US & allies ban Russian oil, gas and coal. US trade deficit inches up. China begrudgingly respects trade sanctions on Russia. Sydney rainstorm severe.
Kia ora,
Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news that with market price volatility in just about everything, we have seen some unprecedented leaps before market forces steadied.
First up, the United States has banned imports of oil, natural gas, and coal from Russia. This has shifted the international market price signals dramatically in the past few hours. At the same time, they are releasing significant flows from their own strategic oil reserves, ramping up domestic production, and using this shift to encourage a transition away from fossil fuels. It is a brave move because there is probably no domestic political upsides from this in terms of short-term inflation.
And the EU is ending its reliance on Russian gas as more countries in the region rally to harden their response to the invasion of Ukraine, even at severe costs to themselves.
But China is objecting politically to bans on Russian trade. The Europeans are ignoring their advice. The Russian are warning of US$300/bbl oil but that is just being seen as propaganda. Even the Venezuelans are turning away from Russia.
In Ukraine, Russia is targeting civilians, especially those fleeing the fighting - even those fleeing east. Now more than 2 mln have fled the fighting for safer havens outside the country. That's a doubling in less than a week. Ukraine has a population of 43 mln.
Meanwhile, off a lowish base a year ago, US retail sales held their big gains last week on a year-on-year basis according to the Johnson Redbook survey.
However, American consumer debt rose at a much slower rate in January than was expected, up at an annualised rate of just +1.9% to US$4.4 tln, November rose 10.8% and December by +6.1%, so the January miss involved almost -US$15 bln. Primarily the low levels was caused by American shrinking their credit card debt.
The full US trade deficit widened to a record high of US$90 in January from an upwardly revised $82 bln in the previous month and above market forecasts. Soaring energy costs pushed imports to a record high while the services surplus retained its level. Trade deficits of this size are only a minor issue for the US given they have a US$24 tln economy, and their currency is what the world's reserves are held in.
Canada shifted back into a trade surplus in January, after their unusual December deficit. Their surplus was larger than expected, but falling imports drove this result
Japan's current account slipped further into a larger deficit as the cost of imports far exceeded its exports in Q4-2021. It was their largest deficit since 2014 and their second largest deficit ever. They normally post surpluses.
China is making a show of supporting Russia in diplomatic circles. That mirrors similar popular support on Chinese social media. But deep within the Beijing bureaucracy, level heads are still in charge keeping their options open. China is no longer recognising Russian letters of credit drawn up for commodities trades. That is not an insignificant action. Chinese banks are trying to avoid secondary sanctions.
Taiwan exports rose sharply again for a February, powering their trade surplus higher again. Their CPI inflation rate actually fell to 2.4% in February. Like many Asian economic powerhouses, they seem to be avoiding the global inflationary surge - so far at least.
You might think that the sharp rise in commodity prices isn't news anymore. "We all know that". But the action has been spectacular. The LME cancelled trading in nickel after the price soared over US$100,000/tonne, the most extraordinary surge in the 145-year history of the exchange.
In Australia, the NAB business confidence index jumped in February and January was revised up. This February result is the highest reading in four months, which was way above the long run average.
Last week a major rainstorm hit NSW, but missed Sydney. This week it has hit the city full force. Major flooding is extensive and will have wide economic repercussions.
The UST 10yr yield opens today at 1.87% and up +14 bps from this time yesterday.
The price of gold started today at US$2044/oz and up a spectacular +US$65/oz from this time yesterday. Much of that has come in the past two hours in New York. London missed the jump. Silver is up proportionately more. Subsequently gold has fallen back but to US$2021/oz for a net +US$42/oz rise.
And oil prices are very sharply higher today and up by +US$7/bbl. In the US they are now just under US$120.50/bbl. The international price is just on US$126/bbl. Just after the announcements it spiked much higher but is settling back now.
The Kiwi dollar will open today little changed at just over 68.3 USc. Against the Australian dollar we are at 93.7 AUc which is up more than +½c. Against the euro we at 62.3 euro cents and a little lower. That all means our TWI-5 starts today at just on 73.4 and little net change from this time yesterday.
The bitcoin price is up a bit today, up +1.1% from this time yesterday to US$38,395. Volatility over the past 24 hours has been moderate at +/- 2.7%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.