Information breakfast; Germany is taking advantage of a crisis to change its energy profile

Here is our summary of the key overnight economic events affecting New Zealand with news that Germany has decided to suck up the cost consequences and spin off its dependence on Russian oil. It’s a move that will accelerate the move away from fossil fuels by one of the world’s largest economies. But it is not without risk.

But first in the United States, residential resales fell -2.7% in March compared to February, a second consecutive drop and the sale rate is now at its lowest since June 2020. The rise in mortgage interest rates is weighing on this market. But median house prices hit a record high of US$375,300 (NZ$552,000).

And mortgage applications fell by -5% compared to the previous week, a 6th consecutive week of decline, while mortgage rates continue to climb. The average contract rate for a 30-year fixed-rate mortgage rose to 5.2%, its highest level since 2010.

The April of the Fed Beige Book Survey showed a resilient US economy despite high inflation and endless supply chain issues. They report that their economy grew at a moderate pace from February to early April, although there was little respite for businesses from high inflation and labor shortages.

There was a small 20-Year U.S. Treasury Bond Auction this morning. The US$18 billion bid attracted US$47 billion in bids. The median return achieved was 3.03% per year compared to 2.60% in prior equivalent event a month ago.

CPI Inflation in Canada came much higher than expected. Analysts expected a rate of 6.1% in March after a rate of 5.7% in February. But it came in at 6.7% and that’s a 31-year high. In fact, the sharp rise in dairy product prices played a significant role in this increase. The Bank of Canada has a lot of work to do to control inflation there. Join us for the March CPI for New Zealand at 10.45am this morning, where our market is pricing in a 7.1% rise, which would be a 32-year high for us.

China failed to follow the reduction in the reserve ratio with lower prime lending indices. It maintained its reference interest rates unchanged for corporate and household loans at its April fixing. The one-year loan prime rate (LPR) remained unchanged at 3.7% after declines of 5 and 10 bps in December and January, respectively; while the five-year rate was held at 4.6% after falling 5 basis points in January.

Taiwan export orders, which are an indicator of global technology demand, rose faster than expected in March, setting a new high for the month. But their government warned of much slower growth for April due to the war in Ukraine and ongoing supply bottlenecks.

German producer prices are expected to rise sharply in March, even faster than in February, and their highest level in over 70 years. But these forecasts turned out to have underestimated this real increase which exceeded a rate of +30%, almost entirely due to large increases in Russian fuel. This prepares them for a complete break with this Russian stranglehold. Overnight, their Minister of Foreign Affairs declared Germany will halve its oil imports by July and reduce them to zero by the end of 2022. Germany currently buys a quarter of its oil and 40% of its gas from Russia. The sweeping policy shift won’t come without high costs, but it looks like it’s happening, and fast.

In Russia, panicked citizens withdrew foreign currency worth $10 billion in their accounts in March and banks have cut new business lending by about a third.

The 10-year UST yield starts today down -7 basis points at 2.84% and gives up all of yesterday’s jump. The UST 2-10 yield curve is noticeably flatter at +27 bps. Their 1-5 curve is also flatter at +93 bps. Their 30-day-10-year curve is flatter at +252 basis points. A fully positive yield curve has been restored on all maturities. The Australian 10-year bond is now at 3.06% and down -3 bps. The ten-year Chinese government bond is up +1 bp to 2.88%. And the New Zealand 10-year government up +4 basis points to 3.52%.

On Wall Street, the S&P500 began Wednesday’s session up 0.4%. Overnight, the European markets all rose by more than +1.5% on average except London, whose gain was only +0.4%. Yesterday, Tokyo ended its Wednesday session up +0.9%. But Hong Kong was down -0.4% and Shanghai ended down -1.4%. The ASX200 ended flat but the NZX50 closed strong +1.1%.

The price of gold starts today down US$-22 since this time yesterday at US$1956/oz.

And oil prices are unchanged at US$102.50/bbl in the US while the international Brent price is down -US$1 and now just at US$106.50/bbl.

The Kiwi Dollar will open today up +¾c to 68 USc. Against the Australian dollar, we are very slightly firmer at 91.3 AUc. Against the euro, we are almost +½c firmer at 62.7 euro cents. All of this means that our TWI-5 today starts at 74.1 and +50 bps firmer. It should also be noted that the Chinese Yuan slipped to a six-month low against the US Dollar yesterday.

Bitcoin price was up only +0.2% from the same time yesterday to US$41,440. Volatility over the past 24 hours has been modest at just under +/- 1.4%.

The easiest place to stay on top of the risks associated with today’s events is to follow our Economic calendar here ».

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