Here's our summary of key economic events overnight that affect New Zealand with news the global manufacturing sector is in good shape.
Overnight a set of factory PMIs for October were released worldwide and were generally reporting improving economic activity.
The widely-watched US ISM one reported strongly expanding conditions, little changed from September. But they aren't yet reporting any easing of pricing and supply-chain pressures. That was matched by the internationally-benchmarked Markit version although this one recorded a small pull-back from very healthy conditions, driven by production constraints. New order levels were very strong.
Hong Kong economic activity disappointed in Q3-2021, turning in a limp result and well below the expected result. Q2-2021 shrank, and a bounceback was expected in Q3, but what they got was a stall.
The China Caixin PMI was a bit more positive than the retreating official one, suggesting things are not completely dire in their private manufacturing sector.
The October PMI for Japan was positive with a moderate expansion and better than for September. For India, it was similar.
It was also a similar story for Taiwan, Thailand, Indonesia, and Malaysia. But South Korea's factory expansion slipped back a bit.
In financial market news, rising bond interest rates are causing big losses in the hedge fund sector and they are pulling back. This is creating less liquid market conditions, and it may only get tighter with a Fed taper, and rate hikes for them down the road that are now getting priced in. The problem with the hedge fund industry and risk pullback is that the US Treasury market is struggling for liquidity, and those conditions could spill over into other financial markets.
At the same time, the UST yield curve is flattening, usually a sign that markets are worried about longer term growth prospects.
In commodity markets, the Baltic Dry Index is signaling that the period of strong demand for cargo ships may be over. And related, global wheat volumes may be declining, and that is causing a surge in the price for this staple food, now back at a ten year high.
And a legacy commodity looks like it is at the end of the road. Newsprint paper manufacturers are seeking up to a +40% price increase to continue manufacturing the product in Australia. The end of the road for hard-copy newspapers is now at hand.
The two Australian factory PMIs delivered contrasting results. The locally-watched one recorded conditions that were decelerating and now barely expanding, whereas the Markit one reported their manufacturing sector growth accelerated in October as restrictions eased. It is hard to know why they would diverge.
The Aussie property market continued to rise in October but the rate of growth has slowed dramatically since the start of the year, as a lack of affordability, less government stimulus and more listings hit the market, new figures show. The compiler of the data says things may turn lower soon.
In fact, investor lending rose in September in a minor way but was overshadowed by chunky a fall in owner occupier lending leading to an overall reduction in housing lending.
In Australia Delta cases in Victoria have risen to 1471 cases reported there yesterday. There are now 21,959 active cases in the state and there were another 4 deaths yesterday. In NSW there were another 136 new community cases reported yesterday with 3,495 active locally acquired cases which is lower, and they also had 4 deaths yesterday. Queensland is reporting zero new cases. The ACT has 5 new cases. Overall in Australia, more than 77% of eligible Aussies are fully vaccinated, plus 11% have now had one shot so far.
The UST 10yr yield opens today at 1.57% and up +1 bp overnight. The US 2-10 rate curve starts today still at +106 bps. Their 1-5 curve is steeper at +108 bps, while their 3m-10 year curve is also steeper at +154 bps. The Australian Govt ten year benchmark rate has slipped slightly to 1.94%. The China Govt ten year bond is down -3 bps at 2.96%. The New Zealand Govt ten year is -4 bps lower at 2.56%.
On Wall Street, the S&P500 has opened the week with a hesitant start, up a minor +0.1% in the Monday afternoon trade. Overnight, European markets opened much more positively, generally up +0.8% although Paris was up +1.0%. Yesterday, Tokyo started its week with a very strong +2.6% post-election gain. But Hong Kong fell -0.9% and Shanghai ended its session down -0.1%. The ASX200 ended its Monday session up +0.6% while the NZX50 finished down -0.5%.
The price of gold will start today at US$1791/oz. At this level it has recovered +US$7 from this time yesterday..
And oil prices are little-changed but softish at just under US$83.50/bbl in the US, while the international Brent price is now just under US$84.50/bbl.
The Kiwi dollar opens today just over 71.9 US and a slight firming overnight. Against the Australian dollar we are marginally firmer too at 95.5 AUc. Against the euro we are unchanged at 62.1 euro cents. That means our TWI-5 starts today firmer that at this yesterday at just under 75.5, still well over the top of the 72-74 range of the past eleven months, and moving to resetting this range.
