Here's our summary of key economic events overnight that affect New Zealand with news the US is ending 2021 on strong economic notes, while China seems to be on the skids.
New US jobless claims fell slightly last week to +267,500 and the number of people on these benefits fell to 1.713 mln, and back below pre pandemic levels.
US housing starts rose strongly to their highest since March and their second highest level ever.
However, the American industrial production gains slipped back in November after a very strong October and to an expansion rate we had been used to seeing. Still they are +5.3% higher than year ago levels.
The regional Philly Fed factory survey came in much weaker for December than expected, while a similar survey conducted in the Kansas City Fed region was unchanged at a modestly healthy level.
All this makes the slowing results in the Markit December factory PMI for the US understandable - expanding strongly from an historical perspective, but actually its slowest expansion in the past 12 months. It was always going to be hard to keep the pace up.
The US services PMI is expanding at a similarly high pace, but slowing too, at a three month low in December.
In China, there has been another twist in the property development sector woes. One company, China Fortune Land Development, that has now had to default, says it has 'lost' NZ$460 mln in a get-rich-quick scheme it had with a murky investment fund.
And Beijing is promising a reprise of its stimulus programs and many firms, especially SMEs start to struggle with the slowdown. Reinvigorating their property sector seems to be an aim.
Japan's latest December PMIs show both their factory and services sectors expanding still but at slower rates.
Yesterday, there were central bank rate reviews in Indonesia (3.5%), the Philippines (2%) and Taiwan (1.125%). Taiwan did raise its GDP forecast for 2022 and said rates may rise next year. All three report a strengthening recovery.
The PMI expansion is slowing in the EU as well, although they too are still at good levels. In Germany, it is all about a fast-slowing of their services sector. Their factory sector is on the up again in December.
The ECB left its interest rates unchanged but said it is reducing the pace of bond buying, closing down purchases under its pandemic emergency scheme and shutting that down by March. But it said it would offset some of that wind-down with increased buying in its more restricted Asset Purchase Program stimulus program.
The Bank of England raised its policy interest rate from +0.1% to 0.25%, their first rise in three years.
In Turkey, their central bank bowed to political pressure to cut interest rates, defying soaring inflation and deepening a currency crisis that has dogged their economy. Of course, their currency fell sharply as a result which will be even more inflationary. At the same time they raised their minimum wage by +50%.
The December PMI reports for Australia also report small slip-backs in December from the strong expansions reported for November. No issues are flagged in this report.
The Australian workforce rebounded by +366,000 jobs in November, much more than the +205,000 expected and dropping their jobless rate to 4.6% from 5.2%. However, +208,000 of those new jobs were part-time. So, the full-time rise of +128,000 was only half of the overall increase expected.
In Australia, pandemic cases in Victoria were 1618 reported today. There are now 12,252 active cases in the state - and there were another 9 deaths today. In NSW there were 1742 new community cases reported today, and another big jump, with 7,647 active locally acquired cases, but no deaths. Queensland is reporting no new cases. The ACT has 11 new cases. Overall in Australia, 89.7% of eligible Aussies are fully vaccinated, plus 3.8% have now had one shot so far.
The UST 10yr yield opens today at 1.43% and a -1 bps slip from this time yesterday after the US Fed signals. The UST 2-10 rate curve starts today steeper at +80 bps. Their 1-5 curve is flatter at +93 bps, while their 3m-10 year curve is little-changed at +141 bps. The Australian Govt ten year benchmark rate is unchanged at 1.58%. The China Govt ten year bond is little-changed at 2.88%. The New Zealand Govt ten year is -1 bp lower at 2.30%.
Wall Street has opened its Thursday session marginally lower, with the S&P500 down -0.3% in afternoon trade. But the tech-heavy NASDAQ is down -2.3% so far today. Overnight European markets all rose in unison about +1.2% with a strong showing. Yesterday, Tokyo closed up a strong +2.1%, Hong Kong closed up +0.2%, while Shanghai rose +0.8% on the day. The ASX200 ended down -0.4% while the NZX50 fell another -0.7%.
The price of gold will start today at US$1798 up +US$31 from this time yesterday, a +1.8% gain.
And oil prices start today +US$2.50 higher at just under US$72.50/bbl in the US, while the international Brent price is now just under US$75.50/bbl.
The Kiwi dollar opens today firmer at 68.1 USc and up +¾c from this time yesterday. Against the Australian dollar we are firm at 94.7 AUc. Against the euro we are up at 60.2 euro cents. That means our TWI-5 starts the today up +60 bps at 72.6 and off its recent lows.
