Breakfast briefing; Global economy in a purple patch

Business / news

China trade data impresses; Japanese household spending rises; US passes huge infrastructure boost; US payrolls expand faster; AU growth rises; UST 10yr 1.46%, oil unchanged and gold higher; NZ$1 = 71.1 USc; TWI-5 = 75

8th Nov 21, 7:19am by David Chaston

Here's our summary of key economic events over the weekend that affect New Zealand with news the world is flush with positive economic data but consumers seem very wary and uncertain about their prospects and outlook.

China released trade data for October overnight and it was impressive. Exports grew +27% year-on-year to US$300 bln, slowing from a +28% surge in September but beating market expectations of +24.5% increase. Global demand is clearly very good. Imports had a different profile, rising +21% to US$216 bln, below market expectations of a +25% gain but much better than the +18% rise in September.

That meant their trade surplus rose to a record +US$84.5 bln in October. The politically sensitive surplus with the US actually narrowed slightly to +US$41 bln. Their deficit with Australia was -US$6.1 bln in October and down sharply from -US$9.1 bln in September, and with New Zealand the October deficit was -US$162 mln and down from -US$516 mln in September.

The bigger surplus also means that their foreign reserves rose slightly, by +US$17 bln to US$3.218 tln in September.

But part of their increase in imports was for more coal to run their electricity-generation plants. They almost doubled from October 2020 and have been running very high all year. But at least they can claim the power crisis is now behind them.

Over the weekend, Chinese President Xi and Prime Minister Ardern had a phone meeting, largely about an upcoming APEC summit. It was a 'friendly' engagement in contrast to China's one with Australia. In fact, New Zealand is now the third largest exporter of food to China, after Brazil (#1) and the US (#2), and Australia has shifted from second to fourth in this market. Separately, Ardern is claiming a 'mature' relationship with China.

Taiwanese inflation was unchanged in October from September, and is running at +2.6% year-on-year.

In something of a surprise, Japanese household spending jumped +5% in September from August. That is a large move for them. It has reined-in the year-on-year decline quite a bit. A rise was expected in September from August, but the one delivered was about twice that expectation.

In the US, Congress has passed a US$1.2 tln infrastructure measure and the President has signed it into law, a delayed victory after splitting the US$1.75 tln for healthcare, education and climate change programs out of the overall measure to be worked on later. The infrastructure deal is a measure that won't hurt their labour market.

In any event, US non-farm payrolls came in better than expected with +531,000 new jobs added. This happened despite a shrinkage of -73,000 in public payrolls. A gain of +450,000 was expected. US employment has increased by +18.2 mln since low point in April 2020 but is still down by -4.2 mln from the pre-pandemic level in February 2020. Their participation rate is unchanged at a low 61.6%.

Average hourly earnings rose the expected +4.9% in October from a year ago, basically keeping pace with headline inflation.

Perhaps underlining the sharper jobs growth, American supply chains are expanding fast still. October’s Logistics Manager's Index of 72.6 continues the above-70 level for nine straight months now, a level deemed as a significant expansion.

US vehicle sales which have been falling consistently since April, turned up in October to run at an annual rate of just on 13 mln (but far below China which has also been declining but is a significantly larger market). The recent improvement may be more related to the improved supply of computer chips for cars than of demand.

And there has been more confirmation that the US expansion has legs with the release of September consumer credit data showing a much stronger than expected +8.3% rise at an annual rate.

North of the border, Canada's job expansion slowed in October, rising +31,200 and below expectations, and well below the +157,000 gain in September. But at least they have returned to pre-pandemic levels of employment.

Retail sales volumes in the EU were steady in September from August even if they were slightly disappointing, but are up +2.5% from a year ago, and up +5.4% from September 2019.

Meanwhile, the RBA’s latest statement on monetary policy said it expects a rapid economic recovery in Australia and has lifted its GDP forecast to +3% for 2021, then +5.5% for 2022, before returning to around +2.5% in 2023.

