Here's my summary of the key events over the weekend that affect New Zealand, with news of Chinese uncertainty roiling commodity markets.
A brutal new year selloff in oil markets deepened overnight with prices plunging as much as -5% to new 12-year lows as more ructions in the Chinese stock market threatened to knock crude into the US$20s.
In fact, Chinese shares fell to their lowest level since September yesterday, with the benchmark Shanghai Composite Index losing -5.3% extending last week’s near-10% loss. The Shenzhen market lost more than -6.2%. Losses are spilling over to other markets.
However, the recent small fall-off in global demand for air freight may be bottoming out, with cargo volumes growing month-on-month in November; that's what the International Air Transport Association reported overnight. Air cargo volumes (measured in Freight Tonne Kilometers) were down -1.2% in November 2015, compared to November 2014 on a seasonally-adjusted basis. Total cargo volumes, however, rose compared to October 2015, and were higher than the recent low point in August. This activity paints a completely different picture to what is happening to international trade than the shipping measures that were used in the 1990s. Demand for ships is down, but demand for freight aircraft remains high.
World trade issues will probably be focused on Auckland in early February for the formal signing of the Trans Pacific Partnership trade deal. A recent World Bank study (reported in the AFR) shows that generally rich countries won't benefit as much as developing countries - except for New Zealand who stands out as a clear winner. Another stark conclusion; those 'in' benefit much more than those who have not joined.
The US Fed has reported its Labor Market Conditions Index (LMCI) at 2.9 in December, up from 2.7 in November and far above economists expectations for a reading of 0.4.
It can be a very profitable business being a regulator. Data out overnight shows that the US Fed paid a record US$117 bln dividends to the US Treasury. That's a lot given the Federal deficit is US$440 bln (and declining).
Back in New York, the UST 10yr yield benchmark has risen in mid-day trading today and is now at 2.18%. Local swap rates fell sharply following the Wall Street lead yesterday so may well rise on today's indications.
And crude oil is still falling and is now just over US$31.50/barrel. Sub $30/barrel now looks inevitable. Given supply will stay high, it is softer Chinese demand and the stronger US dollar that are driving this market.
And the gold price continues to slip and is now at US$1,098/oz. Much of this is also just an 'exchange rate effect' from the rising US dollar.
It's been a variable night for the Kiwi dollar but it starts today at similar levels to this time yesterday. It is now at 65.5 US¢, now at 93.7 AU¢, and at 60.2 euro cents. The TWI-5 is pretty much unchanged at 71.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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50 Comments
For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving.
This has never happened before. It is a horrific economic sign; proof that commerce is literally stopped.
http://www.zerohedge.com/news/2016-01-11/nothing-moving-baltic-dry-cras…
I know, they have to make money somehow. Either way the Baltic dry index is not looking positive for world trade.
http://gcaptain.com/2016/01/11/baltic-dry-index-falls-to-another-fresh-…
http://ibankcoin.com/flyblog/2016/01/11/the-baltic-dry-index-hits-a-new…
What a load of rubbish. Many new giant and efficient ships have come online in the last 12 months and oil has plummeted. The BDI is not a measure of volume shipped, it's a measure of cost to ship. As such, of course the BDI is down as input costs are making it cheaper to ship.
Back in 2008 the cost to ship was 11000, today 450. 11000/450 = a factor of 25.
Oil has nothing to do with the DRY index really.
So you comment is on what? that we dont seem to be facing a recession?
Yet iron ore prices is down over half?
coal?
copper?
So sure while there maybe a Q on the accuracy / usefulness of the BDI but when you also have a whole slew of supporting data with a similar outlook you have to wonder.
I was commenting on confused people like your good self. Do you still think the bdi is a "bulk raw material index"? I'll spell out the oil link. Ships run on bunker fuel , makes up 70 odd % of cost. Cheaper fuel, cheaper running cost, lower cost of shipping, lower BDI. Coal, copper, iron - who cares what is in the ship. The number of ships built since 08 relative to trade volumes increases is the over riding factor not the value of the cargo.
"by steven | Tue, 03/03/2015 - 11:15
up
0
Index,
2008 = 11000
2009~2014 = 850~1000 ish.
2015 = 510 a 40% drop in 4 odd months.
its a bulk raw material index btw."
So still no evidence its "better" ships? purely conjecture? sure looks like it.
