Here's our summary of key economic events overnight that affect New Zealand, with news the disconnect between equity market sentiment and economic data seems to be getting wider.
But first, we get the American labour market report for May on Saturday (NZT), and today the pre-cursor ADP Employment Report was released. It reported -2.8 mln jobs were lost in May, vastly less than expected (-9 mln) and vastly fewer than in April (-19.6 mln). Analysts are expecting the American non-farm payroll report to show job losses in May of -8 mln but this could be at the top end.
The giant American service sector contracted sharply again in May, but not quite as sharply as for April. New order levels are still shrinking, but again not quite as dramatically as in the previous month. The ISM Report wasn't as sharply negative as expected, but the internationally benchmarked Markit one was. But essentially they both tell the same story of a building service sector contraction.
On the manufacturing front, the official factory order data for May shows a worse situation than for April.
But the less-than-expected jobless signals, and less-than-expected services PMI falls is being magically translated into positive signals on Wall Street. The S&P500 is up +1.3% so far today. And that follows European markets which were all up more than +3% (except London). Yesterday, the ASX200 was up +1.8% and the NZX50 Capital Index was up +0.8%. Following these markets, Shanghai was unchanged but both Hong Kong and Tokyo rose about +1.4% each. Equity markets have priced in a full recovery, as though the pandemic is over and a fleeting historical bump in the road.
Interestingly, China has said it is considering applying to join the Trans Pacific Partnership (CPTPP). It would be a powerful boost to the trade group that the US rejected. But it would require China to sign up to much higher labour and environmental standards than their watered-down RCEP group permits. The Chinese comments drew immediate scepticism about the motives.
China's private sector services PMI review has reported a rather remarkable improvement in May, far better than the official version. It now sees China's service sector expanding at its fastest clip in more than a year. Notably, both business activity and new orders expanded at the quickest rates since late 2010. It was a result that wasn't expected even by Chinese analysts.
But quite the opposite is going on in India which reported another very grim service sector PMI as their country remains locked down.
The Aussies reported Q1-2020 GDP yesterday and it was down -0.3% in the quarter. Their Government says Q2-2020 will be much worse, so "we are in recession today". It is Australia's first recession in almost 30 years. One reason analysts are almost certain Q2-2020 will be weak can be seen in their May services PMI which is still contracting at a very sharp rate.
The latest compilation of Covid-19 data is here. The global tally is now 6,438,300 which is up +113,000 in a day, rising at a faster pace than recently.
Now, just under 29% of all cases globally are in the US, which is up +20,000 since this time yesterday to 1,840,400. This is a similar rate of increase and the spread isn't abating. It is moving west and Arizona has seen a sharp rise recently. US deaths are now exceed 107,000. Global deaths now exceed 382,000.
Sweden is having second thoughts on its strategy, but it isn't changing tack. And Israel closed 15 schools overnight as it rushed to contain a renewed coronavirus outbreak that threatens to shut the rest, weeks after restarting lessons.
In Australia, there have been 7229 cases (+8 since yesterday), 102 deaths (unchanged) and a recovery rate of just under 92% (unchanged). 25 people are in hospital there (-1) with 5 in ICU (+1). There are now 487 active cases in Australia (-7).
There were zero cases again yesterday in New Zealand, so now only one person is left with it in the whole country. We are now at twelve days with zero new cases.
The UST 10yr yield is up sharply, up +8 bps today at 0.76%. Their 2-10 curve has steepened to +57 bps. Their 1-5 curve is also steeper at +20 bps, and their 3m-10yr curve is now at +64 bps. The Aussie Govt 10yr yield is up +9 bps to 1.01%. The China Govt 10yr is up further too, by another +5 bps to 2.83%. And the NZ Govt 10 yr yield is also firmer, up +5 bps to 0.91%.
The gold price is lower again today, down -US$26 to just on US$1,700/oz.
Oil prices are unchanged today. The US crude price is still just over US$36.50/bbl. The Brent price is still just on US$39.50/bbl.
The Kiwi dollar is still rising. We are now just on 64.3 USc which is another +¾c gain and now a fifteen week high. On the cross rates we are up +½c to 92.7 AUc. Against the euro we are also firmer too at 57.2 euro cents. That means our TWI-5 is up to just on 69.1.
