Here's our summary of key economic events over the weekend that affect New Zealand, with news the economic squeeze is on and getting tighter.
Among our trading partners, Singapore reported current activity is contracting sharply still, and this is confirmed in a parallel survey.
Japan's PMI is also contracting even though their bounceback is notable. But there hasn't been a good bounceback for their manufacturing sector. Like Germany, it is very dependent on exports, so is now taking a harder hit. Taiwan and South Korea are feeling similar pain on the factory floor.
These results are what makes the Chinese factory PMI result stand out.
And now the Chinese service sector has signaled its sharpest increase in activity for over a decade in June. Their service sector PMI rose from 55.0 in May to 58.4 in June, to signal a substantial increase in service sector activity. It the largest gain in ten years. Furthermore, total new orders rose at the quickest pace since August 2010 and new export work expanded for the first time since January. Firms widely reported that overall market conditions had continued to improve following an easing of measures related to the coronavirus pandemic.
The big question now is whether the Chinese economy can hold on to these expansion rates in the face of the global weakness. Most observers are sceptical.
And this comes at a time major flooding is affecting their agriculture nationwide. Although rice and cotton are unlikely to be affected much, other grains are, and especially animal fed grains. That will keep meat prices elevated over the next year - and keep up Chinese demand for New Zealand meat.
In Australia, retail sales rose +16% in May from April and marginally better than expected. Year-on-year they were up +5.5% after the -9% year-on-year drop in April.
But there is a rising expectation that a fiscal cliff will arrive in Australia about September when payroll support ends. High and still rising unemployment, the collapse in immigration which has reduced underlying housing demand by around 80,000 a year and the depressed rental market will likely combine to drive increased forced sales. Price declines of -10% or more are now widely assumed among real estate professionals, and that may become self-fulfilling. Right now, auction listings are falling, and buyers who have brought off the plan are increasingly walking away from their contracts.
And there is another problem. State and Federal programs that offer grants and subsidies for new home building in the outer suburbs are diverting and strangling demand in inner city neighbourhoods, probably accentuating the price falls.
The US was on holiday this weekend and all markets there were closed.
The latest update of the US Fed's balance sheet shows it is still not adding to its holdings with more QE, and it is now a full month that it has held back. Given that the US Senate is blocking more fiscal stimulus, it seems likely that little more assistance for their economy is coming any time soon.
Official unemployment is at 11.1%, wages and time worked are falling. Part-time working has doubled since February. And the the extra US$600 per week top-up of unemployment insurance will end later this month which means being jobless will get very tough, very soon, and stress about that will be starting to mount about now.
The latest American GDP Now tracking still suggests their economy is shrinking at a striking rate.
Of course, they are not the only country whose economy is shrinking. Most are, and the outliers are now the ones who are growing, like China.
But in Canada, Vancouver house sales returned to more normal levels in June.
And all five of Canada's biggest banks have joined an international boycott of Facebook over concerns that the platform is complicit in promoting racism, violence and misinformation.
The latest compilation of COVID-19 data is here. The global tally is 11,317,600 and that is a jump of +366,000 since Saturday. Global deaths reported now exceed 532,000 (+9000).
A quarter of all reported cases globally are in the US, which is up +74,000 since Saturday to 2,964,100. US deaths now exceed 132,000. The number of active infections in the US is now up to 1,543,300. Recording is slower over the holiday weekend. We are coming up to two weeks since lockdown rules eased so next week is likely to show record new infections. Brazil, Russia and India may soon be joined by Mexico as the worst-managed outbreak outside the US. Inside the US, Texas, Florida and Arizona are the main states where new infections are rife and Georgia is about to join that unfortunate club. The first-hit North East states all seem to have crushed their curves now, but opening up threatens those gains. A lot depends on social distancing during the holiday weekend.