I am not confused on the cost of bunker fuel or its impact at all that can clearly for instance be seen in the run up to mid 2008 and its collapse after oil peaked in price. BTW note however that ships are not only larger but are now steaming far more slowly, in fact new container ships are being specifically designed to run at these slower speeds, so no more 25knots+. This points to the ppl paying the shipping costs be highly price sensitive to the shipping cost and are prepared to wait longer, or it seems cant and have to pay the air freight cost.
2015 yep sure 510, and now 420 ish at year end where the shippers back at the beginning of the year expected a year end to be up.
If you actually look at the BDI we can see its seasonal? ups and downs (like September) so we would have to be able to remove those and other factors to point to the residual effect of bigger and better ships. In the meantime I see nothing from your posts or googling offering some proof to support your position.
You do indeed not care whats in the ship of value just that it isnt empty. The comment on price reflects the lack of demand fr raw materials which means a lot less being shipped.
Well I think not (as a load of rubbish). Why? because of articles like this point to a genuine problem,
"Last week, I received news from a contact who is friends with one of the biggest billionaire shipping families in the world. He told me they had no ships at sea right now, because operating them meant running at a loss."
and,
"Commerce between Europe and North America has literally come to a halt. For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. All of them (hundreds) are either anchored offshore or in-port. NOTHING is moving."
http://www.zerohedge.com/news/2016-01-11/nothing-moving-baltic-dry-cras…
On top of that we have a matching containership problem,
http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years10&&da…
Now sure there maybe be an effect but when you take all the other data? it all looks rather consistent.
Steven, I wonder if you will only truly be happy when the world finally ends? So much negativity....although I do love the friend of a friend who is a shipping billionaire......we all have one of those!
I work in INTL shipping and can tell you from my experience this is normal. The BDI had a bubble between 05-08 and another bubble a few years before that. Otherwise, what you are seeing now is what it has been like for the last 20 odd years. Capacity (up) and input (down) costs have moved significantly and the cost to ship accordingly. It could actually go a bit lower if oil really does bottom out as some are projecting.
Container based shipping is definitely seeing change as well. A big part of this is large corporations looking at manufacturing away from China as things are getting too expensive. We will see large changes in shipping lane volumes as a result. Other ports in South East Asia will be the big winners in the short term. I hope the infrastructure at these ports is actually capable of servicing the mega container ships due in the next 24mths. They are truly colossal.
Ad Hominem attack is a failure of logic / argument. "happy on the world ending" immaterial to the Q are we doing OK or not? Such a Q is relevant to business and investing decisions. Apart from that the answer is no I would not be happy if we are heading into a downturn, which is not the same as the world is ending BTW.
ZH (though I dislike them) also point so such anecdotal evidence opposite to your view. I asked for supporting evidence / URLs not your opinion please.
In terms of container ships and china, yes sure so lets not ship from china then, in which case the container ship will ship form another country, ie there should still be volumes just a different source.
Larger ships (cape capable) rates appear to be also greatly depressed by the way. If your suggestion was correct then we'd expect to see these rates holding up while the other rates collapsed, I cant see that in the charts.
A colleague just sent me this link. He uses it for any newbies he trains. You can see quite clearly 2 bubbles the BDI has had over the last 20 years. The rest of it is pretty consistent.
https://people.hofstra.edu/GEOTRANS/eng/ch7en/conc7en/bdi.html
Thanks that is a lot better. Note however the piece is on an excess of supply of new ships ordered on the expectation of eevr increasing demand (which collapsed) and not at first glance commenting on the size changes and that effect on rates.
So really this piece of research points to supporting excess capacity brought about by a collapse in demand which seems to support my point of view.
Thanks for the link, It's something I should know more about, did the big strike on The West Coast of the USA affect the market?
That link was Jan to Jan up to 2015. Must be an interesting job with that kind of volatility. I was thinking with all we hear about Chinese stockpiling, it would be a one or two year correction until they entered the market again but at a lower level. How will these super ships affect regional ports in NZ?
ZH have beaten up a non existent story on North Atlantic traffic. The AIS shots they show from Vessel Finder and Marine Traffic are extracted from land based VHF receivers only. A paid satellite service from these providers and others will show thousands of ships at sea every day.
Commerce may be difficult, but it hasn't 'literally stopped'.
Cheap raw materials, cheap food, global poverty on the run, improved healthcare and lower infant mortailty. What on earth is there to be negative about? Especially since we were supposed to be out of oil by now and dying of starvation, y2k, popularion bombs, clubs of Rome etc. etc.
Have a look at this site and cheer up!