Bitcoin is still unchanged from this time yesterday at US$9,577. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
58 Comments
More big American job falls; US service sector contracts again;
More bad news from US, still stock mark is up on its way towards all time high.
What is happening ?
Yesterday Barfoot was potraying that housing sector is positive along with Raywhite as they too send an email/promotion to everyone on their mailing list :
https://view.joomag.com/nz-ray-white-now-1-june-2020-ray-white-now-nz-1…
Can housing market be immune as per the main players in housing sector in NZ or are they just fibbing ?
Money printing ....machines running hot..it has to go somewhere?
Thank god it's all gonna trickle down eventually. Any moment now...
If you read the whole ray white mailer you’ll see it’s advising clients to sell now, not later. So not really that positive...
To be fair though, "now" will always be the best time to sell or buy from the agents point of view.
Of course, but they invoke the spectre of falling prices of 10-15%, so there seems to be some acknowledgement of the real downside risks to housing.
and Ray White did advertise a mortgagee tender for a property in Wellington at me yesterday... standard mortgagee sale or sign of things to come...
"Market remains strong", according to Lowe and Cos (Wellington) weekly mailer. A few weeks ago they were praising removed LVR and the possibility of negative interest rates. Sigh.
and the possibility of negative interest rates.
"Fear not, comrades, socialism will save our portfolios!"
That's the idea. Do everything and then even more, do the unthinkable, sacrifice decades to prop up the failing Ponzi... then go on Stuff and Herald to brag about our armor-plated housing market and an amazing recovery.
It's like how North Korea is sacrificing everything to appear strong, then asking for outside help when all the juice is gone, then showing off their great power with another missile test or military parade... then ask for more help because they're desperate again... rinse and repeat.
The consumer world and the corporate world that runs the consumer world must be viewing China’s re-emergence going on recovery with quite some satisfied anticipation . Apart from Japan, no country so far has seriously considered a return to more self dependence. China has assumed and retained dominance of the world’s supply chain of components. China will enter into any trade treaty it might choose, especially if it should counter the influence of the USA, but that won’t change one iota of how China gets about its business or treats its people.
It doesn't matter that China makes a fool of the whole world. The only thing that matters is profit. If western companies can save 0.000001 cent on the dollar by producing something in China instead of anywhere else in the world, they'll choose China. Even if the consumer is upset because the Chinese crap breaks after 3 months. Even if the product is toxic, literally poisoning both kids and adults. It doesn't matter, manager got his $5k bonus, woohoo!
The problem for America is that China no longer "Only" make cheap crap. Their high end manufacturing has come from nowhere to lead the world and its that fact that has finally dawned on the greedy corporation owners in the USA that are now calling foul after reaping the extra profits from the cheaper manufacturing for decades.
From what I've heard Chinese manufacturers are cutting corners all the time, doing their best to cut costs (and reduce quality) until they go too far and get reprimanded. Then they behave for a while, and then start cutting corners again...
I really don't think it's normal that almost all electrical devices have some tiny little plastic crap or a capacitor break in them after a year or two. My 286 motherboard + CPU are still working after 30 years... how come modern motherboards have capacitors dying left and right after only a few years?
I'm guessing the factory can produce 10000 high quality capacitors for $2, or 10000 low quality ones for $1.95. I don't know if it's the western company choosing the cheap ones, or the factory shipping the cheap ones instead of the good ones that were ordered.
Chinese manufacturing in a nutshell, really their core ethos: 'Cha Bu Duo' (差不多), means 'close enough' or 'almost good enough' it permeates everything they do and makes them generally unreliable.
There is no point in building a PC that lasts for 30 years, its going to be a obsolete curiosity, and cost you 3 times as much as one that will last the 5-10 years that a PC is going to be capable of running current software and peripherals. They are engineered to run much closer to the limits these days.. Ghz instead of Mhz, far more efficient too. My home PC is due for replacement.. the original spinning hard drive died after 9 years, the video card has been upgraded and a motherboard died after about 5, replaced with a 2nd hand one thats probaby almost as old. Thats not a bad run really.
