to pay off the previous debt. Capitalism has been in a coma and on life support for more than a decade now. Surely we've now had enough time now to say our goodbyes. Surely we can put the patient(s) out of its misery quietly and quickly. Ah, but wait. Is that tension I hear in the background. The beating of drums no less. Shock. Horror. I can see them now. And what's all that smoke behind them? Oh no. Surely not again. Haven't we learnt anything from human history? Sadly, not.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.