The bitcoin price is firmer at US$48,483 and up +3.3% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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49 Comments
Great article on the Fed’s current behaviour and decisions and where they should be based on popular inflation targeting rules:
https://www.hussmanfunds.com/research/rs211211/
If the average rate suggested by the Taylor Rule was only 25 or 50 basis points higher than the current overnight rate, it would be an open question whether the Fed was operating based on “rules” or based on “discretion.” Yet despite evidence that deviating from rules-based monetary policy encourages financial speculation, with little impact on real economic activity, there’s currently an enormous gap between the current Federal Funds Rate and the implied rates from these models. This gap provides a measure of how far current interest rates are from the path that might be expected under a Do Whatever It Takes policy focused on containing inflation risks.
How the big end of town uses the green useful idiots for their own ends.
'...However, tax-motivated investors in today's renewable energy deals are typically a highly restricted set of the US's largest banks, insurance companies, and financial institutions—JPMorgan Chase, Bank of America, and Berkshire Hathaway are leading and indicative players today. They have been joined more recently by a handful of giant corporations like Google and Amazon. Tax benefits from the PTC, ITC, and MACRS are monetized for these entities via a series of complex deal structures (partnership-flips, sale-leasebacks, and inverted leases), which contractually bind SPV partners and allow legal transfer of tax benefits.'
Rentiers of the low-carbon economy? Renewable energy's extractive fiscal geographies
https://journals.sagepub.com/doi/full/10.1177/0308518X211062601
Calling people suckers, but not on a high horse.
Needing the spin bonus for xmas?
There are two problems; the finite nature of the energy source our unsustainable societal construct relies on, and the ramifications of burning same.
Blaming others is immature.
Doing something about it - isn't.
Oh PDK - I don't really think the factory worker is a sucker or has a lot to answer for - thy have just been duped by a caring government. Interesting how 100% of factory workers pay $15/tank to carbon slush funds but less 1% of Air NZ seats have the carbon zero ticket clipped. 99% of seats not prepare to spend on a bean on this rort so the government stiffed it out of them on the sly.
Merry Christmas chap. Have a relaxing one.
You are absolutely correct Profile, you only have to see the private jets at COP 26 to know Net Zero is big business. Even Tesla only came about due to subsidy's, grants and legislation requiring other manufacturers pay them $100's of millions.
The only part I really care about is the impact on the working class, many families have no alternative to getting to work and kids to school and are forced to pay the $15 per tank to bankers and land owners, that really really annoys me.
Cranially dyslexic comment.
Despite comment above re not blaming others, you walk right into it. Unaware you did so?
The blame should be sheeted home to a regime/mantra which thinks of 'going to work' at all. And 'earning', for that matter. That regime chose to fly blind, chose to keep growing beyond the capabilities of the planet to support it - by some orders of magnitude. But when the limits encroach? Blame others.
As I said - immature.
How the CCP uses the green useful idiots for their own ends.
'Last year, in their book Hidden Hand: How the Chinese Communist Party is Reshaping the World, Clive Hamilton and Mareike Ohlberg revealed how China influences Britain and other Western democracies by seducing their elites. Its ‘useful idiots’ often believe they are acting for the common good, but become blind to Xi’s avowed ambition: for China to achieve global supremacy by 2049, the 100th anniversary of the Maoist revolution.
Nowhere is this more effective than in the climate movement.
...Back in the real world, President Xi Jinping has said China will increase annual coal production by 220 million tonnes.
Such moves have, unsurprisingly, attracted robust criticism. Professor Jun Arima of Tokyo University, one of Japan’s Cop26 negotiators, told me that allowing China to benefit from cheap, coal-fired energy will only consolidate its industrial domination. Lord Patten, the last British governor of Hong Kong, pointed out that China’s leaders have repeatedly shown they are not “men of their word”.
https://unherd.com/2021/12/does-the-ccp-control-extinction-rebellion/
I was most interested in this bit "for China to achieve global supremacy by 2049, the 100th anniversary of the Maoist revolution." Where did you get if from?
I'm not suggesting you're wrong at all, as in my view it completely fits the current picture. My concern is NZs place. Helen Clark destroyed our military in the ideological belief that words will save us. But with an identifiable aspiration of remaining neutral at best, her (and subsequent Governments) total position is in utter denial of human history. Neutrality can only work when you have the means to defend it.