Used to be true, but no longer. I do computationally intensive single threaded work and both my laptop (8yr old) and desktop (9 year old) are not noticeably slower than new machines. There are some highly-parallelized video/image processing, compression, search or machine learning tasks that can be sped up a lot with newer multi-core processers, but for a great deal of computer use computers stopped getting significantly better some time ago.
Yeah, i disagree, my new work desktop vs the old desktop, both running solidworks which is largely single threaded, the difference is very noticable.
The markets seem to be behaving like a game called "pass the parcel" and the music has started again, everyone oblivious to what might or might not be in that parcel. Why should THL shares be doing anything based on a $29 a day deal for kiwis, enjoying the "music"
But the less-than-expected jobless signals, and less-than-expected services PMI falls is being magically translated into positive signals on Wall Street. The S&P500 is up +1.3% so far today.
Survivor’s Euphoria
But, like 2008, ask yourself if the economy and the monetary system really have made it through this ordeal unscathed? Not in the media sort of way, where central bankers are never criticized and their word taken as the new gold standard. Unemployment. Bankruptcies. Dollar shortage. Have those critical issues really been handled and solved, or is it simply another matter of timing and confirmation bias?The worst didn’t happen yet, so nothing worse can happen. Link
OMG The 30s!!!
I suppose you can admire their zeal and persistence, but then again what is a zealot without his or her zeal? The desperation by which to rescue the Fed’s money printing exercise is palpable. Stocks, sure, bonds, however, aren’t making it easy. Especially inflation expectations which are crucial to Jay Powell’s fairy tale.Over the last several days, Bloomberg (obviously) has been unusually and sharply focused on the 30-year long bond. The publisher like everyone else mainstream absolutely hated the damn thing for years when it was inconveniently signaling (correctly) that globally synchronized growth was a bumper sticker slogan and never anything more than that.
Now they can’t get enough of the long end. Why? Link
TDS and medicine. "A Guardian investigation can reveal the US-based company Surgisphere, whose handful of employees appear to include a science fiction writer and an adult-content model, has provided data for multiple studies on Covid-19 co-authored by its chief executive, but has so far failed to adequately explain its data or methodology.
Data it claims to have legitimately obtained from more than a thousand hospitals worldwide formed the basis of scientific articles that have led to changes in Covid-19 treatment policies in Latin American countries. It was also behind a decision by the WHO and research institutes around the world to halt trials of the controversial drug hydroxychloroquine. On Wednesday, the WHO announced those trials would now resume.
Two of the world’s leading medical journals – the Lancet and the New England Journal of Medicine – published studies based on Surgisphere data. The studies were co-authored by the firm’s chief executive, Sapan Desai."
https://www.theguardian.com/world/2020/jun/03/covid-19-surgisphere-who-…
Could this be part of the problem?
Statistical inference is used as the basis of formulating theories. Scientific research uses the inductive research method, not the hypothetico-axiomatic method dominant in economics, which is another way of saying 'making things up'. Link
Good to see you admit you have TDS. The article has nothing to do with Trump except to point out that the orange man was promoting Hydrochloriquine when there was no evidence to support it.. and there still isn't. Removal of some dodgy data saying it doesn't work is not the same as producing data that it does work.
The effect has been know about since 2005. What do you think motivated the six employees at Surgisphere? Or more disturbing why were they able to influence WHO, Lancet and NEJM? But hey orange man.
https://virologyj.biomedcentral.com/articles/10.1186/1743-422X-2-69
Oh look, heres a study in monkeys of a different virus. Yeah, good going m8.
"Chloroquine is a potent inhibitor of SARS coronavirus infection and spread" - you'd better let WHO know before they waste any more money on trials m8. Let's just gloss over six dudes swaying the medical establishment and pretend it didn't happen because orange man.
https://virologyj.biomedcentral.com/articles/10.1186/1743-422X-2-69
2005, before covid-19 was known to exist.. a different virus, and a test in monkeys.
I think i'll let WHO do their job, if they think its worth investigating, then let them run the trials and see what the outcome is.