In Australia, there have been 8449, another +224 since Saturday, mainly in Victoria. Their death count is still at 104 but their recovery rate has slipped back to under 88%. There are now 946 active cases in Australia (up +114 over the weekend).
Equity markets ended last week on a positive note but futures trading suggests the S&P500 will open down -0.4% tomorrow. And we are approaching the second quarter earnings reporting season. The withdrawal of a large proportion of companies giving earnings guidance over the past three months makes it hard to suggest what corporate earnings are coming. But on balance it hardly seems likely that they will support those rising share prices. But shares are priced on expectations going forward so markets will be looking for new profit guidance, and without that being positive prices are unlikely to stay high.
The UST 10yr yield is little-changed at 0.67%. Their 2-10 curve is holding at +51 bps. Their 1-5 curve is unchanged at +14 bps, as is their 3m-10yr curve at +55 bps. The Aussie Govt 10yr yield is down -1 bp at just under 0.91%. The China Govt 10yr is up +3 bps at 2.93%. And the NZ Govt 10 yr yield is down -2 bps at 0.96%.
The gold price is little-changed, down -US$1 to US$1,774/oz.
Oil prices have softened slightly over the weekend. They are now just over US$40/bbl in the US and the international price is just over US$42.50/bbl.
But the Kiwi dollar is holding firm, now just on 65.3 USc. That is a gain of more than +1c in a week. On the cross rates we are holding higher at 94.1 AUc and against the euro we are marginally firmer at 58.1 euro cents. That means our TWI-5 has risen to just under 70.2.
The bitcoin price unchanged overnight, still at US$9,039. 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 ».
72 Comments
Expert advice : Is it genuine advice or adviced based on each so called experts / individual biased interest :
Headline in Granny Herald - House Price : If there's another outbreak, the impact will be 'Almost Cataclysmic'
Trying to potray not otherwise, if their is no second wave.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
If there's another outbreak........do they mean to say that now (what has happened) will not be bad on housing market. Classic case where knowing / hoping that their will not be another outbreak trying to influence FHB by stirring FOMO as if current panademic environment is not bad (Relatively 2nd wave is worse than 1st and if 3rd will be more worse 2nd and 1st.....)
NZ Media mixes it up generally.
One day/week there’s a housing crash coming.
Next day there’s a boom.
Keeps the readers in suspense.
That way they can look back later and say they predicted it.
Sums up Mike Hosking vs. Mike Hosking too. An ongoing battle between two diametrically opposed media personalities.
More often than not these days 'Expert advice" is sought from a vested interest, not an unbiased source. For example who does the media consult on house prices - real estate agents or their mouth pieces or bank economists. Both groups have an interest in the prices remaining high, and therefore there becomes a spin to their commentary. Picking the spin is a trick.
Spin? A ball from a left arm bowler that is a off break (to a right hand batsman) is known colloquially as a chinaman. Very hard to pick as not often seen.
I hear the ICC is reviewing the use of that racist term
I hear [reliably] of some primary healthcare facilities have run out of PPE gear in town. No gloves , etc. There is no worry going away on several fronts anytime soon if further waves arrive.
" buyers who have brought off the plan are increasingly walking away from their contracts."
Am I right in thinking this statement means in Australia people are walking away from their new builds?
Wouldn't they lose their deposit if they did this? Normally there is a source link to read more but I couldn't see any.
Generally it refers to apartments bought of the plan - for delivery in 2 years - yes they lose their deposits
Deposits can often be very small as far as property transactions go (less than $10k)
Been happening in Melbourne and Sydney for a while. Would not be surprised to see it happen here.
DC should've also used "bought" not "brought".
Keep up Chinese demand for New Zealand meat. Well a Chinese outfit has a 50% holding in our largest processor. Nice dovetail?
It has been Labour and National policy to flog assets to China over the last 20 years, so as to push up house prices and keep everyone spending more than we earn as a country. They believe it is good for us, on the basis of the best advice, of course. Silly buggers.
