Here's our summary of key economic events overnight that affect New Zealand with news China is making a new push to join the TPP.
First we should note that cereals, dairy prices, and especially prices for vegetable oils have driven global food prices to a ten year high. Meat prices were flat. Cereal prices, especially for wheat, are being driven up by constrained supply from Northern Hemisphere producers. Southern Hemisphere producers are in a golden phase where they have higher output with these higher prices. Australia is a major beneficiary.
In the US jobless claims last week fell to 240,000 and taking the total number of people on these benefits to 1,890,000 and back to pre-pandemic levels
In September, US exports fell and imports rose, so the balance of trade in goods and services was a deficit that rose to a record -US$80.9 from -US$72.8 bln in August. A lot of that worsening came from large falls in exports of gold and oil. Imports rose largely because businesses are buying capital goods. This September result takes the annual deficit to -US835.6 bln or -3.6% of GDP. That is up from -2.7% of GDP in 2019.
The very active US economy has seen labour costs jumped at an +8.3% rate in the third quarter of 2021, more than market forecasts of +7% rise. At this level it is now suddenly undermining productivity progress.
The US Federal administration said that large companies who have Federal contracts with it, have until January 4, 2022 to ensure that their workforces are fully vaccinated or clear using weekly testing, under a sweeping new coronavirus health measure that will cover 84 million private sector workers.
The Canadian trade balance improved to a surplus of +C$1.9 bln in September, but it was on lower exports and imports that fell faster.
In China, another property developer missed a debt repayment deadline. But it is becoming clearer that with pressure from Beijing, many of these stressed companies are finding ways to sort out their financing messes.
Meanwhile, China is making a harder pitch to join the TPP. President Xi has directly said that China is open to negotiations on industrial subsidies and state-owned enterprises in order to meet the TPP criteria. They are racing to try and join before the US has a change of heart. Meanwhile, their RCEP will now formally begin on January 1, 2022. New Zealand is a part of both trade groups.
The cost of shipping container freight is starting to unwind at a faster pace now and dropped almost -5% last week alone. Freight prices out of China are falling even faster than the average. Bulk cargo freight rates are falling faster too.
EU producer prices rose their fastest in at least 26 years since when modern data began, up +2.7% in a month, +16% in the year to September. It will be no surprise that for them it is all driven by energy costs.
Australia still has a very large trade surplus but it reduced in September. It narrowed to +AU$12.2 bln and to about was expected. But exports fell more than expected, and that was offset by falling imports. Iron ore prices have collapsed to under US$100/tonne and down -60% as China reins in steel production and Chinese real estate developers struggle under their mountain of debt. However, analysts believe the end is in sight, with the iron ore market likely to tighten in December.
And staying in Australia Delta cases in Victoria have jumped to 1247 cases reported there yesterday. There are now 17,674 active cases in the state and there were another 9 deaths yesterday. In NSW there were another 308 new community cases reported yesterday with 3,131 active locally acquired cases which is a jump higher too, and they had another 3 deaths yesterday. Queensland is reporting three new cases. The ACT has 13 new cases. Overall in Australia, more than 79% of eligible Aussies are fully vaccinated, plus 10% have now had one shot so far.
The UST 10yr yield opens today at 1.52% and down -7 bps overnight. The US 2-10 rate curve starts today little-changed at +110 bps. And their 1-5 curve is very much flatter at +97 bps, while their 3m-10 year curve is flatter too at +148 bps. The Australian Govt ten year benchmark rate is down -5 bps at 1.79%. The China Govt ten year bond is down -2 bps at 2.94%. The New Zealand Govt ten year is up +4 bps at 2.58%.
On Wall Street, the S&P500 has opened today up a minor +0.2% in the Thursday afternoon trade and a new all-time record high. Overnight, European markets were all higher by about +0.5%. Yesterday, Tokyo rose +0.9%. Hong Kong rose +0.8% and Shanghai ended its session also up +0.8%. The ASX200 ended its Tuesday session up +0.5% while the NZX50 was the odd man out, down -0.4%.
The price of gold will start today at US$1792/oz and recovering all of yesterday's sharp drop with a +US$26 rise from this time yesterday. Silver recovered too.
And oil prices are down another -US$2 at just on US$79.50/bbl in the US, while the international Brent price is now hasn't fallen as much yet and is now under US$81.50/bbl.
The Kiwi dollar opens today lower by about -40 bps to just over 71 US. Against the Australian dollar we are softer at 96 AUc. Against the euro we are little-changed at 61.5 euro cents. That means our TWI-5 starts today -20 bps lower than at this yesterday at just under 74.9, but still well over the top of the 72-74 range of the past eleven months.
The bitcoin price has fallen -1.4% since this time yesterday, and now at US$61,230. Volatility over the past 24 hours has been moderate at just over +/-2.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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47 Comments
25 years ago actors Pierce Brosnan and Jack Nicholson did a good job of anticipating Boris Johnson and Joe Biden in the Tim Burton film about a newly emerged society that 'stuck to the rules' when it suited them, and then ignored them, likewise, when it didn't. Time after time, Pierce and Jack held the hand of friendship out to the new arrivals on the global scene, only to have their gestures turned back on them. There appears to be a lot of symmetry in how China has risen and "Mars Attacks!". Maybe that was the purpose of the film all along.