Again, zero reputable evidence that Hydrochloriquinine is effective against SARS-Cov-2 at this stage, this might change once some solid trials have been conducted.
https://www.healthline.com/health/coronavirus-vs-sars might help you understand that the original SARS virus and the covid-19 coronavirus are not the same thing.
Exactly - let WHO do their job given the previous work on SARS coronavirus and chloroquine.- rather than be swayed by orange man ideologues. You got there in the end.
Yes, fairly common knowledge no two virus are the same.
Spain etc continue to use HDC. I very doubt docs would be using it if they did not see a positive effect. The trouble with pandemics is they run a great deal faster than gold standard clinical trials.
So you now admit that orange man was talking shit promoting HCQ and was rightly being rubbished for it?
Chloroquine needs to be used in conjunction with especially zinc and also vitamins C and D.
Most patients suffering from the Wu-Flu lack in vitamin D.
https://www.webmd.com/lung/news/20200409/chloroquine-zinc-tested-to-blo…
Mahir Ozmen, a professor of surgery at the Istinye University, School of Medicine in Istanbul, Turkey, says he thinks the best way to use chloroquine is in combination with zinc and vitamins C and D. He is running a clinical trial, testing to see whether this combination protects health care workers and their immediate families – including his own.
hopefully this will result in completion of proper trialing to see what if any effect use of hydroxychloroquine has in early treatment with these other additions. Was an Indian prophylaxis study in recent days saying hugely beneficial in reducing severe sickness amongst health care workers taking it, and another US study that said no change in number who got sick (but no info released on how sick they got). I think jury is still out, but deserves further study.
Central banks caught in a lose-lose-lose
https://thesoundingline.com/el-erian-central-banks-are-caught-in-a-lose…
Great interview - I agree. Central banks are really backing themselves into a corner.
Good article on housing market in Australia :
https://www.livewiremarkets.com/wires/australian-house-prices-starting-…
It's good in that the author lays out his case for / against his prediction. It's bad in that the reader still doesn't really understand how the author comes to his conclusion other than sticking his finger in the air (that may sound harsh because the author is Shane OIiver, but the reality is that his forecast modelling is not laid out for people to see).
Well, either I am wrong or the equity markets are. As they keep rising, I become even more defensive. I now have almost 40% of my total portfolio in cash awaiting what I see as an inevitable fall when reality kicks in. I fully expect the NZ market to fall below 9000 at some point and then it will start to look attractive.
I know little about the gold market, but given the circumstances, why is it not much higher?
Buy Bitcoins. Every countries in the world is printing cash at a much faster rate than Bitcoins are ever generated.
Sure. Buy an unregulated 'asset' with no underlying value other than a bunch of 'even bigger fools' competing for it...
You might as well buy something more tangible like gold, classic cars, collectibles... All of the collectibles I invested in made pretty good gains in the past 3 years, varying between +10% and +150%. I'm not saying that's sustainable growth, I expect a long-term growth about 5-7% p.a.
Unregulated market with a bunch of 'even bigger fools', but at least you get something for your money.
Likewise, however I'm sure we are not alone in our cashed up, holding position, I've been waiting three years, but will never overpay for anything, not even a dabble
I don't have shares but I do have Kiwisaver.
I am fairly bullish on shares. I think it's quite likely that the OCR will be negative within a year, that will mean TDs will be pathetic.
The share market and housing market will be supported, although I don't think either will experience more than minor growth in coming years.
I know little about the gold market, but given the circumstances, why is it not much higher?
Gold miners have taken a hammering in the past few days. I own gold and gold miners. Yes, it's a bit frustrating to watch as equities get smashed, but the gold price is still up 10%+ this year. It could be a lot worse. To be honest, leading gold bugs seem to be quite conservative in calls for price movements.
"Gold miners have taken a hammering in the past few days. I own gold and gold miners. Yes, it's a bit frustrating to watch as equities get smashed,"
Haha
I did warn you earlier and instead you decided to bite the hand..
LL01 - The fall has come and gone, it's hard to get your head around it but the market has responded to the QE happening at a unlimiting rate.
All that money as always will filter into assets classicly shares and property.