And staying in Australia Delta cases in Victoria have stayed very elevated 1173 cases reported there yesterday. There are now 16,413 active cases in the state and there were another 9 deaths yesterday. In NSW there were another 244 new community cases reported yesterday with 2,986 active locally acquired cases, and they had another one death yesterday. Queensland is reporting another one new case. The ACT has 13 new cases. Overall in Australia, more than 81% of eligible Aussies are fully vaccinated, plus 8% have now had one shot so far. Darwin is proving his grim point on the unvaccinated.

The UST 10yr yield opens today at 1.46% and up +2 bps since where we left it Saturday. The US 2-10 rate curve starts today flatter at +105 bps. And their 1-5 curve is unchanged at +91 bps, while their 3m-10 year curve is marginally flatter at +141 bps. The Australian Govt ten year benchmark rate is down -1 bp at 1.74%. The China Govt ten year bond is unchanged at 2.91%. The New Zealand Govt ten year is also unchanged at 2.54%.

The price of gold will start today at US$1818/oz and another +US$5 rise from this time Saturday. For the week it is up +US$35/oz.

And oil prices are little-changed since Saturday at just on US$80.50/bbl in the US, while the international Brent price is now just on US$82/bbl.

The Kiwi dollar opens today little-changed at just over 71.1 US. Against the Australian dollar we are marginally firmer at 96.3 AUc. Against the euro we are also marginally firmer at 61.6 euro cents. That means our TWI-5 starts today the same at just on 75.

The bitcoin price has risen modestly since this time Saturday, and now at US$62,142 and a +1.9% rise. Volatility over the past 24 hours has also been modest at just over +/-1.4%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

by bw | 8th Nov 21, 8:08am 1636312094

It's all very well to complain about being locked up and demand that Auckland be freed up; "Give us a date!" etc, but how many customers are the shops, bars and nightclubs going to have if illness becomes endemic? Where exercising your right to freedom of movement and getting out-and-about escalates the risk that the next statistic might be you? Perhaps Russia give us a glimpse of that future:

"The population act as if it has no idea, or it doesn't care any more, while people have started dying like flies. It's a catastrophe" Russia: The nation with half a million secret Covid-19 deaths.

by KH | 8th Nov 21, 8:27am 1636313227

Agreed bw.

Perhaps those crying for the end of movement restrictions have difficulty seeing very far ahead. Probably would fail "The Marshmallow Test"

by bw | 8th Nov 21, 8:45am 1636314348

...(Russis'a) official coronavirus task force has stated that just over 242,000 people have perished since the pandemic began....an analysis by the Financial Times has concluded far more people may have been felled by Covid in the vast country. It found as many as 753,000 Russians have succumbed to the virus. That could push it ahead of the US and see it become the country with the worst death toll globally.

https://www.nzherald.co.nz/world/russia-the-nation-with-half-a-million-…

https://www.ft.com/content/dcf6e11c-28f7-4541-b8d9-f91d4825da8a

by donny11 | 8th Nov 21, 8:46am 1636314419

What do you propose? That we stay cooped up indefinitely? Everyone who wants a vaccine is now fully vaccinated. What more can you do at this point?

by HeavyG | 8th Nov 21, 8:58am 1636315081

People don't realise that within a year everyone in NZ will have had Covid.

by KH | 8th Nov 21, 9:29am 1636316976

I think we do realise that HeavyG. Time to get vaccinated.

by mikekirk29 | 8th Nov 21, 10:39am 1636321189

Research Indic range of total pop fraction infection for various countries as 10-17%

so we will NOT all get it and are not ALL at risk

by sharetrader | 8th Nov 21, 10:42am 1636321360

the chances of two vaccinated people giving covid to each other in a causal setting is 4 % , that is why they will et us do retail shopping and go out doors, the only reason they are keeping it shut is for the unvaccinated whom will clog the hospitals and hold up spaces for other people with needs.