Folk who believed that we lived in a very benign strategic environment and that contrary to the saying possession is not nine tenths of the law and we can easily legislate over foreign-owned food production. They may well turn out to be some makers of the most grave mistakes in undermining the NZ of the future.
The ability of foreign owned NZ based food producers to dictate supply is not absolute. Growers are able to direct stock to alternative processors if there is sufficient distaste over Chinese foreign policy. Capacity constraints limit this at present, thus assisting chinese leverage but China will be conscious that if opinion in supply countries turns strongly against it countries such as NZ will find ways around this. The Chinese government will be well aware of the dislike NZ growers have of some aspects of its rapacious international policy and domestic repression.
So hypothetically, what would stop the Chinese government giving undisclosed (politically motivated) preferential market access to Westland Dairy (owned by Chinese Yili Group) while indirectly limiting or reducing (or freezing out) Fonterra access to the Chinese market through contrived non-tariff trade barriers?
Yes, all of those would be possible and other tactics as well if china is crazy enough to start lashing out in a serious way. We are a tiny vulnerable country with few significant advantages. Exporting water in various forms and product reputation being the two majors. So we need to practise shutting TFU.
My last two purchases of electrical gear were from Vietnam and Hungary.
Deliberately.....
I have a policy of not buying anything made in China when I can. That goes doubly for food items.
Economy data comming out is bad and one cannot rule out war (already in war like situation) which happens when leader has to go all out to retain its grip on power :
Xi Jinping's legacy is under threat :
https://youtu.be/PxHV2Z8wHO8
China Threatens Australia :
https://youtu.be/H6FHqH1KhfA
Very good decoding of China by a retired general though from Indian perspective but true in global concept :
https://youtu.be/3zNeC0k6VTA
Economy data comming out is bad and one cannot rule out war (already in war like situation) which happens when leader has to go all out to retain its grip on power 'Be careful what you wish for, lest it come true!'
Chinese state media says double US aircraft carrier deployment to the South China Sea is 'at their pleasure' and they could destroy them at any moment with missiles in chilling threat
China's attack on Indians in their border war was done with clubs because china is terrified of escalation. If ever a real war starts all navies are sitting ducks (other than submarines).
I should collect a few rocks in preparation for possible defensive action.
Would a sling shot be seen as an escalation and start and arms war?
I've been stocking up on small arms by limbing diminutive folk. I'll be okay should it come to clubbing.
The yanks are said to know the exact location of every 'enemy' submarine but the converse is thought not to be the case. The older noisier submarines operated by many second tier navies are sitting ducks.
Audaxes. The Chinese military threat to US China sea carriers is certainly chilling and realistic. But the yanks carrier fleet is so vast and widely dispersed (pearl harbouritis) that the chinese navy would be instantly vaporised and its merchant and fishing fleets internationally paralysed overnight.Talk of a war between china and the US is fantasy. It would deliver a catastrophic collapse of the Chinese economy triggering unrest on such an enormous scale that Xi's silk underpants would self combust.
No wonder China is now turning to countries like Mongolia for support.
Check it out
In the 1930s Stalin moved the Soviets into Mongolia full scale. In 1939 the Russians (Zhukov) gave the Japanese invasion army something of a hiding in that territory.Just because they are red doesn’t mean Russia and China are buddies. 1979 China created as stoush with Vietnam, which was tantamount to China giving Russia the bird. China moving to reclaim Mongolia, 110 years or so since they lost it would be a very very interesting development and a very very direct test of Putin’s strength. Sort of distraction the West might see as convenient.
Could also have a bearing on the Kuril Islands dispute between Russia and Japan which Stalin forcibly occupied and annexed from Japan in a blatant land grab at the conclusion of WW2. Putin today has no moral right to be there. It was the absence of Japanese military aggression towards the soviets after the German invasion that enabled Stalin to deploy his eastern garrison to the defence of Moscow and arguably tipped the finely balanced scales of war at that time in favour of the motherland. The brilliant Ruskie spy Richard Sorge in Tokyo tipped Stalin off that Tojo had no plans to attack.
