Russia paying heavy economic price for Ukraine adventure. IPCC says climate battles being lost. US imports rise fast. India loses momentum.
Kia ora,
Welcome to Tuesday’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 while we are all transfixed by the war in Ukraine, are ignoring an even bigger threat.
But first in Russia, sanctions are biting, almost as quickly as the war in Ukraine escalates. The Ukrainian forces are holding on much better than many expected. Kyiv still holds uncaptured. Kharkiv too, which is a huge surprise. However Kharkiv's dogged resistance is drawing increasing Russian bombardment and terror bombings of civilian areas.
The Russian Central Bank has instituted a huge rate increase, taking it from an already high 9.5% to 20%. The Moscow stock exchange has suspended trading. The ruble has reached 119:USD, although it is lower now, but it is a huge net -30% devaluation in just a few days, on top of earlier drops.
The Swiss have suspended their usual neutrality in horror of what is happening, and have frozen Russian funds in their banking system. This is an extreme measure for them. Norway is quitting its Russian investments. Fund managers around the globe are too.
Meanwhile the cyber war is intensifying. Toyota, the world’s largest carmaker, said that it had suspended all production in Japan after a possible cyberattack at a major supplier. Hino and Daihatsu have also shut down.
The other battle raging in the world - on climate change - is now an news afterthought. But it is arguably more serious, certainly in the long run. And it is being lost. The IPCC now says the dangers of climate change are mounting so rapidly that they could soon overwhelm the ability of both nature and humanity to adapt unless greenhouse gas emissions are quickly reduced. That is according to their major new scientific update released overnight.
For Australia, the IPCC says they can expect more drought, more fire and more floods, and less snow and less coral. Presently wild weather in southern Queensland and northern NSW is extreme even by their standards. The immediate danger from flooding is rising and still ahead of them this week.
Elsewhere, the booming US economy is sucking in imports faster than it is exporting. That has resulted in a record merchandise trade deficit, although their services surplus will mitigate some of that. US exports rose +15% in January from the same month a year ago. But their imports rose +21% on the same basis. However given the overall US$24 tln in annual economic activity there, the net deficit is actually small, and financed in its own currency so the negative impact is even smaller.
But in the US manufacturing heartland around Chicago, their expansion is slowing. The growth in new orders is slowing, and almost a quarter of firms there said they had an outright reductions. They also reported that cost pressures eased somewhat.
However, things look brighter in the Texas factory sector. New orders rose after a January stumble, and inflationary pressures remain as strong.
In the US, and not waiting for regulators, credit bureau Equifax will record “buy-now-pay-later” instalment loans in their credit reporting.
Producer price pressure is still high and rising in Canada too.
China is getting itself in a tangle over Russia and Ukraine. A rare public debate has broken out there on what their policy should be. China is looking increasingly irrelevant in this mess. More disappointing for Beijing is that there is no reputation or diplomatic afterglow from their Winter Olympics. New best friend Russia has stolen their glory.
In India, new data there shows their economy is losing momentum and quite quickly. Of particular concern to them is that both trade and investment are going backwards. India is heading for an election soon, and without a robust economic record to run on, their Hindu nationalist government will fall back on their extreme culture wars to campaign on, which will make India an unstable place.
Back in Australia, retail sales came in above expectations, posting a surprisingly good +1.8% gain in January. Omicron-related drags look to have been minimal in the month with only two retail channel categories recording sales retreats and some exposed segments holding up much better than expected. Food inflation due to the pandemic disruptions may have driven the increase.
The UST 10yr yield opens today at 1.87% and down -10 bps from this time yesterday as a risk-off mood settles on markets.
The price of gold starts today at US$1895/oz and up +US$6/oz from this time yesterday. The prospect of a flood of gold re-entering the market from sanctioned countries is keeping a lid on this price.
And oil prices are sharply higher today, up +US$3 now just under US$94.50/bbl. The international price is just under US$97.50/bbl. But even though it has touched the benchmark in intra-day trade, oil still has not really gone to US$100 yet, which is a surprise for either grade.
The Kiwi dollar will open today at 67.7 USc after a volatile 24 hours, which is up more than +1c from its lows yesterday but only up +¼c from this time yesterday. Against the Australian dollar we are at 93.3 AUc and a marginal slip. Against the euro we at 60.3 euro cents an a rise back to its 2022 highs. That means our TWI-5 starts today at just on 72.4 and a five week high.
The bitcoin price has jumped today, up +4.8% to US$41,104 from this time yesterday. Volatility over the past 24 hours has been extreme at +/- 5.8%.
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.