Here's our summary of key economic events overnight that affect New Zealand with news the New Year seems to have started out positively.
The main data released overnight was for December PMIs. Almost all are expanding.
In the US however, their output expansion is restrained as firms register slower upturn in new orders. The rate of cost inflation remains marked despite easing to softest since June. Their backlogs of work rose at the slowest pace for ten months. Still, the overall expansion remains solid and far above its historic levels.
Tesla reported record quarterly deliveries that far exceeded Wall Street estimates despite a global chip shortage for cars. Hyundai and Kia forecast that their combined global annual sales will jump more than +12% this year, even though the chip crunch made them miss their targets in 2021. Analysts said the target is reasonable.
In Europe, the story was similar, but the level of expansion is now higher than for the US and also well above their historic average. However, in response to the supply chain issues, they are building inventories.
The situation in Taiwan is also very similar. In South Korea they reported gains from a lower level.
Hong Kong retail sales rose only modestly in November from their locked-down November of a year ago.
In China, Evergrande shares were suspended yesterday after a report it was told to demolish 39 residential buildings in ten days in Hainan Province. Overall, China’s property developers have mounting bills to pay in January and shrinking options to raise necessary funds. The industry will need to find about US$200 bln to cover maturing bonds, coupons, trust products and most importantly deferred wages to millions of migrant workers. Beijing wants those payrolls sorted by the end of the month to avoid the risk of social unrest.
Meanwhile China's RCEP trade block is now in action, one of the largest trading blocks of all time with 15 members. New Zealand is a member. 65% of trade between China and ASEAN, Australia and New Zealand will be tariff-free, less with others. It has dodgy environmental and labour standards. China is clearly aware of these flaws and want to join the higher-standard CPTPP.
In Turkey, new official data shows their inflation rate exceeded 36% in the year to December.
In Australia, house prices in Melbourne fell in December from November. In Sydney they barely rose.
And staying in Australia, there were 20,794 new community cases reported yesterday in NSW, a doubling in less than a week, now with 141,722 active locally-acquired cases, and 4 more deaths. And 8,573 pandemic cases in Victoria were reported yesterday, also a big jump. There are now 38,118 active cases in the state - but there were only 3 deaths there. Queensland is reporting 4,249 new cases but no more deaths. In South Australia, new cases have risen to 2552 yesterday. The ACT has 514 new cases and Tasmania 466 new cases, all big increases. Overall in Australia, 37,059 new cases were reported yesterday and their hospitalisation rates are now back nearly to the peak Delta levels. They will surely pass that in the next 14 days.
The UST 10yr yield opens today at 1.63% and +11 bps higher that on New Year's Eve. The UST 2-10 rate curve starts today steeper at +85 bps. Their 1-5 curve is much steeper +97 bps, while their 3m-10 year curve is also steeper at +158 bps. The Australian Govt ten year benchmark rate is up +5 bps at 1.67%. The China Govt ten year bond is unchanged at 2.79%. The New Zealand Govt ten year is firmer by +4 bps at 2.32%.
Wall Street's first trading session of the year has started modestly positive, up +0.3% in early afternoon trade. Overnight, European markets that did trade were up about +0.9%. (London wasn't one of them.) Yesterday, Tokyo was closed, Hong Kong fell -0.5% and Shanghai was closed too. Both the ASX and NZX were closed.
Apple has become the first firm ever to exceed a capitalisation of US$3 tln with the share price topping US$182.856 a share on the Nasdaq exchange. The stock is up +38% since the beginning of 2021.
The price of gold will start today at just under US$1800/oz and down -US$14 from where we left it on Friday.
And oil prices start today -US$1 softer at just under US$76/bbl in the US, while the international Brent price is now just over US$78.50/bbl. It has been volatile in the past 24 hours.
The Kiwi dollar opens today lower at 67.9 USc. Against the Australian dollar we are firmer at 94.4 AUc. Against the euro we are little-changed at 60.2 euro cents. That means our TWI-5 starts the today still at 72.6.
The bitcoin price is lower to open the year at US$46,612 and -2.0% below where we left it on New Year's Eve. Volatility over the past 24 hours has been modest at +/- 1.4%.
There will be no podcast version of this Briefing today. That will return tomorrow.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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70 Comments
2021 Began With Promise, Ends On a Sour Note
Never once has anyone at the Fed (or in the mainstream) attempted to reckon with the massive contraction of 2020 which went along with GFC2; each of which took place within an era of no recovery from the first GFC from 2007 to 2009, a prolonged stretch which had already exhibited these same symptoms of deficiency, especially this breakdown in intermediation long before COVID.