that is something that the money should have been thrown at not MIQ, they should have built a hospital at the super clinic site to use for covid patients at the moment that in the future would serve counties manukau for other needs

by The Person | 8th Nov 21, 9:06am 1636315596

"Everyone who wants a vaccine is now fully vaccinated"

So the 7401 people that got a first dose on Saturday are now fully vaccinated? How does that work, i thought you need to wait and get a second dose?

by donny11 | 8th Nov 21, 9:15am 1636316124

Good on them. But they are the stragglers. Tell them to stay home for a few weeks till they can get 2nd dose. Everyone who showed some basic initiative in getting vaccinated is now fully vaccinated. If we are going to open the country both domestically and internationally now is the time. Too much dilly dally going on for my liking.

by KH | 8th Nov 21, 9:32am 1636317150

90% is the number defined. And yes it's a hard one. And yes you could argue 85% or 95% endlessly.

The best way for you to help to open up donny11, would be to twist arms and get them vaccinated.

by gypsymanz | 8th Nov 21, 9:53am 1636318381

The problem with the 90% target is that demands extreme actions along the line of totalitarianism, these actions generally end up being the 'bad examples' of the history books!

The future will not be kind on those who call for others rights to be marginalised.

by Albert2020 | 8th Nov 21, 9:26am 1636316780

What a load of bollocks. There’s tens of thousands of vulnerable children that haven’t been given the same opportunity as you to be vaccinated.

by Yvil | 8th Nov 21, 10:12am 1636319578

bollocks back at you, children are not "vulnerable" to Covid, sure they can catch it but they are more likely to die from suicide than from Covid

by Yvil | 8th Nov 21, 10:25am 1636320311

For a bit of data, in NZ the children suicide rate is 19 per 100'000, the Covid death rate of children is 0 per 100'000

by Albert2020 | 8th Nov 21, 11:25am 1636323930

And why is the covid death rate of vulnerable (see childhood cancer, chronic lung disease including asthma, epilepsy, genetic conditions such as Down’s syndrome to name a few) children so low Yvil. Because we have been in lockdown and are approaching 90% double dose vaccination in Auckland.

by Zachary Smith | 8th Nov 21, 9:04am 1636315443

Why would you compare NZ to Russia and not Sweden?

by sharetrader | 8th Nov 21, 10:49am 1636321797

sweden was a failed lets stay open for the economy experiment, in saying that staying closed with a vaccinated population will lead us backwards economically

Sweden’s economy still shrank 8.6% from April to June of last year – its largest quarterly fall in at least 40 years. By comparison, Denmark’s economy shrank 7.4% during that time, Norway’s 5.1%, and Finland’s just 3.2%. (None of these economies shrank by more than 4% over the course of 2020, though.)

A year and a half after Sweden decided not to lock down, its COVID-19 death rate is up to 10 times higher than its neighbors (businessinsider.com.au)

by GV 27 | 8th Nov 21, 10:07am 1636319251

Perhaps we understand fine? Perhaps no fixed plan or deadlines make it impossible to plan for businesses or when you actually get to see family? Perhaps, at some point, life has to move on.

Perhaps the real fantasists are the ones who insist it's possible to live under endless lockdowns where you only find out what degree of normality someone in Wellington lets you have on a week by week basis.

by KH | 8th Nov 21, 10:24am 1636320256

Are you aware GV that at 90%, lockdowns will not be in place and will not return. Chase up a few of the unvaxed and that helps.

by GV 27 | 8th Nov 21, 10:39am 1636321193

"Chase up a few of the unvaxed" is proving a lot harder than it sounds, from what I can see. Hanging our 'ability to move around the country and associate with our families' seems like one of those things I'd rather not have dangled as a carrot for those who refuse to engage with the vaccine process, consider I've already done my bit and so have the vast majority of other Aucklanders. At some point, it is simply unreasonable that their choice is considered my problem.

by Audaxes | 8th Nov 21, 8:30am 1636313453

Coronavirus fatalities in Russia increased by 1,179 in the past 24 hours compared to 1,188 a day before, totaling 246,814. The coronavirus mortality rate remained at 2.81%.- Link

by delboy | 8th Nov 21, 8:47am 1636314471

That same article says vaccination rates are dire and only 1/3 of the population are vaccinated.

