Russia's unprovoked attack transforms world economy. China and India on sidelines. US data all positive. Shipping and commodity prices jump.
Kia ora,
Welcome to Friday’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 markets are in a full risk-off mood with equity prices and bond yields lower, and currencies like the USD and JPY up sharply.
Russia's land-grab of its neighbour is in full hot military mode, unlike its bloodless takeover of Belarus and Kazakhstan in 2021. They have launched a war using justifications straight out of the 18 Century, and one not seen for 70 years. They are moving aggressively to seize Ukraine's key population centers.
The chance of any international disarmament is right out the window now; countries globally will be prioritising defense spending. War, as it always is, will be inflationary. And China's threats of war against Taiwan will take on a new imperative. Retreats into security blocks are much more probably now with open trade and global supply chains more likely to be unwound. Even if the attack on Ukraine remains limited, the political and security responses will upend five decades of relatively peaceful progress. A turn in the progress against poverty will be negative. Globalisation is likely to be ended.
China and India are staying on the sidelines of this war, for now at least.
The war-induced inflationary impulse has seen US Fed officials signaling that rate hikes are still very much on their agenda.
US GDP growth for Q4-2021 was revised higher at a +7% annual rate and up +5.6% for all of 2021 from 2020. Those are 'real' results. In nominal terms, the US economy recorded $24 tln of economic activity, the first time it has exceeded that benchmark, and almost +12% more than for 2021. Improved consumer spending drove the gain. (What is interesting about this data is that in 2021, China's economy was 65% as large as the US's. That is a sharp retreat from the 2020 result when it was 74% the size. The recent US surge has come when China is in a slower growth mode.)
US jobless claims for last week retreated and now just over 1.9 mln people are on these benefits, the lowest since the 1970s. Both came in below expectations.
The National Activity Index compiled by the Chicago Fed recorded a strong expansion in January.
Sales of new-built dwellings fell in January and came in below what was expected even if they are still running at a historically high level. Supply-chain issues are holding back completions.
Globally, shipping freight costs rose last week, both for container cargoes and bulk cargoes.
And prices for key commodities jumped even further. Lithium, aluminium, and nickel were at the forefront. Wheat prices have zoomed overnight. It's going to be tough for the poor, no matter where they are, and more people are going to fall back into poverty.
Aussie capex rose slower in Q4-2021 than anticipated, at about half the growth level expected. Board rooms held back in a way that wasn't foreseen.
And staying in Australia, average full-time weekly earnings rose only +2.1% in the year to November 2021. However they are likely to have risen from there.
The UST 10yr yield opens today at 1.92% and down -6 bps and taking this yield back to Wednesday's level.
The price of gold starts today at US$1924/oz and up another +US$14 from this time yesterday. It is doing its job as a countercyclical safe-haven asset, although not with any great enthusiasm in the circumstances.
And oil prices are up of course and at one point earlier touched US$100/bbl. But they are now at US$95/bbl in the US, a net +US$3.50 daily rise. The international Brent price is just over US$98.50/bbl.
The Kiwi dollar will open today down a full -1c at 66.7 USc. Against the Australian dollar we are down slightly at 93.3 AUc. Against the euro we are also softer at 59.7 euro cents. That means our TWI-5 starts today at just on 71.5 with a daily drop of -70 bps. Trading in the ruble has been suspended after a steep dive.
The bitcoin price has fallen -7.4% since this time yesterday and now at US$35,865. Volatility over the past 24 hours has been extreme at +/- 6.5%. Cryptos aren't proving to be either countercyclical, or a safe haven.
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 on Monday.