We’re left instead to sort out these seemingly contradictory consequences from a web of misunderstanding; banks currently do not want to lend, but they’ll buy up high-grade corporates and government debts by the boatload, any amount at practically any price for the safe and liquid.
Google or Apple can basically name the price for issuing their own debt, as if they needed any more, and “markets” will snap up every last dime at lower and lower yields (the other part of the interest rate fallacy). Yet, for every dollar raised by big name corporates via bond or otherwise, what we never see is what they never saw in the thirties.
Rather than complain about the lack of bond vigilantism as government debts quite naturally skyrocket as an unintended corollary, realize what this means; intermediation has again stopped where only the highest perceived quality obligors are “eligible” for borrowed money and credit, leaving vast swaths of the real economic landscape hidden in their incapacity.
The Administration run by “growing class of liberal millionaires and billionaires, and this elite cohort had begun to work its will on the system by forming “a new progressive donor class.””
https://nymag.com/intelligencer/2021/11/joe-biden-agenda.html
The big money now supports and runs Left administrations.
Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%. Thus around 60% of NZ bank lending is dedicated to residential property mortgages owed by one third of already wealthy households.
President Biden is reported as intending to fork out $1 billion to independent meat processors, an attempt to increase competition or more pointedly , decrease the power of the “monopolies.” Good old Democratic centralist policy, intervention. Clinton did ditto for the US sheep farmers, except tariffs on imports more or less funded that, supposedly. Then and now, an exercise in futility, and the $ billion will just be sucked into & be vaporised in a vortex of rort. When will they ever learn.
Being the US, more likely the corporate prison system would contract the prisoners back to the government for a handsome fee.
https://www.youtube.com/watch?v=krfcq5pF8u8
Tesla has said it hopes deliveries will increase about 50 percent a year for the next several years
Not saying its stock price is justifiable, but above will be impressive if it transpires
Tesla was supposed to have self-driving robo-taxis by... 2018.
They were supposed to have Cybertruck on sale by now.
They were supposed to have commercial trucks operating with eg. Pepsi.
They were supposed to have delivered a huge number of vehicles to Hertz.
These are all things that they said *would* happen. So I wouldn't put too much faith in things they 'hope' will happen.
It's fair to say Tesla delivers a mixed bag. They produced a viable mass market electric vehicle nearly a decade before the traditional players, and have a fairly extensive supercharger network.
Their stock value is well out of line from reality though, they're priced higher than Toyota.
Yeah. I think they deserve credit for delivering a kick up the arse of the auto industry and making EVs more mainstream.
Their share price is absurd though, especially for a company that repeatedly fails to deliver on their grand promises. Tesla shares function more like a cryptocurrency than an equity now.
Yeah, nah. Not unless they sold 10,000 Teslas in the last couple of months of the year.
https://www.stuff.co.nz/motoring/126870715/new-vehicle-sales-remain-hea…
Draconian lockdowns and a focus on a single disease come home to roost.
"...And what we saw just in third quarter, we’re seeing it continue into fourth quarter, is that death rates are up 40% over what they were pre-pandemic,” he said.
“Just to give you an idea of how bad that is, a three-sigma or a one-in-200-year catastrophe would be 10% increase over pre-pandemic,” he said. “So 40% is just unheard of.”
Most of the claims for deaths being filed are not classified as COVID-19 deaths, Davison said.
“What the data is showing to us is that the deaths that are being reported as COVID deaths greatly understate the actual death losses among working-age people from the pandemic. It may not all be COVID on their death certificate, but deaths are up just huge, huge numbers.”
https://www.thecentersquare.com/indiana/indiana-life-insurance-ceo-says…
Anyone who has covid and dies is going to be listed as a covid death. There will never be a figure of individuals who's death was purely down to covid that will make you satisfied, because that's not practically possible.
Draconian lockdowns still look to be the best way to combat a virus as contagious as Covid-19. Accepting that and moving on is a better use of mental focus than trying to determine it's something other than what it is.
Lockdowns work? There is library of papers out showing they are a waste of resources, money and lives.
If lockdowns worked Sweden would have the highest death rate in the world and Indiana wouldn't be seeing this - “Just to give you an idea of how bad that is, a three-sigma or a one-in-200-year catastrophe would be 10% increase over pre-pandemic,” he said. “So 40% is just unheard of.”