In short, China’s problems are not Chinese. If the credit cycle is resetting here and the RMB “cycle” is persistently ruining China’s liquidity, with oil sticking in both, then financial and money markets are increasingly adamant that there is no recovery, there isn’t likely to be one for a good long time, and that then downside possibility is both increasingly probable and
http://www.alhambrapartners.com/2016/01/11/pboc-wastes-no-time-proving-…
Wow! These constant attempts to talk up the importance of air freight versus the apparent collapse in other indicators of trade volumes:
http://wolfstreet.com/2015/10/19/global-demand-rampant-overcapacity-chi…
http://www.fxstreet.com/analysis/mishs-trend-analysis/2015/12/18/
http://www.activistpost.com/2015/11/we-have-never-seen-global-trade-col…
It is a good job air freight comprises a full 1.5% of the total freight by weight transported. Yes a whopping 1.5%.......
But wait, I hear you say, isn't it all the high value stuff that is moved that way? It is - but even accounting for that it does not dominate. Air freight accounts for a mere 30% by value of the freight moved.
http://www.aci-na.org/sites/default/files/chapter_1_-_an_historical_per…
So how ever you read it, the collapse in markers such as the BDI is telling us something pretty significant about world trade, that rabbiting on about air freight can't really obscure. Me, I'd rather pay attention to the top man at Maersk (which handles over 15% of all the stuff moved) when he says 'Houston we have a problem', rather than the chattering of some perma-bull.
US exports fell by more than 10% for the second straight month, and for the third time in the past four. That much was expected, at least in the direction if not the intensity, by orthodox economists who consider overseas turmoil the primary economic thorn. However, imports likewise declined for the eighth straight month, leaving only one positive number for all of 2015 with which to suggest robust US demand. Read more
AEP @ torygraph relays a sobering message from RBS and UBS: Keep Calm and Sell Everything (except high-quality bonds).
http://www.telegraph.co.uk/finance/economics/12093807/RBS-cries-sell-ev…
AEP does tend to the excitable end of the commentariat but still....
Another stark conclusion; those 'in' benefit much more than those who have not joined.
Can the exceptional advantages the "lucky country" must have accrued be expanded upon, given it's a signatory to US and China bilateral trade agreements? Chronic budget deficits as far as the eye can see don't count since they benefit foreign sovereign bond traders more than domestic citizens.
That climate change thing better kick in people are begging for it now. Looks like grass fed systems will be in for a bit of competition. I hope someone thinks of the children.
"Stockpiles of corn and soybeans in the U.S., the world’s largest grower, probably were the biggest ever on Dec. 1, and wheat inventories were the highest in five years, according to a Bloomberg survey of analysts. The government will issue its estimate Tuesday.
“We need a market-clearing event, whether that’s a demand shock from somewhere or whether that’s a supply shock as a result of weather,” said Gillian Rutherford, who helps oversee about $13 billion as a commodities portfolio manager. “In the absence of that, we have such a material buffer that it’s difficult to envision a sustained price rally.
"Domestic stockpiles have been swelling as U.S. exports falter, fueled by a strong dollar and rising production by other suppliers. Schmitz said he has yet to load a single rail car this season with corn or soybeans destined for West Coast export terminals. A year earlier, he shipped 1 million bushels.
http://www.bloomberg.com/news/articles/2016-01-10/unwanted-piles-of-cor…
More views from abroad on expected implosion of Australian economy and presumably our own to follow.
http://www.theguardian.com/business/2016/jan/11/australia-bet-the-house…
It's all going to happen in the housing market, not worried about Australian miners, they are listed on the stock exchange, farmers will benefit from a low dollar but that housing bubble is a monster.
>>>
the fear is Australians must now figure out where their economic future lies for the next generation who have been brainwashed into believing that digging up rocks and flipping houses by accumulating a gargantuan mountain of private debt is how a modern western country builds its future. The results will not be pretty.
Cripes, are these banks our banks?
Between 2002 and 2015, the mortgage books of National Australia Bank, ANZ, Commonwealth Bank and Westpac grew by 388%, 435%, 475% and 554% respectively. Put another way, the big four’s mortgage books escalated from a combined $242bn to a whopping $1.13tn, surging at such a consistent rate it would make Bernie Madoff proud. Read more and more
Yes indeed Andrewj.
Unfortunately banks' hands will find their way into NZ wallets to fund this Australian debacle.
17 Dec 15, 6:03am
APRA move means ANZ NZ must repay parent NZ$8b over 5 years
Fortunately, Auckland is really the only site in NZ where the Oz banks have been able to repeat the On-the-ground-experience.
and could we suggest the experience has some way to go yet for the deeply committed.
https://vimeo.com/109988488
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