Whereas in NZ close to 65% of the population are now fully vaccinated.

by kiwimm | 8th Nov 21, 9:56am 1636318604

If all current first dosers carry through and finish their vaccination then we will be 73% vaccinated (of total population). Delta has an R0 of between 5-9. Even using the lower value of 5 then the weighted average R0 for the country would be 1.715 (assuming the vaccine reduces R0 by 90%). At this rate, Delta would infect everyone in the country in less than 14 cycles - assuming a 2-week cycle that is about 6 months.

This assumes that vaccinations are evenly spread which they are not. So lower vaccination areas will get hit faster (and therefore harder due to the level of care available).

Adding 90% of 5-11 year olds in gets you to 1.265 so still not enough to prevent spread (total pop in about 64 weeks). To further reduce the R0, you will still need social tools like distancing, isolation and mask wearing.

by pdemp | 8th Nov 21, 8:50am 1636314659

Russia is 34% double vaccinated (according to google), New Zealand is at 78%. You’re not comparing apples with apples with that comparison. What is the damage to mental health and the flow on effects by sustained lock downs? I’m double vaxxed and have minimal concern about being “the next statistic”. I’m far more concerned about peoples’ mental well being

by powerdownkiwi | 8th Nov 21, 9:52am 1636318324

Then maybe you could think of a way to explain the much bigger problems ahead, to them.

Because this mild pandemic was not either the main problem, nor the Big One. And no, Climate is not the biggie either.

by The Person | 8th Nov 21, 9:09am 1636315744

In Russia no one is vaccinated because they don't trust the government, Fair enough i say. Shame though as their vaccine does seem to work in Western trials so it might save your life.

In NZ, we have more faith in the government, vaccine rates are higher, so death rates are going to be much much lower than Russia.

by Yvil | 8th Nov 21, 10:53am 1636322015

getting out-and-about escalates the risk that the next statistic might be you?

Nice scaremongering bw, do you apply the same logic every time you drive your car?

by Audaxes | 8th Nov 21, 8:19am 1636312799

Their participation rate is unchanged at a low 61.6%.

What ‘Growth’ May Be ‘Scaring’ The Labor Force

The Household Survey indicates an unemployment rate which dropped 0.2 pts more, down to just 4.6%, largely because the labor force rebirth has been so undeniably tepid. After having declined by 183,000 in September (the HH Survey is not revised on a monthly basis, subject only to annual benchmark changes), just 104,000 were brought back in October leaving the overall labor force smaller for this crucial pair of months.

To paraphrase Central Banker Kenobi, these aren’t the labor force numbers you’re looking for.

And that’s because it isn’t just September and October; this has been a problem since last summer (after it had been an even bigger problem dating back to thirteen Octobers ago). The labor force has remained stubbornly flat for far too long to be consistent with a “red hot”, shortage-plagued employment situation.

What makes these LF estimates for these past two months of such particular significance was in how they outright refute the prior excuses made to dismiss another growing participation problem: parents who had stuck home with children while schools had been kept closed by politics; overly generous unemployment benefits which convinced “lazy” Americans to avoid rejoining productive society in order to take taxpayer-funded vacations.

by custard | 8th Nov 21, 8:23am 1636313018

“US employment has increased by +18.2 mln since low point in April 2020 but is still down by -4.2 mln from the pre-pandemic level in February 2020”

Perhaps that 4.2 mln aren’t particularly interested in returning to the work-force.

