Here's my summary of the key events overnight that affect New Zealand, with news of more ructions in the Chinese stock market.
But firstly, in the US data out for their key durable goods orders series came in better than expected, and a jump was expected. There was a healthy gain in new orders, and both shipments and the level of unfilled orders rose, reversing recent trends. Going the other way was a fall in sentiment in the oil patch, but that was expected.
However, the big news overnight is from China.
Chinese shares tumbled more than 8% yesterday amid renewed fears about the outlook for their economy, and reviving the specter of a full-blown market crash that prompted unprecedented government intervention just a couple of weeks ago. In response to yesterday's sharp fall, the local regulator said it was prepared to buy shares to support the market, and denying its own actions caused the latest wobble.
This is today's crisis for China. But an even bigger one is looming. The country will grow old before it gets rich. The baby boom expected with the easing of the one-child policy at the end of 2013 has not happened. Many couples permitted to have two children have decided not to, putting financial circumstances, living conditions and careers first. That has meant a rapid ageing of their society and in consequence, a fast shrinking workforce, growing numbers of elderly and, due to a preference for males, a vast gender imbalance.
The worse the demographics get, the greater the economy will suffer through low productivity, a decline in consumer demand and the need for more government funding for pensions and health care. They don't have long to fix things before it gets unfixable. You can beat embedded demographic trends.
In Australia, new research there shows that three out of four people over 50 are willing to stay in the workforce longer to boost their retirement savings, reflecting people's increasing concerns about their financial security.
In New York, the UST 10yr yield benchmark is holding at 2.24%. Our swap rates are lower again and the flattest in eight weeks. The flattening of the 1-5 curve has been sharp recently.
Oil markets are again lower. The US benchmark price is now about US$47/barrel, and Brent crude is at US$53/barrel. Iraq is shipping record volumes.
The gold price is not reflecting the uncertainty and is still at only US$1,095/oz.
The Kiwi dollar starts today stronger, believe it or not especially against the US and Aussie currencies. It is now at 66.1 US¢, at 90.8 AU¢, but lower at at 59.6 euro cents. Overall, the TWI-5 is basically unchanged at 70.8.
If you want to catch up with all the local changes yesterday, 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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17 Comments
Part of the reason that people in Oz are contemplating working longer than ever before is that like NZ, people are having families way later than they used to. Having families later means that more dollars are required to be spent on their families for longer.
And of course the Oz govt is cranking up the age at which the pension is available.
The advantage of all this to NZers is that their sharemarket (and the NZ sharemarket) is unlikely to crash in the immediate future.
China losing control.......
http://www.telegraph.co.uk/finance/china-business/11766449/China-losing…
Control is lost elsewhere.
The “dollar” problems continued this morning as several proxies continued toward new lows. Copper fell to as low as $2.342 (July contract still) while crude is down close to $47 in the front months. The back end of the WTI curve, perhaps more importantly with respect to growth and fundamentals tied to the “dollar”, fell to new lows. The Brazilian real dropped to 3.38 to the dollar while gold only rebounded by the smallest amount from Friday’s low. Read more
Japan got rich before it got old but that has done them no good fighting demographics. All stock "markets" will crash like china; that's what happens when PE's get to high teens and beyond, always has and always will. Then most of the funny money created since 2007 will be gone in a flash. The Big Q is the timing?
The only positive so far has been how Japan’s renewed descent into its familiar form of depression has finally reversed QQE’s impoverishment through the sudden trade deficit. In other words, to regain a positive (or nearly flat) trade balance it was “necessary” to destroy Japan’s internal growth. While exports increase (year-over-year) in nominal terms on the yen’s renewed devaluation last year, imports have not followed unlike the prior building in the first year of QQE.
That is another common element uniting Japan’s plight in 2015 with the US, as import demand is suddenly non-existent from anywhere (which is why everywhere from Brazil to Australia to Canada through China have found “unexpected” recessions this year). Read more
demand is suddenly non-existent
Chief financial officer Lukas Paravicini said the decision to shelve the trust proposal was a consequence of UBS deciding to end the [its] advisory rolefor reasons unrelated to the trust itself, as well as volatility in dairy and equity markets.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
Now the last time an adviser sacked the client.............
Hi Henry, This link works: http://www.nbr.co.nz/article/fonterra-hits-pause-button-equity-trust-sc…
So the banks are in the frame again since equity partnership finance has fallen at the first hurdle.
Japan has a older segment moving through - this exacerbates a global problem, which is why it hit them early.
It is a factor which the "highly educated" report writers haven't cottoned on to yet as they never learnt to analyse the money and market from the hands-on position. (sticking to theories, trends and philosophies).
The experts are using a rear-vision mirror, built when our universe revolved around capital shortage and high labour cost - including (remember your Adam Smith...and his time window) very little capital _investment_ in the production cycle. With Smith, anyone with a little training can take up basic tools and do valuable work. That has changed. Now we need hugely capital hungry tools, training, and certification to provide an marketable product. No longer is _labour_ the primary capital serviced.
Thus we have capital vs labour imbalance. (and as a symptom widespread income inequality).
In the past this imbalance was "in favour" of labour input, so injecting more money into the system, increased the financial capital, and allowed increased investment, and rewards from that. this worked because we were short of currency.
We can't just turn back that clock though. Cutting the supply of money will just crash the finance side (supply and demand forces) as the economy would stall. That's we we are now.
Increasing money supply however...will increase the problem...as we are finding now. It eases the immediate issue but labour is less valuable so many can't get sufficient income to keep up sustainable continuous buying levels to keep the economy afloat.
In the past creating more money and spending fixed the problems because we were on that side of the cycle. now we are on the capital rich side of the cycle, that doing that behaviour of pushing futher along that side of the scales isn't going to fix the problem.
My thoughts is that it is the over expensive (over capitalised) cost of production - AND the legal pressures used to force that to be the only valid market. this process has cut off the collapse/risk, and lower ends of competition that allows the market to reset (ie demand remains expense, because cheap supply isn't permitted into the market). This is effectively removing large portions of labour from the market, reduces competition, stops participation by many people and potential companies, makes progress for the remainder very slow. IMO, the financial correction we are experiencing is simply the realignment to that situation ... the result will be a massive beggar class and a shrinking wealthy class.
As those with wealth and having power will struggle to keep themselves in that position.
The solution to me is to explore ways to reduce burden passed on through overcapitalisation in product (and overcapitalisation that comes though as an entire network of compliance pass on costs). Thus reduce cost of production, increase bottom line, increase disposable income _especially_ at the bottom of the pyramid - this is effectively increasing the margin, while keeping prices low; as well as increasing demand to soak up supply.
This is why japan got hit with a quadruple whammy: shrinking labour population, increasing elder capital yield population, the forces described above, and global financial trends. That they're still here at all is testament to some hard work and quick handling!
The What’s Wrong With This Picture Chart of the Month – Durable Goods
U.S. Durable Goods Orders Rise 3.4% in June
blared the Wall Street Journal headline this morning. As usual, not only is that not the whole story, it’s misleading. It’s wrong. It’s dumb. It raises the question of why the mainstream media adamantly refuses to report the facts. More importantly, why do they ignore the blatantly obvious implications of the actual data? The answer must be that they don’t want us to know. Because it’s ugly.
http://wallstreetexaminer.com/2015/07/the-whats-wrong-with-this-picture…
Pretty dumb of New Zealand to put all of its eggs in one basket when the demographic trends in China have been obvious for a long time. A rather stupid economic decision to encourage the production of a commodity (milk powder), when its primary demand (Chinse babies) is projected to decline.
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