The bitcoin price has firmed just +0.9% since this time yesterday, and now at US$61,156. Volatility over the past 24 hours has been moderate at just over +/-2.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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39 Comments
"Global factories in healthy expansions"
https://www.dw.com/en/cop26-not-yet-where-we-need-to-be-on-climate-merk…
"Enough of brutalizing biodiversity. Enough of killing ourselves with carbon. Enough of treating nature like a toilet. Enough of burning and drilling and mining our way deeper. We are digging our own graves," Guterres said.
Healthy expansion or digging our own graves? One of those comments is wrong.
PDK - this article describes our situation very well.
https://www.newsroom.co.nz/jack-santa-barbara-why-cop26-is-designed-to-…
I think we need to remember the enormous problem the boosters and growthers have and that is net usable energy.
At a growth rate of 3.5% humanity will need the same amount over the next 20 years as the last ~200.
Collapse (return to simplicity) is inevitable well within this time frame but we could sure avoid a bigger mess by scaling down now in some kind of civilized fashion.
And that is the dichotomy of the current discourse PDK. The Global view is that we are killing the world. We have, unless we change what we are doing (more on this below), signed our own suicide pact. But at the micro perspective, national and local government levels, we are still talking in "conventional economic" terms that have developed over the last couple of hundred years. Little heed is given that the two views are somewhat dissonant.
As to COP, with China and Russia absent, that in itself will mean that very little will be achieved. Biden himself is effectively hamstrung by Manchin, a Democrat with significant coal interests. And Ideology still drives all this, influenced by many things. NZ ideology cannot even consider the possibility of nuclear power plants, no matter that the risk is extremely low (probably lower than that of a dam), and that weapons cannot be made from new types. But economic ideology is the biggest limiter of solid, reasoned debate and action as the rich and powerful refuse to allow their power bases to be undermined. And a big part of this ideology and the biggest 'No No' in the debate - population size. What is sustainable - and if rational, the admission that it is a lot less than now.
Enough of killing ourselves with carbon.
Unlike climate "intellectuals", some of who I already described above, Russians know how mathematical models are created and they know that the data which goes into the Western "anthropogenic" climate change models is mostly BS. Plus, there is simply not enough of it and here is the wowser (in Russian) which IS NOT going to be delivered in the "free" West. In the issue #351 of Roskosmos popular broadcast of Space Environment, Yuri Gektin, starting at 8:30 mark, speaks in broadsides about stupidity of present "anthropogenic" models in a view of overwhelming data supporting Sun-driven climate change and a minuscule role humanity plays in this process. Link
Feeds thorough for the businesses that rely on importing and exporting goods. We are a trading country and the high shipping rates and lack of availability are a massive problem right now.
We also need ships to bring in all of the electric cars and the coal required to power them.
(the) market is struggling for liquidity, and those conditions could spill over into other financial markets.
Put in simpler terms, "No one wants to buy what I've got". And it's a chilling experience when that happens; when with all the 'demand' in the world, buyers don't have the ability to buy. The day that happens is the day that you wish you'd sold yesterday.
An indicator of a bigger and deeper problem that is related to PDKs comment above. Much of today's economic models in place in countries across the world is bout how the wealthy get wealthier, and more powerful. These models have led many employers to drive down wages as a primary means to manage costs, and increase profits. They are driving towards a modern form of feudalism, trapping people on subsistence lifestyles beholden for the crumbs thrown to them. But there is a consequence. If people haven't got the money to live, they can't spend it on the things that give them pleasure and much of the economic money go round collapses. We have long lost the perspective that balance is required in all things, and because we have lost that, a lot of ugly consequences are piling up and knocking at the door.
"Can you hear the people sing?
Singing the song of angry men...."
Can't make the degradation of living standards too obvious, the proles might rebel!
Essentially it is about what a $1 will buy you, and as prices shift wages should be moving with them but they are not. Our own Government, have an established identified value of frontline Government employees, has come out and said that they are not worth that. They did this at a time when ordinary people were already identifying and experiencing inflation, and told them they there would be no pay increases, and this apparently included even just a cost of living increase, for three years. This from a party which supposedly represents the working classes. So with inflation ticking up to 5% and more (take a look at how much fuel has increased in the last two months!) at the end of those three years do you think they will account for the inflation over that three years? Not likely!
Murray86
John Key summed up the model for growth by saying that most of NZ growth is from Debt + immigration.
Immigration was to both repress wage rates ( labour supply ) and bring in Foreign wealth ( we are a debtor nation ).
Now that immigration has stopped .... its interesting to see the impact of labour shortages...
Maybe this will drive productivity.?
If we look at the composition of our GDP over the years.... in 1972 goods production /primary industry was 48% of gdp.