Bank of England , "defied" market expectations overnight (unlike in New Zealand where a daily feed of rampant OCR increases emanate from a vested group of economists) , holding the cash rate at a low 0.1 percent ( clearly economies are now standing on their own feet ) , additionally it maintained its QE purchases and its governor was somewhat amused by market expectations.
A nice chart from Westpac , with its view of global interest rates.
https://www.macrobusiness.com.au/wp-content/uploads/2021/11/1-8.png
The Central Banks were always going to be in big trouble with the policies they enacted after 2008. They don’t understand what real wealth creation is, and think it is things like 'making money' and 'rising asset prices'. They don’t really understand how the monetary or banking systems actually work. Not only that, but they don’t understand Private Debt. To them Private Debt is an infinitely disbursed collection of individual agreements that will never all 'go bad' at the same time. So they largely ignore it. We have a debt based monetary system, but you don’t want the debt to rise to a level where it holds back the economy. Now, there is too much debt in the economy, which is holding it back. Those debts are all claims on future spending power. All that debt is never going to be repaid, so we'll get a financial crisis; banks and Governments will 'go under' and some very wealthy people are going to lose a lot, as The System is purged of unpayable debt. We've been here before - 1929, and should know better, but a century on we look like we're headed back there again.
A part of this picture is the 'free market' economy and the flawed belief that markets are self correcting. A lack of Government regulation saw the private banks issuing credit hand over fist, which resulted in them being in a position to hoover up money as it came available. Criminally negligent by governments and central bankers (invested players?).
Someone pointed out to me a while back that Eisenhower tried to take on the banks and failed, and now they're even more powerful. But really all it takes if for the lawmakers to have some backbone and genuinely represent their constituents. Some will call me naive for that view, but it just takes courage to realise that 'conventional' wisdom is most often about preserving someones power, prestige and influence.
Markets don't self correct Murray.
And "Free Markets" is an oxymoron.
Big corps who become prominent and espouse free markets promptly behave quite differently. The set out to suppress competition by any means. Often buying the opposition. eg: our duopoly supermarkets.
Companies are often given high valuations not because they are efficient, but more because they have "dominance".
I remain besotted by markets and capitalism. The alternatives have floundered painfully. Yet again N.Korea is short of food. However that 'free market' cannot be free as in anarchy. To work capitalism requires boring things such as the rule of law and trust between buyers and sellers. And there are things that capitalism does really badly such as putting a cost on waste & pollution. Market forces depend on sensitive adjustments of supply and demand so an efficient market for NZ housing market will fail until all land is nationalised.
When I arrived in 2002 house prices in Auckland were reasonable. Compared to London they were fantastically cheap. But roughly a decade of National government and a decade of Labour government has put us where we are. [Where are we? Well I'm a wealthy retiree who accidentally made more money with property than I ever earned and my four adult children has only one as an owner occupier and the other three with no chance.]
Good that some media has started to Question Mr Orr
https://businessdesk.co.nz/article/opinion/rbnzs-blindness-to-its-role-…
She has no b---dy idea. Just like most economists.
https://fpif.org/climate-change-and-the-limits-of-economic-growth/
I fully admire people speaking truth to power - but you have to understand the truth, first.
"The forward staterooms are underwater, what are you doing about it?' is the wrong question.
"Have we been holed by the iceberg, and how long until we sink?" is the right one. Those trained in a era of dry staterooms don't know what to ask....
Two years of studying physics at University and entropy is still hard to pin down. Entropy is defined as 'lack of order or predictability; gradual decline into disorder'. I can see that with a wooden fire converting shaped pieces of wood into amorphous ash but my garden reverses the process by converting mud into wondrously complicated plants with beautiful flowers. Human society gets ever more complex not more disordered even as it becomes less predictable. Does intelligence can work against entropy and its notion of gradual decline? At University I could never match the slowness of that decline to the predictability of the moon and the immense age of the sun.
Entropy is too philosophical and as abstract as economics. I prefer PDK's regular comments about any process "what about the waste?" and "how long will those inputs (resources) last?"
Bayley Real Estate sending this email to all - How everyone be it Government, RBNZ, RE Industry, Media try to whip FOMO to entice FHB to rush :
The restrictions on the property market are getting tougher as loan to value ratio restrictions come into place. From today, the amount of lending banks can make to owner-occupiers with small deposits, will be halved to no more than 10 per cent. The Reserve Bank's move means fewer people with a house deposit of 20 per cent or less will get bank finance.
Now, banks can only apportion ten per cent of their lending to that higher loan to value ratio. What does this mean for those looking to buy?
While tighter credit conditions, worsening affordability and increasing interest rates will weigh on market activity, it would be wise to purchase before the promise of tougher conditions in the future are put in place. Get in touch with me today as I have listings off-market and a couple more coming soon.
