Bitcoin whipsaws its holders

Kia ora,

Welcome to Thursday's Economy Watch where we follow the economic events and trends that affect New Zealand.

I'm David Chaston and this is the International edition from Interest.co.nz.

Today we lead with news China is going on the offensive over commodity prices it sees as too high.

But first, we start today noting what most media is noting - that crypto currencies went on a very wild rise overnight, almost all of them. After falling steadily all week, bitcoin touched US$40,000 and then basically collapsed to US$30,000 to more than -50% below its high in early February. Then it recovered just as fast, but not quite all the way back, leaving holders with a big -9% daily loss.

Perhaps the trigger this time was a set of unofficial warnings in China that using cryptos is illegal - and that penalties and prosecutions are about to get harsher. Three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued warnings on social media. Cryptos are a favoured way to launder money and avoid China's outbound capital controls. Beijing is also cracking down hard on bitcoin mining operations.

This car crash happened in the absence of any other major economic news or drivers, so it is getting outsized media coverage today.

The American mortgage market seems to be rising, even if it is at a measured pace. The number of mortgage applications are rising, average mortgage application values are up, and benchmark mortgage interest rates are rising too, now at 2.94% plus points.

The US Treasury auctions a 20 year bond overnight, raising US$32 bln, $5 bln of which was bid by the Fed. The median yield was 2.215% which is slightly lower than the 2.24% achieved at the equivalent March event.

The US Fed released the minutes of its last meeting, and these revealed that some FOMC committee members started to talk about tapering their bond purchases. They are looking for the 'right moment'. They also see very strong corporate bond issuance activity.

In Canada, they released April CPI data showing a rising inflation situation there at 3.4% which was higher than expected, and well above the 2.2% pace reported for March. Fuel prices drive this rise.

And in Europe, they also released inflation data, this set coming in at 1.6% as expected and up from 1.3% in March. Again, petrol prices are the core reason for the rise. In the German engine room, prices rose 2.1%

In China, more evidence they are worried about high commodity prices and a clear suggestion Beijing is working to roll-back those that have happened. And an odd outcome of these efforts is that they are now encouraging more coal production. Raising output is their preferred way to "balance supply and demand". These moves helped send the ASX lower yesterday. And markets are wavering for a number of key commodities.

And staying in China, the average gross annual salary of China’s urban employees in the private sector rose +7.7% in 2020 from the previous year to ¥57,727 or NZ$12,500, according to the latest data.

Internationally, the IEA says the global oil industry must stop new oil and gas projects if it is to reach net zero by 2050. It seems unlikely China will sign up to that.

The UST 10yr yield starts today at 1.69% and up +5 bps from this time yesterday. 

The price of gold starts today little-changed from this time yesterday, but softish at US$1863/oz. This commodity has also been volatile overnight.

Oil prices start today -US$2 lower at just under US$63.50/bbl in the US, while the international Brent price is just under US$66.50/bbl.

The Kiwi dollar opens today at 71.9 USc and more than -½c lower overnight. Against the Australian dollar we are soft at 92.7 AUc. Against the euro we are down at 58.9 euro cents. That means our TWI-5 starts today at 73.4 and a -40 bps retreat.

The bitcoin price is now at US$38,690 and down -9% from this time yesterday. But the real story is the overnight volatility. This crypto (and many others) plunged, getting as low as US$30,202 at one point before making a partial recovery. Volatility in the past 24 hours has been more than extreme at +/- 22%.

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.