Hungary tried to remain neutral in WW2. They had a weak military that really was not capable of being able to defend their borders. Hitler and the Reich held little respect for the stated diplomatic position and invaded, committing atrocities across the country. Switzerland's neutrality is aided by the alps, but reinforced by a strong military that trains to use the alps as a weapon against an invader, and a shield for it's forces. NZ has a moat but little in the way of a discernible military to challenge anyone entering it. Since Lange most of our Government's from a defence perspective, have thumbed their noses at Australia, the US and any other potential allies who could assist in our defence. Sitting in the shadow of Australia makes us a target for China, as we will be easier to take than Indonesia and PNG, to provide access to the major population centres of Australia's east coast. And extra plus is that we also enable access to the antarctic, something the Chinese already are working on.
Isn't there an argument that says if things get as bad China invading NZ and Aus, things would probably have turned nuclear by then? In which case a slightly bigger NZ military is meaningless. Even with no nuclear war, even a tripling of NZ military capability wouldn't mean anything if invaded by the might of China.
Exactly : what's the cost of a missile defense system to deter the Russian peacemaker for instance?
It may be an argument but is it valid? And who would do the nuking? If any conflict escalates that far, then the major powers will be exchanging them and NZ could be seen to be comparatively safe. But ultimately the ecosphere will be seriously compromised and this will eventually spread this far south. I would suggest that the MAD doctrine would still hold some sway and the likes of Putin and Xi would be reluctant to push any buttons, which would mean that conventional warfare would still be what happens.
Being able to effectively contribute to mutual defence agreements would be the critical factor. From your point, Australia would be nowhere near able to fully defend itself from China, but the truth is they don't expect to alone. Their agreements will commit the US to coming to their aid, and indeed it would be in the US's interests to do so, but that doesn't mean they won't sacrifice NZ in the wash because we won't help ourselves.
HM
"China invading NZ and Aus, things would probably have turned nuclear by then"
One needs to think beyond physical invasion, military action and nuclear exchange of missiles . . . . the nature of conflict is forever changing and future conflict could simply be economic strangulation.
With many smaller countries currently accepting Chinese aid and funding and becoming indebted to China this may well already be the start of this.
I agree it is a disgrace that we can't defend ourselves - especially given our history of ill equipped soldiers getting hammered in early stages of both world wars. Bludging is not a strategy.
I think Switzerland is a useful comparison. They have a military focused on defence - not presuming to project power, just trying to make invasion impossible. I think we should do the same. Things like fighter jets are extraordinarily poor value for money because we'll never have a competitive air force, it's pointless. But we could have a very innovative defence force that focuses on asymmetric warfare and having a definite plan for even very unlikely scenarios.
Pure fighters just don't exist today per se. Every type has a built in attack capability. So fighters are very useful as they would ultimately be the launch platform for anti-ship munitions. So having that capability is very important. The P8s can do this but they are comparatively slow and not manoeuvrable enough to effectively avoid counter fire. Land based weapons systems, or even naval ship based systems would be too vulnerable.
NZ really needs a credible attack aircraft capability. My preference is the Gripen E, but logistics is a big issue for it's support and sustainability.
Our Skyhawks were considered even better than the later ones with the big engines in them after Kahu. That's why most are still flying in the US. Plus our pilots held their own against the very best our allies could put against them and surprised many. But today they would be very much outclassed.
The Gripen E would be a very capable alternative.
Operated by Draken International to train US forces as dissimilar red force opponents.
But yes government attitudes have increasingly hobbled our military. To some extent our military leadership are culpable, putting personal gain over national defence needs. There have been some very stupid decisions coming out of them like the LAVs and the NH90s.
Glad to see the markets pricing in increasing rates again - like they have been doing for the last 20 years whilst rates have been on a steady downwards trend. This graph says it all really.
And as our very own RBNZ is at pains to explain to we 'Fools who comment on social media':
"It's dead-easy to slow down an overheated market compared to trying to give a dying one mouth-to-mouth".
Sure it is...... Reinvigorating their property sector seems to be an aim. Oh. Hang on! That's China. Thank goodness that's not us.....
(NB: Christmas drinks last night. Guess what THE topic was. The gorgeous Mrs W mercifully dragged me away from the impending fracas I was about to create)
I get your point though. Most roundabouts in NZ are really too small for most drivers to achieve this. I don't normally worry about it, but what does get me is the number of people turning right at a roundabout, but indicate to turn left as they enter and then indicate right. or they indicate left and go straight ahead. Both are dangerous to someone waiting to enter. It really is a very stupid rule.
That would be the manoeuvre of shooting up the inside of merging lanes, that have already patiently and courteously 'zipped', and forcing access on the first available vehicle at the end of the closing lane. It's always so much easier to accomplish that move if the vehicle about to be squeezed-out looks well maintained and expensive.
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