This week is set to be busy on the global economic front, with a number of key events scheduled. Locally, all eyes will be on Wednesday's labour market report for March. Analysts are expecting little-change with the jobless rate staying at 3.5%. The same day there is a dairy auction.
And the same day the RBNZ releases its Financial Stability Review. Later in the week, investors will closely follow the US labour report, and before that both the US Fed and the ECB will update their monetary policy settings.
***CHART-1: Morgan Stanley warned that office real estate values could drop more than 40% from their peak and the risk of default could rise. One of the reasons SVB and FRC collapsed was because of problems with real estate loans and mortgage bonds.***
The central banks in Australia, Brazil, Malaysia, and Norway will decide on interest rates, while inflation rates will be released for the Euro Area, Italy, the Philippines, Switzerland, South Korea, Indonesia, and the Netherlands. Finally, PMIs are due from the US, India, Canada, Italy, South Korea, and Russia this week.
But first in the US, their central bank faulted itself over the weekend for failing to “take forceful enough action” to address growing risks at Silicon Valley Bank ahead of the lenders collapse, one which raised turmoil across the global banking industry.
It is a brutal self-review, reflecting very poorly on supervision by the San Francisco Fed. But behind it all was a 2018 roll-back of post GFC rules, handicapping regulators.
Another US agency also released their review as well. The Fed said it will revisit the range of rules that apply to banks with more than US$100 bln in assets, including stress testing and liquidity requirements.
Confidence in American financial institutions by American is currently falling, although it isn't yet down to the 2011 or 2008/09 levels.
But a lack of confidence has killed another US bank, the regional (California) First Republic Bank. The FDIC has taken it over, firing all the senior management and wiping out all its equity investors. JPMorgan Chase and PNC are among the likely bidders to take over its carcass, a valuable regional market position.
Staying in the US, their PCE inflation came in with its smallest increase since July 2022 with this inflation measure up +4.2% from a year ago, and running at a rate of under +2% in March from February. This data will be influential at the Fed.
Perhaps the sense of control returning to inflation is helping the mood, despite angst about banks. The widely-watched University of Michigan consumer sentiment survey improved in April with the biggest recovery in the 'current situation'.
Also improving, but more sharply, the Chicago PMI jumped in April from its weak 2023 first quarter. It is still contracting, but only barely now. It wasn't an improvement that anyone expected.
In China, it is Golden Week, a week-long public holiday where a lot rests on healthy retail shopping. Chinese economic data releases will be few this week.
And staying in China, their steel exports are surging, up +50% from year-ago levels. But this is not a good sign. Rather it is a sign that the Chinese post-pandemic recovery is in trouble. Prices for industrial materials are plunging, with steel near a five-year low.
The Chinese economy is slowing quite quickly now resulting in supply gluts. Prices had been on the rise since the end of last year in anticipation of an economic recovery after China abandoned its zero-COVID policy, but the expected growth isn't coming.
Chinese producers with excess supply are ramping up exports, depressing prices globally.
Confirming the post-recovery wobbles, their official factory PMI contracted in April following three months of expansion. It was an unexpected retreat. Their official services PMI is still expanding however at a healthy clip.
What won't help their manufacturing sector is their tough new rules about "national security' which are being expanded to include anything Beijing doesn't like. It will be hard for foreign investors to risk getting caught up in that. Some already have and it can get ugly quickly (not unlike being invested in Russia).
In the past we have noted the Chinese concerns about food security. Well Japan is waking up to them as well, especially after seeing what is happening in Ukraine and it is increasingly concerned about Chinese expansionist activities in its own neighborhood.
If New Zealand get punished by China for not toeing the Beijing line, it appears that Japan may become a more stable alternative. Apparently, Japan sources only 38% of its own food from domestic supplies, the lowest level among G7 nations.
While our house prices are generally falling and becoming more affordable, in Australia they are going the other way. House prices there rose at a +10% annual rate in March and a +8.5% annualised rate in April.
In Sydney, the rises were even faster. Lack of supply, the interest rate pause and booming immigration is fueling this market. They also are suffering through a very severe rental crisis as well.
Internationally, earnings reports for Pfizer, AMD, Uber, Qualcomm, and Apple will set the tone for the coming week's equity markets.
***INFOGRAPHIC-1: EARNINGS CALENDAR (WEEK 18 OF 2023)***
The price of gold will start the week at US$1991/oz and very little-changed from week-ago levels.
But oil prices have recovered their Friday drop to be just over US$76.50/bbl in the US. The international Brent price is just on US$80/bbl.
The Kiwi dollar is marginally firmer against the USD and now at 61.8 USc. Against the Aussie we are firmer too at 93.5 AUc. Against the euro we are up marginally at 56.1 euro cents. That means the TWI-5 is now at 69.9 and actually little-changed since Saturday.
The bitcoin price is still meandering today, although back up to US$29,620 and up +1.3% from this time yesterday. Volatility over the past 24 hours has stayed modest at +/- 1.4%.
***CHART-2: Share of total net worth held by the top 1% in the US***
On Friday, strong day on Wall St lifts NZ stocks higher.
Clothing retailer Hallenstein Glasson surged 41c or 7.02 per cent to $6.25 - it was at $6.27 on April 7 last year – on speculation that it will replace Pushpay Holdings in the top 50 after the United States-based software company delists on May 10 following the takeover.
There was also a belated market response to Hallenstein Glasson’s improved half-year result after releasing its interim report.
Paul Robertshawe, chief investment officer with Octagon Asset Management, said passive investment funds would need to buy Hallenstein Glasson shares to match its index weighting.
“That represents about 1.4 million shares. Hallenstein is not a highly liquid stock and the funds will have to buy at any price. Maybe some of them have moved early on the strong suspicion that it will be included in the top 50,” he said.
There were 182 Hallenstein Glasson trades worth $471,400. Hallenstein Glasson confirmed in its interim report a 74.8 per cent increase in net profit to $20.82m on revenue of $223.29m, up 30.9 per cent, for the six months ending February 1. The previous corresponding period was impacted by Covid.
Hallenstein Glasson said the trading environment for the first eight weeks of the winter season has been challenging with cost of living and inflationary pressures impacting consumers’ discretionary spend. But group sales were 13.9 per cent ahead and the company warned that significant challenges are expected to continue.
Robertshawe said the local market was livelier, taking a strong lead from Wall Street and experiencing end-of-the-month flows with portfolio rebalancing.
NZ Automotive Investments rose 4c or 15.38 per cent to 30c after telling the market it has arranged a replacement trade finance facility for its retail brand, 2 Cheap Cars.
NZ Auto is expecting net profit of $1.3m – including one-off restructuring costs of $1m - for the year ending March compared with $2.6m in the previous corresponding period.
Cannasouth declined 0.005c to 29c after shareholders backed the merger with Katikati-based medicinal cannabis company Eqalis Group.
Cannasouth said it has already obtained binding investment commitments for $4.2m of its $9m capital raise. Fellow medicinal cannabis stock Rua Bioscience added 0.007c or 3.89 per cent to 18.7c.
NZ Rural Land Company, unchanged at 89c, has bought a further 737ha forestry property in the Manawatu-Whanganui region for $8m. Like the previous purchase, the property is leased to New Zealand Forest Leasing for 16 years.
Source: NZ Herald
***INFOGRAPHIC-2: There are over $12 trillion in global FX reserves. Countries selling goods, services and commodities accumulate FX-denominated assets and they need a stable, super liquid, ever expanding asset to park them. At the moment, that’s short-dated Treasuries***