Maybe Powell is just chasing his tail with his too low for too long interest rate policy.

https://www.cnbc.com/2021/10/20/6-reasons-why-americans-arent-returning-to-work.html

by bw | 8th Nov 21, 8:58am 1636315115

The mindset is so influential that all economic policy is now seen through the prism of house prices, with all economic policy held to ransom by the presumed effect on house prices. This means that policy – be it immigration, education, taxation, superannuation – is deformed by not just a need to keep house prices at ridiculously elevated levels, but more that they keep prices actually rising. This means that economic policy levers such as interest rates and taxes, and support payments are either slow to adjust to changing circumstances or have their entire point (in an economic sense) missed....Australians are now generally working in economically inward facing employment, are in debt to their eyeballs, have amongst the world's highest housing, land, energy, internet and education cost environments – meaning that whole generations of Australians (not those benefitting from a generation's worth of rising house prices) are stressed out of their skull. Significant numbers of people owning their own homes are in the position of wondering how their children (or friends children) will ever be able to afford to buy a house.....The problem is that Australia needs to find – and real quick – a way to defuse the housing time bomb without bringing the economy or the banks down…..with an ever increasing number of people for whom it is either in their interests for Australia to have the housing crash, or for whom a housing crash entails limited downside implications they arent already living with.

(An excellent comment and good summary of how we too are held hostage by our property market)

https://www.macrobusiness.com.au/2021/11/how-baby-boomers-got-insanely-…

by JustAnOpinion | 8th Nov 21, 9:41am 1636317669

A good comment indeed but how to resolve the necessary action? Labour were clearly voted in on a mandate to deal with the housing crisis 4 years ago (I was a first time Labour voter at that time for this exact policy set) and have not been able to do anything other than watch house prices disappear of the horizon.

I think a housing price deceleration will start soon due to increased interest rate costs, DTI influence (and other opaque credit controls) and the investor affecting interest policies starting to take meaningful effect. But a slowing or even a gradual decline will not cut it, we will need that plus a substantial increase in wages to start to turn the tide.

by powerdownkiwi | 8th Nov 21, 10:01am 1636318917

No Government could have stopped the bubble, without crashing their 'economies'.

None were prepared to do that.

There was, and is, nothing believably big enough to accommodate the current 'growth 'doubling-time'. All else was too-obviously too small.

And you can't physically 'solve the housing crisis' globally, at this point. Moot point whether we could 'solve' it locally, but it would require a 2-per-couple reproduction limit, and zero immigration, then gradual attrition. Nobody is going to promote, or vote for, that.

This Government are the ones holding the parcel as the music is stopping - and they're looking more disjointed as the piecemeal attempts to keep BAU going. Expect any Party in Government, from now on, to attempt to purloin ex-government wealth (think; 3 WATERS). That is the only way they can stay afloat....

by Audaxes | 8th Nov 21, 8:39am 1636313983

The UST 10yr yield opens today at 1.46% and up +2 bps since where we left it Saturday.

Thus, today’s market action pays no mind to whichever bird otherwise tries to promote the Aristotelian, Ptolemaic worldview most convenient to the never-falsifiable inflation, red-hot economy theory. Even though we do this every couple years!

Shadows on the wall of the cave.

As it is turning out, more than two weeks and twenty bps since the last peak, it does more and more appear like typical seasonality – bonds, for whatever reasons, just don’t do very well in September and October. Every September and October. Outside of those very specific months, that’s when it can and does get real.

Eurodollar University’s Making Sense; Episode 115, Part 1: The Autumn(s) Of (Bond) Discontent

There’s potentially the 2017 version, more reflation into November; or the 2018 kind, living through the landmine. The latter much closer to the second (meaning third) taper experience in 2013.

Given the substantial drop in yields despite taper today a reality, next week will be an opportune time to brush up on landmines. These not some unlikely BOND ROUT!!!! are, in historical fact, the real tantrums. Link

by The Person | 8th Nov 21, 9:01am 1636315305

Why is Victoria seeing so many more cases than NSW? Is it just the head start NSW had in letting Delta out into the community?

