Breakfast briefing: Is the world entering a ‘lost decade’?

Here’s our summary of key economic events overnight that affect New Zealand, with news that American regulators have been active overnight.

First today, we should note that the regional First Citizen’s Bank (assets: US$109 bln and #36) has taken over large parts of failed Silicon Valley Bank’s business (assets US$72 bln being acquired). The takeover comes with SVB’s balance sheet sanitised by regulators. The combination will make a bank that ranks #26 in asset size among all US banks. The remaining assets of SVB are being held by the FDIC for disposal.

Meanwhile, the closer the Fed regulators looks under the hood at SVB, the worse it looks. Charges against SVB management seem likely.

None of this news encourages investors to step up and fund new business startups in the way SVB did; that sector is now in the pits.

Secondly, regulator the Commodity Futures Trading Commission is suing Binance over some alleged serious regulatory failures, and alleged dishonesty by its CEO. They are being charged with willful evasion in an action that comes as no surprise to crypto and money-laundering watchers. The bitcoin price fell.

Elsewhere in the US, the Dallas Fed’s factory survey for Texas was another poor one for their oil patch. It has now been consistently negative for more than a year now, the weakest region in the US. New orders were weaker, but the jobs component remained strong even if pay pressures eased. The outlook wasn’t flash however.

Across the Pacific, in a grim start to 2023, China has reported that is industrial profits suffered a sharp retreat on their reopening in February, down more than -22% year-on-year. A damaging price-war in the Chinese car industry isn’t helping as firms struggle for growth in demand. This official industrial profits report hurt both the Hong Kong and Shanghai equity markets because is was so unexpected.

Meanwhile in a bit of a surprise the other way, Taiwanese consumer sentiment improved in March. It was their highest reading since May 2022 as the economy recovered from pandemic disruptions and households’ sentiment strengthened across the board. This is not to suggest sentiment is high again; it is not. But the improvement was unexpected.

In Germany, another business sentiment survey showed the continuing improvements of other similar surveys. In fact this was their fifth consecutive improvement, and its highest since February 2022 – and all this comes after the banking turmoil news.

But of course this may change with strikes spreading in Germany. Inflation is stoking wage demands there.

The World Bank is warning of a long-term global downturn. Average potential global economic growth will slump to a three-decade low of just +2.2% per year through 2030, ushering in a “lost decade” for the world’s economy unless policymakers adopt ambitious initiatives to boost labour supply, productivity and investment, they say.

The UST 10yr yield starts today at 3.52%, up +15 bps from yesterday. The UST 2-10 rate curve is more inverted at -47 bps. Their 1-5 curve inversion is little-changed -91 bps. And their 30 day-10yr curve is less inverted at +70 bps. The Australian ten year bond is up +5 bps at 3.28%. The China Govt ten year bond is down -2 bps at 2.87%. And the New Zealand Govt ten year is starting today down at 4.07%. That is another -10 bps fall.

Wall Street has opened the week with a modest +0.3% rise. Overnight, European markets were more positive, up almost +1% across the board. Yesterday Tokyo ended its Monday session up +0.3%. But Hong Kong was down a sharpish -1.8%, and Shanghai ended down -0.47%. The ASX200 ended up a minor +0.1%, and the NZX50 was up +0.3% in its Monday trade.

The price of gold will open today at US$1956/oz and down -US$22 from this time yesterday.

And oil prices start today up nearly +US$3 from yesterday at just under US$72/bbl in the US. The international Brent price is now just under US$77/bbl. 

The Kiwi dollar is little-changed against the USD and now at 61.9 USc. Against the Aussie we are also little-changed at 93.2 AUc. Against the euro we are down -¼c at 57.4 euro cents. That keeps the TWI-5 down at 70 and down very marginally.

The bitcoin price is lower today, now at US$27,138 and down -2.1% from this time yesterday. Volatility over the past 24 hours has been high at +/-3.0%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».