Yes Sorge also tipped the Soviets off about Barbarossa. But uncle Joe was making so much dough out of supplying raw materials to Germany, well greed prevailed over reality, until it was all fired back at him. Zhukov honed his encirclement skills with armour in defeating the Japanese in 1939. And he knew full well the Wehrmacht had taken note. Thus when “The Siberians” arrived there was already quite some fear instilled into the ranks of the German and other axis soldiers. It was well founded, indeed it was. (MM see if you can get a copy of The Forgotten Soldier by Guy Sajer, life on the eastern front by a young conscript from the Alsace region)
Yes, pretty sure I've read it but thanks will follow up. Might challenge you on greed being Stalins prime motivator for supplying the Wehrmacht. Comrade Jugashvili knew the Hun was coming sooner or later and desperately wanted to rebuild his armed forces after his sociopathic purges had decimated its strength so needed to buy time, with the winter war against Finland emphatically demonstrating that. He chose various appeasement methods including supplying materiel and even initially ordered his forces to not oppose too strongly Paulus's barbarossian invaders.
I have same policy...all my friends also.
Dear Missy Chung, like your style and your friends’ too!
Lost decade ahead?
It's likely which is why I'm pivoting to different positions to suit the current environment.
I think its very likely that we will have a long era of low growth and something of a restructuring eventually.
We're pushing on a string currently.
by Yvil | 30th Jun 20, 8:34pm (about B & T's auctions holding up well)
"Only 35 (39 now 3 days after the article) comments as house sales were good, if next week news comes in that houses are not selling well, there will be well over 100 comments….."
Just a heads up, the 'good property news' article from Saturday has more comments than the 'bad property news' from Friday. Also, I won the prediction competition on that one, as my prediction was closer. Can I have the title of Grand Oracle of Interest.co now?
I'm not sure you can edit your username but why not sign off your comments with the title you prefer.
Wage subsidy will not be extended :
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Good for clarity but will be bad news for industries which are unable to operate because of border restriction like travel industry which will be extinct. Worse is yet to come as many ancillary business too will close down with many regions badly affe ted than some.
It is wait and watch.
Unfortunately the effected sectors will have to face the reality of the next 12 months and take appropriate action. Some people will have to change careers. Its hard reality but many would have been through this in the past, I did in 2008, without tax payer subsidy. I think we are past the 'emergency' stage.
It's sad but true. The wage subsidy served its purpose to provide a lifeline while we were under lockdown, so that once the lockdown ended viable businesses could survive.
The reality is that covid isn't going away anytime soon, and we will all have to adjust to the new reality for the next few years.
Interesting to see Todd Muller's harsh criticism after
1- the day he got 'promoted' to leader, he said National won't stay on the "opposition for opposition's sake" path,
2- their own Grand Economic Recovery Plan is... a road.
New Zealand's young people will be greatly relieved in times where incomes trail house prices massively, lifestyles are precarious compared to future generations, and they face threats of NZ being sold out from under them by previous generations...that when the chips are down, National comes to their rescue with:
A road.
Those two words could be National's election slogan.
I assume once it's built Jian Yang will want us to sell it to the CCP?
The latest update of the US Fed's balance sheet shows it is still not adding to its holdings with more QE, and it is now a full month that it has held back.
The mechanics and impact of QE.
Bank Reserves Part 1; The Great Tease
Bank Reserves Part 2; If QE Was Really QT, Then Why Hasn’t QT Been QE?
Bank Reserves Part 3; In Practice
Bank Reserves Appendix; One Additional Case Study
Finally,
QE entails purchasing assets that investors are fleeing toward, not assets that they are fleeing from
The USD strengthened against the NZD which suggests that the money isn't flowing. Yet while I was helping someone out last week I noticed the euro had strengthened against the USD. There's a currency flow heading somewhere outside of the US and it's not NZ.