How can we in NZ aim for a NSW level of cases instead of Victoria?

by Albert2020 | 8th Nov 21, 9:30am 1636317059

Different stage of infection. NSW had several thousand cases a day whilst victoria had several hundred until numbers peaked in NSW with vaccination and Victoria followed the same trajectory of NSW before peaking and now are seeing declining cases

by Audaxes | 8th Nov 21, 9:07am 1636315644

Separately, Ardern is claiming a 'mature' relationship with China.

New Zealand PM refuses to say if China is ‘ally or adversary’ & abstains from calling US ‘leading democracy’

AUKUS deceitful pact should not deter level-headed New Zealand

by JustAnOpinion | 8th Nov 21, 9:45am 1636317907

Sounds like good politics to me, for this she can be congratulated. Nothing in those articles is particularly concerning and the western media themselves were fairly united on the deceit behind the Aussies behaviour with France. Their chances of getting a FTA with Europe just had the T removed.

by mikekirk29 | 8th Nov 21, 9:28am 1636316880

Purple patch eh?

Excess demand cased by excess gov spending and excess QE means supply cannot keep up hence galloping inflation which means higher rates. Note banks raising them b4 central banks do so or not. Consumer spending that has been turbo charged now being hit by rising costs of goods. Production is out of synch again and it’s rise in figs looks in rear view mirror. Recession for world by March already baked in

by JustAnOpinion | 8th Nov 21, 9:57am 1636318645

Annual CPI 4.9% September 2021.

LCI (The labour cost index ) salary and wage rates (including overtime) increased 2.4 percent in the year to the September 2021.

So in essence wages have been decreased by 2.5%.

The average value of housing increased 3.6% nationally over the past three-month period to the end of September, with the national average value now sitting at $977,456. This represents an increase of 26.3% year-on-year for the cost of housing.

I am not sure we need to focus on the macro economic data, the micro economic data is simple enough to see.

by nigelh | 8th Nov 21, 9:32am 1636317140

Russian population ~144m, 750,000 deaths due to covid 0.5% of the population. Age demographic of those who have died from covid will increase this %. This translates to ~26,000 deaths in NZ but the vaccination basis is clearly worse in Russia than NZ. Also the Sputnik vaccine is not as good as the Astra Zenecas, Pfizer and others. Should not be using these comparisons to determine NZs path.

Auckland needs to be at the original level two and the recalcitrants can be dealt with by some other means should they require hospitalisation.

by mikekirk29 | 8th Nov 21, 10:48am 1636321734

People vaccinated do get CV19 and do go to hospital and do die and do infect others. Just less so than unvaccinated. And older the vaccinated person more likely they are to be unfortunate

Binary thinking is not rational nor accurate.

90% vaccination will reduce deaths and hospitalisation. It will not mean people vaccinated are invulnerable. This is a dangerous myth that Ardern and Bloomfield have failed to dispel. Also after 4-5 months vaccine is far less protective. So vaccinated need to be less aggressive to unvaccinated and more careful in their beliefs of safety

by Rosenstein | 8th Nov 21, 11:46am 1636325218

Um... Why is all cause mortality up in Israel, US? PS not Covid deaths.

by dumbthoughts | 8th Nov 21, 2:20pm 1636334406

If my memory serves me right, it's Germany where some health experts have come out and said that the vaccine passport system there is contributing to the record numbers of cases they are experiencing at the moment.

Firstly, the vaccinated are lulled into a false sense of security - the average layperson still believes that two jabs is all it takes to prevent Covid (whereas it's becoming clear that it is primarily a risk/symptom mitigator, especially after enough time has passed).

Shield of righteousness in hand, many vaccinated are going forward and eschewing all other forms of protection e.g. masks, social distancing, testing and so on.

At the same time, the unvaccinated - excluded from events, shops, restaurants etc - are forced underground to meet in clandestine fashion. This results in more aggressive spreading through the unvaccinated population at the same time.

I imagine similar will play out here.

by Sluggy | 8th Nov 21, 11:24am 1636323886

Many Russians also live in tower blocks with shared facilities. There is no comparison with NZ at all.