Weekend briefing; Markets rise on vain hopes
Here is our summary of key economic events overnight with news that there was an overnight conference call between the US and Chinese presidents regarding the invasion of Ukraine. The markets responded positively that something like this had even happened. But there is still no evidence of a change in position.
Meanwhile, the American sales of existing homes faded in February continue the seesaw movement of recent months. High mortgage interest rates are one of the reasons they are down -7.2% from January and -2.4% from a year ago. The other reason is the very unusually low price of homes offered for sale right now, around seven weeks at the current rate. Those selling are at the high end of the market, so average prices seem to be rising.
The very good Canadian data continues. Their retail sales increased more than expected in January, up +3.2% compared to the previous month, up +12% year on year. The virtuous trend also continued for strong job gains in February. the ADP report showed a gain of +475,000 during the month, more than offsetting January’s underperformance. It is also the strongest monthly increase ever recorded in this series.
Consumer price inflation in Japan has increased of +0.9% on the year to February, and as low as it may seem to us, it is the highest since April 2019. It comes after a gain of +0.5% in January. The latest figure marked the 6th straight month of annual inflation, with food prices rising at the fastest pace in 4 years, rising +2.8% annually. central Japan; bank likes the rise, but it was not enough for them to change their political orientation.
The Bank of Japan saw again its policy parameters last night, leaving them unchanged at +0.1%. The recent recovery of their economy is undermined by the recent impacts of the war in Ukraine
The Russian central bank also revised its monetary policy settings overnight, and it too left things unchanged – at a key rate of 20%. There is little they can do after their government invades their neighbor. Inflation is galloping, their change is in the toilet. Monetary policy is unable to do anything in the short term. But they know a huge decline awaits them, which they call a “large-scale structural transformation”.
aluminum prices spiked on the invasion of Ukraine. Since then, they have remained high, volatile for the past six weeks, and again this week. But they end up high.
Although global coal price remain very high, they are attenuating their peak in early March.
High prices are one thing, but commodity markets are also suffering from a liquidity crunch intermediary traders disappear because the risks are too high and real buyers and real sellers find it difficult to agree terms directly. Aluminum is not spared in this crisis.
The IEA is Warning of “the biggest supply crisis in decades” as the aftermath of war sweeps through energy markets. But it also reports sudden and significant reactions in the hardest hit regions, including Europe. Measures implemented this year could cut EU gas imports from Russia by more than a third, with additional temporary options to deepen those cuts to well over half – while cutting emissions. It seems that the war brings sudden innovations in certain fields. It’s a real shame that it takes a crisis of war to drive these adaptations.
A parliamentary report on housing affordability issues in Australia recommended that their states abandon stamp duty and replace it over time with a broad-based property tax, revise taxes that are holding back the development of the emerging build-to-let sector and reform increasing developer contributions that are not used to fund critical local infrastructure. These are just a few of their 16 recommendations to improve long-term housing affordability there.
And you know it’s election season in Australia when talk of tax cuts heats up even as their deficit grows.
And there’s more evidence that the Hayne financial services review is being cleared. The Canberra government is going to allow the obvious conflict of interest of mortgage brokers to remain in receiving commissions from the banks. New Zealand regulators are also turning a blind eye to this. Few things in the financial world are more obvious than that, but no one wants to do anything about it.
The 10-year UST yield opens today at 2.14% and down -4 basis points from the same time yesterday. A week ago, this yield had just increased to 2.00%, so it rose sharply last week. The UST 2-10 yield curve today starts flatter at +19 bps. Their 1-5 curve is however steeper at +93 bps (and much steeper over the week) but their 30 day-10 year curve is flatter at +194 bps (but much steeper over a week). The Australian 10-year bond is up +1bp at 2.53%. The 10-year Chinese government bond is unchanged at 2.82%. And New Zealand’s ten-year government was little changed at just 3.19%.
Wall Street is up +1.0% on the S&P500 on Friday afternoon and heading for a heroic +6.1% rise for the week. This phone call from Biden-Xi contributes to the immediate mood. But it is still -7.5% below its year-end record. Overnight, European markets were all up around +0.2%. This means that Paris was up +5.1% on the week, Frankfurt was up +4.2% and London was up +3.5% on the week. Yesterday, Tokyo ended up +0.7% for the day and up +5.9% for the week. Hong Kong was down -0.4% yesterday, but up nearly +6.0% on the week. And Shanghai rose +1.1% yesterday, but recorded a retreat for the week of -0.6%. The ASX200 was up +0.6% in its Friday session, taking its weekly gain to +3.3%. The NZX50 ended strongly, up +1.5% yesterday and +2.9% for the week.
The price of gold starts today at US$1929/oz and continues to yo-yo and decline -US$15/oz from this time yesterday. A week ago it was at US$1,990 an ounce, but that was its recent high.
And oil prices are higher today, up +2$US/bbl. In the US they are now slightly below US$103.50/bbl. The international price is only US$106/bbl. But both are -US$4/barrel lower than a week ago and -US$7/barrel lower than two weeks ago.
The Kiwi Dollar will open firmer again today, now at just 69.1 USc and a four-month high. The kiwi dollar appreciated by +1.6% in one week. Against the Australian dollar, we are little changed at 93.2 AUc. Against the euro, we are up +½c from the same time yesterday at 62.5 euro cents. All of this means that our TWI-5 starts today at just over 74.2 and also at a four-month high.
Bitcoin price rose +1.9% from this time yesterday to reach US$41,579. This is a weekly gain of +7.5%, but it’s only just getting back to levels from two weeks ago. Volatility over the past 24 hours has been modest at +/- 1.9%.
The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».