An economic hurricane

Delivered on By Justin Pyvis

Good morning! China’s government was not happy at our Kiwi cousins yesterday, “accusing Prime Minister Jacinda Ardern of joining an American ‘disinformation’ campaign to ‘discredit China’":

“We noted the relevant contents of the joint statement, which distorts and smears China’s normal co-operation with Pacific island countries, deliberately hypes up the South China Sea issue, makes irresponsible remarks on and grossly interferes in China’s internal affairs including issues related to Taiwan, Xinjiang and Hong Kong.

The hype-up of relevant issues in the joint statement by the US and New Zealand is out of ulterior motives to create disinformation and attack and discredit China.

We hope New Zealand will adhere to its independent foreign policy and do more to enhance security and mutual trust among regional countries and safeguard regional peace and stability.”

The comments followed a visit by Ardern to the US, which resulted in a communique that “notes with concern” the “establishment of a persistent military presence in the Pacific by a state that does not share our values”, citing China’s security deal with the Solomon Islands.

New Zealand under Ardern’s leadership has been relatively cosy with China over the past five or so years, so this could mark somewhat of a turning point in the relationship.


Reading the tea leaves

Daily % change

AUD/USD

72.7

+1.3%

AUD/CNY

4.84

+0.8%

AU Bond

3.50

+0.7%

US Bond

2.91

-0.6%

ASX200

7,176

-0.8%

S&P500

4,177

+1.8%

Brent (bbl)

118.1

-3.7%

Gold (oz)

1,873

+1.6%

Iron ore (t)

141.2

+5.8%

Bitcoin

30,303

+1.7%

Ethereum

1,825

+0.1%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries.

The US S&P500 added 1.84% overnight after US initial unemployment claims dropped again, although ADP private payrolls data showed a below-expectations increase May ahead of tonight’s official jobs data.

The price of Brent crude oil dropped after the oil cartel known as OPEC+ agreed to “accelerate oil production in July and August” following pressure from the US government, although the US benchmark WTI gained 1.1% after earlier losses, “shrugging off OPEC+’s agreement”.

Locally, the ASX200 fell immediately on the opening bell and stayed that way all day, finishing down -0.80% with only energy (+3.1%) and utilities (+1.1%) making gains. Tech was the biggest loser, dropping -2.5% following hawkish comments from several members of the US Fed the night before.


Food for thought

After a post-pandemic boom against both the USD and Bitcoin it has been all downhill in 2022 for Solana.
After a post-pandemic boom against both the USD and Bitcoin it has been all downhill in 2022 for Solana. Source

The crypto winter: A recession is (or should be) a period where unprofitable businesses are allowed to fail, freeing up scarce resources for those more productive. The cryptocurrency space, which now has 19,701 different cryptos according to CoinMarketCap, is discovering that even the big dogs can stumble:

“Solana, the third largest cryptocurrency by market capitalisation, fell 10% Wednesday following reports of its blockchain network suffering another outage.

The blockchain had not produced new blocks for five hours, triggering all of its applications to shutdown, according to the Block.

The outage is the second in a month for Solana, which often promotes itself as a high-performance network meant to complete speedy transactions and rival the Ethereum network.”

That’s the eighth time in the past year that the Solana network has been shut down by its developers. As always, caveat emptor.

An economic hurricane: Well, that escalated quickly. JPMorgan’s CEO Jamie Dimon warned investors to “brace” themselves for an economic “hurricane”:

“You know, I said there’s storm clouds but I’m going to change it … it’s a hurricane. You’d better brace yourself. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.

Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way.”

The big uncertainty is so-called ‘quantitative tightening’, which describes the process whereby central banks begin to shrink their bloated balance sheets.

“We’ve never had QT like this”, said Dimon, “so you’re looking at something you could be writing history books on for 50 years”.


Chewing the fat


Bits and bytes

📈 The CEO of Coles said that “we have got five times as many requests for price increases as we had last year… Unfortunately for our hip pockets, it’s not small increases they are requesting. It’s not two per cent or three per cent being asked”.

🏝️ Australia’s government signed an eight-year partnership with its Samoan counterpart “to help address human development in the Pacific island nation, as well as [provide] a new maritime patrol boat for the country”.

📱 Never good when even the telcos are crying inflation: “Australia’s biggest mobile network provider has flagged a price increase for both pre-existing and future plans, blaming rising inflation.”

⚡ Australia’s new Minister for Climate Change and Energy, Chris Bowen, said “Australian energy markets are facing a perfect storm”, and that there are no short-term solutions.

🚢 Australia’s trade surplus increased to $10.5 billion in April thanks to a 1.0% rise in exports due to higher travel and mineral fuels sales, while imports fell -0.7%.

🗳️ They’re already talking 2025: “Australians will be offered a vote on becoming a republic if Labor is re-elected for a second term.”

📷 It took less than two weeks for Labor to be embroiled in its own sexual harassment claims after MP Jerome Laxale was accused of possessing “intimate photos” of an ex.

🔓 Mexico’s President, Andrés Manuel López Obrador, said that Australian citizen “Julian Assange is a political prisoner and should be released.”

💸 “More than a third of Americans earning at least $US250,000 annually say they are living paycheck to paycheck.”

👩‍🚀 NASA is paying two companies a combined $US3.5 billion to “develop the next-generation spacesuits”. NASA has spent $US420 million on in-house development since 2007 without success.

⚔️ Denmark “overwhelmingly voted to join the European Union’s defence policy”, becoming the last of the 27 EU members to sign up.

🖼️ New tech, same crimes: “Former OpenSea product manager Nate Chastain was arrested by the FBI early Wednesday morning in New York City and charged with wire fraud and money laundering in connection with an elaborate NFT insider trading scheme.”

👩‍⚖️ The real winners are the lawyers: Amber Heard will appeal the decision by a jury to award her ex-husband Johnny Depp more than $10 million in damages.