Here’s our summary of key economic events overnight with news that the war in Ukraine is adding stress to the global supply chain. And there has been a major rally in the bond market as risk aversion sentiment spreads. In addition, there are signs of collateral compression in some financial markets.
But first it was remarkable dairy auction this morning. Overall record prices were reached, after the fourth consecutive solid increase, this one +5.1% compared to the previous event and the most important of the series. Since the first auction of the year, overall prices have risen by +19%. But the rise in the Kiwi Dollar limited today’s gain in local currency to +3.1%. New all-time high prices were reached for butter (after another +5.9% rise this time) and Cheddar cheese (up +10.9% this time). In USD, it was not a record high for SMP (+4.7%) or WMP (+5.7%), but in NZD, WMP hit a new high.
The analysts were waiting higher prices in this direction. It will be interesting to hear their new on-farm payment forecast, which is sure to increase. They all held back to see that result after Fonterra raised their estimate for this season above every one of their previous calculations.
In Eastern Europe, Ukraine is holding on – just – but faces a new, more brutal version of the invasion as Russian anger grows that it was not met with an easy victory, anger doubled because that it is the Russian-speaking population that is fighting against them as hard as anyone. The Russians are now targeting civilians in retaliation, with indiscriminate bombing of cities.
Overnight, China gave a tentative indication that it would try to play a role in resolving the crisis.
Unfortunately, this war suddenly opened the doors to a large increase in spending on military defense capabilities. And it’s a global phenomenon, including in East and Southeast Asia. He also renewed the desire to join security alliances. Russia has rolled back the gains of demilitarization by decades, perhaps more.
This is also the time when investors assess the risks of their portfolios. It will not be good for less developed countries. The economic implications will be enormous and will last a generation.
And cargo diversion away from Russia creates a new front in the supply chain stress situation. It is likely that at some point, probably soon, this will have freight cost implications.
Despite the gloomy security situation in Europe, the February PMI factory indices in the United States were all very positive. The much watched ISM one has increased marginally and now its very healthy level. The international reference Note it there has also been a significant increase. Order intake rose sharply while the rate of cost increases stabilized.
Retail activity in the United States as monitored by the Redbook survey maintains its strong expansion.
United States logistics manager index was also up, “with no obvious signs of slowing”.
In Canada, they released the Q4-2021 economic activity data and it turned out better than expected with an increase of +6.7%, compared to +5.5% in Q3-2021.
And the high-profile protest by truckers at the Windsor Bridge had no impact on their PMI factory which rode on a healthy expansion.
Both official and unofficial Factory PMIs were out for China late yesterday, and both posted minor gains, but enough to lift them from a stall to a marginal expansion. Their PMI services are little changed too, and still timidly expanding.
Yesterday, however, a senior Chinese official warned that they face great challenges in stabilizing consumption this year amid tremendous pressure on foreign trade. The result is downward pressure across the country, their trade minister said.
All EU Factory PMIs remained expansionary in February, with good production growth supported by stronger demand and fewer delivery delays during the month.
The German reported his inflation rate ticking up to +5.1% in February. On a harmonized basis for the EU, it reached +5.5%.
There was a PMI report for Russia for February too. This signaled a further decline in the performance of their manufacturing sector amid weak customer demand. They were contracting, and are unlikely to improve in March.
In Australia, the RBA sat down with its official exchange rate still at 0.1%, and shows no signs that this is about to change. They say the war in Ukraine is a major source of uncertainty for the global economy, local wage growth is not strong and inflation is benign in their view.
In Australia, mortgage lending to investors hit a record high in January. And at 33% of all new home loans (excluding refis), that proportion is back to a four-year high. (The record was set in 2015, when it hit 46%.) Currently, New Zealand lending to investors is just 17%. New Zealand’s proportion peaked at 35% in mid-2016.
The UST 10-Year Yield opens today at 1.71% and is down another -16 basis points from the same time yesterday as the international risk aversion mood strengthens in the markets. The UST 2-10 yield curve today starts a little flatter at +40 bps. Their 1-5 curve is much flatter at +66 bps and their 30 day-10 year curve is also much flatter at +165 bps. The Australian ten-year bond is down very sharply by -14 basis points at 2.03%. The ten-year Chinese government bond is up +2 basis points to 2.83%. And the New Zealand government’s ten-year index is also up +2 basis points to 2.78%.
Wall Street opened trading on Tuesday with a -1.5% decline in ongoing afternoon trading. European overnight markets were all again down sharply in a range from London down -1.5% to most others down -3.5%. Yesterday, Tokyo ended its Tuesday session up +1.2%, Hong Kong up +0.2%, and Shanghai up +0.8%. The ASX200 ended up +0.7% and the NZX50 up +1.8% with surprisingly good gains in our Tuesday session.
The price of gold starts today at US$1934/oz and up to +US$39/oz since yesterday. We are complete”“extreme fear” mode now.
And oil prices are again significantly higher today and are well above the US$100/barrel level. In the US, they are up +US$10 to just over US$104/bbl. The international price is slightly above US$106/bbl. The last time crude oil prices were this high was in 2014, so these latest prices are eight-year highs. (Meanwhile, they have fallen to just US$18/barrel in 2020. This was only a brief stop that low, however.) The price of coal hit a record high yesterday.
The Kiwi Dollar will open today at 67.6 USc and a slight slide. Against the Australian dollar, we are at 93.2 AUc and also a marginal slide. Against the euro, we are at 60.9 eurocents and up more than +½c. This means that our TWI-5 starts today at just 72.4 and unchanged from yesterday, although it is still at a five-week high.
Bitcoin price rose again today, up +5.3% from the same time yesterday, to hit US$43,278. Volatility over the past 24 hours has been extreme at +/-5.1%.
The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».