Inside the US the money doesn't seem to be flowing with their massive wave of unofficial unemployment and the GDP falling my more than 35%. There seems to be QT in the real economy.
New Zealand Government is pouring $ millions into the Travel and Tourism and Hospitality sectors - why? - to keep them afloat? - to keep them viable? - The scenery isn't going away - New Zealand needs to transition away from these transient sectors that it has no control over - it could go into the quarantine business - lots of accommodation - you would soon find out how many tourists would be willing to pay $5000 each for 2 weeks enforced pre-holiday lock-down before they could get out and see the sights - The increased demands coming from the affected sectors is deafening. They get their $ millions and oops suddenly the outside world goes into total melt-down and NZ shuts its borders again and whoops a $ billion or two wasted
Was talking to our travel agent who has been busy with refunds and readjusting travel arrangements of all affected by travel restriction and had only wage subsidy to support / cushion - from which were paying wages and also office expense thereby reducing the loss to manageable level to hold.
Their office may shut shop and that may effect many travellers who will be affected by their shutdown. Even domestic travel as per her does not help travel agents much, as locals for domestic flights and booking do it by themselves not involving travel agent though domestic travel may help some activity and accomodation to survive - breakeven but definitely most travel agents will shut down or go in hibernation, if they can afford to pay rent and other expenses from their pocket or will shut along with tourist destination which thrives on International tourist particularly in South Island.
Anyone still using a middleman/middlewoman/travel agent as opposed to booking directly on the airline website in 2020, deserves to lose their flight credit.
We have been and was great help in planing our international holiday. For domestic even we do it by ourselves but for international travel use to offer us better than online or similar deals and more as use to help us by giving options be it airfare, tours or cruise to decide with all pros and cons.
I had a booking for June to Europe and she was wonderfully with all queries and assistance.
Am sounding like PR for that travel agency :)
Hopefully they will survive.
They still serve a purpose to a certain age group.
My grandparents used to dress up to go and see the travel agent. Unreal.
Do you need face-to-face attention or could they provide their services out of a tin shed out the back of Kazakhstan
Either way its a stranger booking your trip.
Its like a real estate agent saying the house has your name written all over it.
I don't know anyone around my age (30) who would use them, and I'm surprised they still have a presence on the high street. Speaking to my Dad though, I think it's a Boomer thing.
I'm a boomer and use and agent for some trips, not others. A straightforward couple of flights out and in, hotels, rentals cars etc is dead simple to book directly online but add complexity or off the beaten track places and it's worth using an agent. I imagine most of your 30 y/o friends would be the former. Our agent has sent us to lots of wonderful places and experiences in various places around the world that the extensive online research we always do would not have identified.
I'm 30 and I've used the same travel agent for the last 5yrs or so every time we go overseas as I can't be bothered doing the admin (I have a wife whose idea of a holiday is visiting 10 countries in 2 weeks sort of thing). I'm prepared to pay to not have to think about it.
What a stupid comment. We booked business class on Air NZ and were REFUNDED way before the fuss started. It cost no more to book through an agent than direct and had an advocate while the cheap charlies spent hours on the phone going nowhere.
I'm guessing it's all part of a larger plan to keep employment up whilst they plan large scale infrastructure projects to keep folks employed.
Agreed. These are low value added industries (travel/tourism/farming etc) which encourage low skilled workers. They need to focus on tech and innovation to make us more competitive and bring back the brain drain.
Watch this video of Naval Ravikant, EHF Fellow, talking on the New Zealand opportunity for building startups. Hes founded many start ups and very well regarded in this area.
How capitalism is killing itself:
https://www.youtube.com/watch?v=6P97r9Ci5Kg
Capitalism's Apocalypse Approaches:
We can learn a lot from history .