In 2019 this had fallen to 16% of GDP
An example of wealth destruction is the ETS scheme and turning productive farmland into pine forest to earn carbon credits ) https://www.gisborneherald.co.nz/column/20211005/ets-as-it-is-a-rural-c…
https://keithwoodford.wordpress.com/2021/09/22/the-ets-is-both-a-goldmi…
Services are now 66% of GDP. ( in regards to services ...A lot of that is Govt spending, which is not productive in the wealth creating sense. )
https://www.stats.govt.nz/tools/which-industries-contributed-to-new-zea…
When u look at our life as a debtor Nation ( balance of payments , current acct ) we see that a large export earner is Tourism. It contributes 20% of our export earnings ... Without this we have a big hole.
In regards to climate issues, less air travel might be a good thing....BUT in regards to our current acct bal. its a hole in the ground...
Maybe Best thing NZ can do is to "rebalance" and focus on living within our means, and becoming a little more self sufficient..
NZ is definitely NOT a wealthy Nation.... The fact that our house prices are so high ( amongst other high costs ), is very problematic, in my view.
If the "world " should ever lose confidence in NZ, and start withdrawing Capital.... we will have a crisis.
And therein Roelly you have encapsulated the problem. JK as a leader in his comment and how he left the country as Prime Minister shows that he did not understand that such a state puts our nation at extreme risk, as we have very little resilience in time of crisis. And if COVID has taught us anything it is that over reliance on logistics chains is foolish as they can break. But our Government routinely demonstrates this.
They are silent over the ceasing to process fuel at Marsden Point, strategically import companies are still being sold to foreign buyers. We are too small to pose a significant risk to big international companies, but we are so afraid of pissing them off we cannot work to make ourselves more resilient. We are at the end of a long piece of rope, that rope is becoming increasing frayed, and the rest of the world will not care one jot if we collapse. But we still can't secure our own resilience?
(Re China's Caixin figures - just a thought, courtesy of CH Smith:)
President Xi understands this is the do-or-die moment to regain control of an out-of-control moral hazard driven financial bubble.China's extreme excesses of debt and speculation are already unraveling, (recall the average profit margins of Chinese exporting enterprises is 1% to 3%) and Xi is backed into a corner. This is the hidden driver of China's sagging productivity and economy: debt in all sectors is skyrocketing to fund speculation, not productivity. There is no cost-free escape and Xi has charted a path to preserve the Party's control by forcing everyone with exposure to absorb the inevitable losses when unprecedented bubbles pop.The consensus in the West is that China cannot afford to let its bubble pop because the pain will be too severe. Those who believe this have a poor grasp of Chinese history, especially in the 20th century.
If crashing China's bubble is the nuclear option, Xi has reason to be confident he can push the pain Level to 11 and most will accept it, and those who don't will join Jack Ma in forced retirement.
Taiwan is too tough a nut. But yes from Cromwell to Khomeini, dictators have resorted to foreign campaigns to both rally nationalism and suppress domestic disquiet. India is still being tested but my guess would be the annexation of Mongolia even though Russia would not be receptive.
I don't think we understand how important the perceived reunification of China is for the CCP. As far as they're concerned, and I'm sure many Chinese citizens feel the same, Taiwan would be worth a great deal of sacrifice, including many lives lost. China can absolutely take Taiwan.
You don’t put troops on the water by surprise these days and certainly not on some of the globe’s most treacherous waters, with little seasonal window. Nor do you do it with any number of USA’s 68 nuke subs, whereabouts unknown. All landing possibilities heavily fortified as are outlying islands on the approaches. High density of civilians makes aerial attack a wholesale slaughterhouse. Retaliatory missiles likewise on mainland. Not going to happen unless WW3 accepted, which would be played out mostly on that continent, resultantly hugely destructively.
Only from the perspective of CCP propaganda on how great and good the CCP is for China. It is highly embarrassing for them to have this little island off the coast with just a few (comparatively) people, but which is doing much better economically. The big part of this problem for them is that many Chinese have family in Taiwan, so the untruth in their propaganda is easily denied.
I also wonder whether that familial connection for many may weigh against the CCP in the long run if they finally decide to resort to force?
..the US Treasury market is struggling for liquidity,
What are you talking about? All recent US Treasury coupon auctions were oversubscribed. Today's 13 week and 26 week T Bill auctions way oversubscribed.
Large US banks are tripping over each other to get US government debt on their balance sheets.
The O/N RRP link you reference shows an abject shortage of safe, liquid collateral for those looking to lend cash. Same with the TBill auctions - bids down as low as 0.03% for the 13 week and 0.04% for the 26 week. Both below the Fed O/N RRP 0.05% interest rate floor.
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