New mortgage lending with LVR above 80 percent as a percentage of total new mortgage lending has been below 10 percent for each of the past 12 months, so in some respects the new "restrictions " are already in place. Perhaps as Mr Ninness wrote yesterday, what constitutes a "new" mortgage may not truly reflect how the percentages should be calculated
Stuart
I wouldn’t have thought RBNZ (Orr’s) recent comments were fuelling FOMO . . . quite the opposite. Simply that’s is solely about a REA attempt to continue to fuel FOMO.
As an aside; I don’t think Key’s comments yesterday were necessarily a coincidence - as a chairman of ANZ there is likely to have been informal discussion and collusion between Orr and Key to try to cool FOMO albeit finger in the dyke stuff.
Personally; I’ve said since November last year that current rises are unsustainable and saw prices stabilising this year due to affordability. That hasn’t proved to be correct and that is despite Government March announcements, tightening of bank criteria, RBNZ action, rising interest rates, increasing affordability issues, increasing supply, lack of demand due to low immigration, Auckland lockdown . . . . clearly FOMO has seemingly has been a more powerful driver and possibly more so than those factors collectively.
The property party with high capital gains is over . . . and likewise so should FOMO.
That happens when Old Debt is being repaid faster than New Debt is splashed about on 'things'.
The biggest fear that Central bankers have is, that we stop spending and start paying off our collective debts. We've designed a System that can't survive otherwise. So we lower the cost of debt to keep it going - until we can't. Technically, % rates can go infinitely negative, but practically, as 'they' are beginning to realise, it all falls apart just after 0%. ( Below 0% is Debt Destruction just as surely as Paying Down Debt is)
Agreed. Steve Keen has been warning of this for years
https://www.amazon.com/Another-Financial-Crisis-Future-Capitalism/dp/15…
Just finished re-reading it last night.
If you're into learning, Murphy's textbook is better, and free:
https://dothemath.ucsd.edu/2021/03/textbook-debut/
So we lower the cost of debt to keep it going - until we can't. Technically, % rates can go infinitely negative, but practically, as 'they' are beginning to realise, it all falls apart just after 0%. ( Below 0% is Debt Destruction just as surely as Paying Down Debt is)
I guess Germany's interest rate repression regime is consistent with debt destruction (covert default).
A sovereign can inflate away debt if the average interest rate on the debt falls below the growth in nominal GDP. (It doesn’t matter whether it’s volume growth or inflation driving GDP.) It's called covert default. Link.
And yet banks keep piling sovereign debt on to their balance sheets seeking liquidity and safety in preference to risky lending to GDP qualifying enterprises.
Germany knows better than most what unpayable debt can do to an economy and society. That's probably why they've fought against it so hard. But those economies than 'get out first'; 'destroy' their unpayable debt one way or another, will leave the accummulated pain to those who don't.
New Zealand could be amongst those getting ready for what's to come. It will take a huge amount of courage to do what has to be done. We've done it before, and if what we've seen over the last 24 hours is any guide, with a some influential decision makers starting to make the right noises, maybe we have started to act. But only, maybe...
In the US jobless claims last week fell to 240,000 and taking the total number of people on these benefits to 1,890,000 and back to pre-pandemic levels.
In September, US exports fell and imports rose, so the balance of trade in goods and services was a deficit that rose to a record -US$80.9 from -US$72.8 bln in August. A lot of that worsening came from large falls in exports of gold and oil.
U.S. Thirst for Russian Oil Hits Record High Despite Tough Talk
Biden keeps pressure on OPEC+ to boost output, citing inflation
So, I recall, back in the 70s when we last had a high degree of energy uncertainty, Fred Dagg suggested we wrap up a whole lot of oil in a big plastic bag and dump it (in Cook Strait, I think was his idea). When prices rose even further we would go out there and pretend to discover it, reaping the well deserved rewards. A bloody great idea whose time has come.
Is surely as good an idea as the US both importing and exporting oil.
Makes little difference - US has been technically bankrupt for decades.
The world is reshaping into a tri-polar configuration, with the US, Russia and China being the "great powers," a top American general has said. He then explained why he thinks the US must "put a premium" on keeping its influence. Speaking at the Aspen Security Forum on Wednesday, the Chairman of the Joint Chiefs of Staff, General Mark Milley, admitted that the years of US domination may be over.
We're entering into a tri-polar world with the US, Russia and China being all great powers. Just by introducing three vs two you get increased complexity.
Milley believes that maintaining the peace between the "great powers" in a tri-polar configuration will be significantly more difficult than in Cold War times, when two powers were at odds. Rapidly developing technologies also add up to the complexity, according to the general, with the world becoming "potentially much more strategically unstable than, say, the last 40, 50 or 60 years." Link
It is good news that prices for vegetable oils and wheat are high but meat is flat. You will do your metabolism the world of good by avoiding vegetable oil and wheat and instead eat delicious meat. I've done this for the last six months and never felt better. Now, especially, is the time to eat only nutritious food.
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