The 'recovery " particularly in share prices in recent weeks , has been defying logic, and makes no sense until you read what happened between 1929 and 1933
Then you get a sense of dejavu
May years ago as a student I read a timeline of the Great Depression , and it involved fairly cumbersome reading from numerous academic papers and sources, its a lot easier today .
MARCH 1929
Basically the initial shock in March 1929 when the NYSE crashed , it was seen as just a bad recession , and in a few months the market rallied .
MAY TO OCTOBER 1929
By May 1929 it had gained 20% and by October 1929 the NYSE peaked at its highest ever , before a spectacular crash that took until 1954 to recover .
1931
It took a whole year for the "recession " to bite , and only in 1931 did we start to see the collapse of Banks
1932
Unemployment only peaked in 1932 , at a staggerring 23% , and the Stock markets lost around 90% of their historic value .
Inflation was a negative 11% , in other words the prices of everything was falling , including wages .
Banks scramble to deal with loan defaults , and the US Government actually closed the Banks to stop people drawing their money out
1933
Germany is in a terrible state and in March 1933 the Nazi Party wins a narrow majority
November 1933
The US Government embarks on a massive Public Works Scheme to get the economy moving again .
It took until 1940/41 to get unemployment down to manageable levels , and that was to some degree driven by military spending in armaments factories
My only comment to that would be that Central Banks took note from that experience and realised that intervention is required to prevent the suffering that occured 1929 - 1933 - hence the massive funding the Fed (and other central banks) have provided in such a short space of time to prevent us all from falling into serious deflationary spirals. So I think its possible we've experienced the 1929-1933 type event in 2-3 months, but the question now will be what happens when you when you have that much QE sloshing around the system and limited aggregate demand?
Could I add to that the China myth is making a bad situation a whole lot worse.
What we may be seeing in Xinjiang and Hong Kong is the start of a failed state. A focus not on the economy because that's f~cked, but on complete paranoid control.
Chinese outflows of hard cash have distorted asset pricing world wide. As this stops, and it will, the reversion to mean (I.e. asset prices based on domestic wages) plus overshoot due to the recession is going to be catastrophic for lending institutions.
I agree with your assessment that our asset markets are playing the 1929 scenario and 2021 to 2023 are looking as bleak as hell.
Question -Does Interest.co.nz have any plans to have some articles leading into the election, policy summary, comment, question and answer etc?
When are we going to see the DATA showing the effects of the hard lockdown .......starting with the GST for April and May (filed 19 June 2020) so we can compare to the same period last year ?
Followed by car sales for the past 120 days , along with the sale of White Goods , clothing , footwear , etc
Just like a major storm or eathquake , we need to assess the damage Covid has done, both to the public and the fiscus , so we have a clear picture of what needs to be done in the recovery process .
We cannot bury our heads in the sand and hope for the best .
We need a plan
It's relatively simple to develop your own dashboard on what's happening once you start digging into the available stats.
~ MIA publish the car sales data.
~ Credit card lending is an aggregate for consumer sales
~ Arrivals and departures is easier to read than the visa stats which are really hard work (this is showing the number of people leaving the country including those with visas cancelled)
~ Covid19 wage subsidy and those recieving income support are published on the same spreadsheet
~ Administered insolvency and bankruptcy stats are readily available (predictably not yet showing any bounce)
etc etc
The only thing I believe has no decent stats is the state of the housing market. B&T reports are very loose in terms of what they report and when, REINZ data isnt published in any granularity so you cant draw conclusions. Likewise Corelogic data in Property Guru is woefully slow in updating and incomplete re apartment sales (I have a subscription for this).
A similar thing happened in 1986/87 if my memory serves me. The market crashed in late 86 then spent 9 months in 1987 climbing back up & over the top. Then October 87 Crunch!
"Then October 87 Crunch!"
That experience psychologically scarred many baby boomer investors and has led many baby boomers to avoid the share market entirely and prefer to invest in real estate.
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