Cash has become the very poor investment class penalised by low OCR and QE.
You dont have to study the markets for long b4 the reality that they are manipulated becomes apparent.
The dow being led by Boeing is great example.
The gold market, including all the precious metals, is seriously manipulated, as gold represents a major threat to the usd. For more insight, check out GATA, the "Gold anti trust association ", they do an awful lot of work on behalf of gold investors. The Comex and the lbma are the players responsible for the market fix.
They have been doing so for a long time.
Yet, they are under an enormous amount of pressure at present. There are parties, probably China, that are demanding physical delivery, and this, among other factors, is beginning to cause huge losses for the bullion banks. This is why if you want to buy physical at the moment, you have to pay high premiums and live with big spreads, no one is selling, and there is a shortage of physical. MSM will have everyone believe otherwise. The more realistic price for actual gold, not paper, is approx $2800 usd/oz, silver is approx $31usd/oz.
A very appropriate comment from Aussie this morning:
I’ve never seen anything like it. We’re accelerating through an entire financial markets cycle in three months.
We’ve had the blow-off, crash and DXY surge, stimulus, reflation and now bond back-up, value rotation and push into EMs as DXY falls all in three months when it should all take three years.
The real economy has absolutely nothing to do with it. This is an entire financial market cycle played out on methamphetamine thanks to the nationalisation of capital markets.
Yes. This is well expressed.
Changing your opinion now bw?
I wonder how much our dollar will be worth when the rest of the world finally clicks onto the fact that the USD is costing as much as toilet paper to print ?
If the rest of the world is also printing money like there's no tomorrow, it will all balance out. Only asset prices will increase. Isn't that great?
CJ - Whether it's great or not asset prices are primed for another up leg.
Hence the apparent disconnect between the share market and real economic data.
Hence the continued strength in the property market.
As always we don't create the rules, rather we only need to understand the implications, then chose to participate or watch from the side lines and get more dispondent of not buying in and reaping the gains.
I chose to participate, that's made me wealthy and thats why soo many people on this site are angry - what should or could happen in markets rarely does.
Rational reasoning - EG the likes of RP make zero difference to market outcomes !
Happy Investing.
I don't believe that zero-risk investments exist, so I always look at the possible downsides instead of just imagining how much money I could make if things go well...
Also, property has a very high entry point. I can't directly invest $10000 in the housing market (unless via some managed fund, whose operation costs eat the possible profits). The lowest amount I could invest there is $100k, but then I could only do so utilising leverage. So the entry point becomes $500k, which is more than all the money I've saved up during my career. I'm not willing to risk that, or even 20% of that in the hopes of capital gains.
The way I see it, downside risk in the Auckland property market is gigantic at the moment, despite all the govts' and banks' efforts to mitigate it. I accept that some people think the risk is much lower. What I can't accept is when people say there is no risk at all. Unless they're willing to guarantee it, or insure me against it at a reasonable cost.
Over the long term and using leverage you will come out on top
Can you guarantee that?
Will Japanese property investors come out on top eventually?
I think so. They probably still experience consumer inflation which would also include rent increases. So even if your house asset does not go up (if that's your motive) the rent savings will more than offset.
CJ - ' Will Japanese property investors come out on top eventually? ' - NO
For a huge number of reasons the answer is no, I have had a lot of contact with Japanese people some of who own property for over 20 years.
Right now there are 2,500,000 empty dwellings in Japan. They are on track to lose 40 million people over the next 50 years taking their population from 126 mill to 86 mil.
I could right a book on whats happened in Japan since 1989 when their banking system crashed.
My point is you can not possibly compare Japan with NZ thats just rediculous !
You say it's ridiculous to compare Japan with NZ. I say it's ridiculous to make blanket statements like Houseworks' comment, "Over the long term and using leverage you will come out on top". There is no universal law (or even a special, localised law of physics just in NZ) that says using leverage will guarantee profits in the long term.
My point is, if there is no guarantee, then people need to consider the downside risk. How we perceive said risk is up to the individual, but to me investment starts with some sort of risk assessment.
You over-think it waaay too much. Dont be stupid with your future and ignore buying a house.
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