Here's my summary of the key events overnight that affect New Zealand, with news of some stunning economic 'growth' in Ireland.
But first, the US Fed's important Beige Book survey is out today and that shows the American economy is expanding at a modest pace.
In Europe, Ireland has stunned the international community by reporting a real GDP growth of - wait for it - +26.3% from 2014 to 2015. Much of this growth was because they have been a beneficiary of US tax inversion deals. Although employment has not changed significantly, the Irish Government says, the newly recovered wealth means public expenditure cuts are now off the agenda. Apparently, tax advantaged deals can pay off big for a small country. However, the Irish central bank has raised concerns over what has been dubbed “leprechaun economics”.
China reported a slightly better trade balance overnight. Exports were lower in US dollar terms, down -4.8% at about market expectations, but imports fell -8.4% and much more than the -6% expected. Lower oil imports which were down -22% year-on-year in June were a big factor.
But oil wasn't the only item of their imports to drop. In fact cargo volumes through China’s ports grew at the slowest pace in seven years in the first half of 2016, according to an industry report that showed the country’s trade slump hitting its biggest gateways. China port container volumes rose just +2.5% in the January-June period from a year ago, and the ports of Shanghai and Shenzhen - China’s two biggest sites for imports and exports - both saw container traffic decline -1%.
The central bank of Malaysia unexpectedly cut interest rates late yesterday, their first reduction in seven years. The -25 bps cut takes their overnight policy rate to 3.00% and follows other countries in the Asia-Pacific region such as Indonesia, India and Singapore who have each recently eased monetary policy settings to help defend economic growth.
And in Japan, their government has cut its growth forecast sharply amid speculation it may soon unveil a new stimulus package to support an economy which is seen as "ailing" due to a very strong currency. GDP is now expected to grow by just +0.9% this fiscal year, down from a January estimate of +1.7%. Their inflation forecast was also downgraded to a rise of +0.4%, versus an earlier projection for +1.2%.
Back in New York, UST 10yr yields have slipped slightly today and are now at 1.47%. Overnight, there was a raft of European bond auctions and Germany sold 10-year debt at a negative yield, becoming the first eurozone nation to do so and setting a further milestone in the relentless fall of government bond yields across the world.
The US benchmark oil price is down as well, shedding more than US$2, now just under US$45/barrel and the Brent benchmark is just over US$46/barrel. The American government stunned the oil market with a set of bearish inventory data that added to concerns over a global glut of oil. In fact, it is becoming clear that North American on-shore shale resources are now the low-cost production sources, trumping ocean drilling.
The gold price is up, now at US$1,337/oz.
The NZ dollar starts today marginally softer at 72.8 US¢, is at 95.7 AU¢, and at 65.6 euro cents. The TWI-5 index is at 76.4.
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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13 Comments
Good Link. Thanks. Confirms what my colleagues have told me. Doing business in China is OK until they believe that they have you hooked, then they screw you. USA colleagues used to outsource some manufacture there but have pulled out because of the points above, quality, supply line problems and the realisation that by outsourcing employment they undermine their customers ability to purchase their products. Automation reduces the cost of manufacture so that cheap labour is only a marginal advantage and more than offset by the freight costs and the hassle of dealing with them.
'.... suggest that the west should put trade sanctions in place'
That was tongue in cheek wasn't it? You are joking, aren't you?
If western nations imposed serious trade sanctions on China western economies would be down the drain in a few weeks; here in NZ, Mitre 10, Bunnings, The Warehouse, Bricoes, and most of the clothing and shoe outlets would fold shortly after Chinese good stopped arriving. A serious drop in Chinese tourists would see most NZ hotels in dire straits within weeks. Meanwhile China would just carry on trading with the rest of the world, and would probably increase its trade with Russia.
As for China's behaviour in the South China Sea, well, if you are much bigger than your opponent and you've got a bigger stick than your opponent you can pretty much do as you like: Britain demonstrated that on numerous occasions with respect to Gibraltar, The Falkland Islands etc. which can hardly be considered part of Britain's natural maritime zone.
A bit, but you missed the big one. Our exports to China. However if it were up to me I would politely, gradually disengage from them and seek relationships and trade with other countries that I trust and share similar values with. The PRC is a truly horrible country if you look at their behaviour to their own citizens and others. With the values that they demonstrate one can have no confidence in any long term relationship with them. Whereas in the past, perhaps you could have argued that they need to be given a bit of latitude to mature and move toward more acceptable behaviour; their latest regime has lurched back in the direction of Maoism and all the shocking abuses of that time.
Heading for the cliff: China rides the tiger of debt and bubbles
http://www.scmp.com/comment/insight-opinion/article/1943992/heading-cli…
Interesting read..
"there are 24,960 households in the City of Vancouver where the amount spent on shelter (mortgage, rent, utilities, property tax and strata/condo fees) exceeds 100 per cent of their declared household income. Think about that: these households claim to earn less than they spend on accommodation alone"
http://www.scmp.com/comment/blogs/article/1851003/bizarro-vancouver-250…
Worthy of note overnight is the bloodless change in Prime Minister in the UK (although old news). The real developments were the appointment of Boris Johnson as Foreign Secretary, and the sacking (and then resignation from the government altogether) of George Osborne as Chancellor.
Both seem inspired decisions by Theresa May, who also has managed skilfully to have half Remain, and half Leave supporters in key positions. There is no question, if there was one, that Brexit will happen, despite the imagination of some in the financial industry.
The French seem to want the UK to leave asap, so it is not as though Europe will come kicking and screaming to keep them in.
Osborne had made rather stupid threats in the event of a Brexit vote, such that his position in any sort of important role was untenable.
As did Carney, the BoE governor, who is now poised to add to past mistakes, without any explanation why the outcome should be different this time. Read more
Running the numbers all the way through to 2016 shows only an enormous and growing gap. Based on the 2007 baseline, a full recovery after the Great Recession would have put the level of wholesale sales in May 2016 at about $808 billion; the estimate for May was instead $435 billion. Because the 2012 slowdown trend only pushed wholesale sales further away from recovery, the relative, cumulative gap between actual sales and what “should” have occurred is now about 30% (total wholesale sales in the 95 months since July 2008 were $39.2 trillion, but they “would” have been $55.9 trillion had the GR never occurred). Read more
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