The lockdowns are taking out the young and fit while covid took out the old and frail - with a so so IFR of 0.15%.
As for contagious - measles is more contagious!
*lockdowns not to be conflated with border closure on remote islands.
The reality seems to be that countries that mitigate the spread of covid via a raft of measures, lockdowns, masks, contact tracing etc have been faring better overall. East Asia has been dealing with virus outbreaks for decades similar to the better covid responses so it's not much of a surprise to see them faring better than countries like the US and UK who have tried to pretend it's not an issue to take seriously.
In regards to Sweden, they've done worse than their neighbours, but they're a first world county with leading healthcare and public awareness systems so expecting them to have the worst death rate is a tad naive.
The universe is telling us we're not in control, and this will take time to play out. And yes, we can't trust mainstream media, but that doesn't mean we need to gulp down whatever kool-aid you're enjoying.
So we're not in control - I agree - but you seem to think lockdowns work. Rather a counter intuitive position.
The US is a great example of various lockdown harshness by state - if you take the time to compare or read a few papers you'll find lockdown severity had no effect on covid death rates but now we seeing the effect on lockdown death rates through negligent healthcare of other diseases.
Like vaccines, I guess it depends what you mean by "work". They have to be part of a suite of measures, saying this place here locked down more severely than this place and they got different results doesn't necessarily tell you anything.
About the only thing we can learn from the US is that a sporadic, confused approach with a high degree of resistance to mitigation measures seems to have resulted in worse outcomes than countries that managed to get on the same page.
There will never be a figure of individuals who's death was purely down to covid that will make you satisfied, because that's not practically possible.
Nobody is asking for perfection, just consistency. The way COVID-19 deaths are counted (and, for that matter, hospitalisations) is quite different to the way in which deaths from other causes are counted.
At the moment, covids getting a lot more focus, because it's a changing, relatively new widespread pandemic.
If you want to believe the issue is drastically lesser than the numbers are attempting to indicate, and it's just all overstated because of the way covid hospitalisation and mortality is counted, more power to you.
From economic miracle to mirage – will China’s GDP ever overtake the US?
Analysis: issues of governance, rising debt, Covid and property market turmoil will delay Beijing’s quest to become the global economy’s No 1
...China’s economic structure, moreover, is unbalanced. It has income per head that is the equivalent of Mexico, but consumption per head that is no higher than Peru. Consumer spending accounts for about 37% of GDP, little higher than it was in 2010, and much lower than in 2000. Productivity growth, closely associated with liberalising reform, has stalled."
https://www.theguardian.com/business/2021/dec/28/from-economic-miracle-…
Hmmmm... United States Balance of Trade
It's the same global "free trade" Washington Consensus myth - we traded our jobs for debt, that's what free trade was about. China got the jobs, we got the debt.
This is why the United States cannot industrialize as long as the house prices absorb this high a rate of income, and as long as the banking sector is supporting this, and as long as the political parties say we will not tax real estate so that all of the rising land value will be able to be pledged to banks to pay interest instead of to pay taxes. Essentially, it’s the (lack of) taxing of real estate in the United States that has subsidized the increase in housing prices, because housing prices are worth whatever a bank will lend to buy a house. If you have to go to a bank, and if they lend more and more and this money isn’t taxed away, the price is going to go up. So you have the government policy, the bank policy, all trying to promote this high diversion of income into paying land rent. Again, this is the exact opposite of what Adam Smith and John Stuart Mill and classical economics and the whole 19th century had advocated. This has priced American labor and industry out of world markets.
If you have to pay 43 percent of your income for rent, then even if the government were to give you all of your goods and services for nothing, all of your food, all of your clothing, all of your transportation for nothing, you’d still have to pay so much money for rent and for health care that you couldn’t compete with labor in Asia or the Third World or even Europe. And so this is what has essentially excluded the United States from having a successful empire. It’s the greed of the financial sector, basically, and the takeover of the government by the financial sector here as happened under Margaret Thatcher in England and then Tony Blair. You’ve had both countries essentially enter permanent austerity programs, and the only way to cure this is for housing prices to go down. But if the housing prices go down, then the banks will go broke. That’s why Obama said he had to support the banks: because if he’d actually lowered the housing prices to realistic levels, that would enable America to survive, but the banks would go under. Until you’re willing to restructure the banking system, you’re not going to be able to industrialise the American economy. - Link
This is such an important point - and is very clearly explained here, thank you.
In NZ, our high housing costs are making investors rich whilst making our labour costs too expensive - it is a huge drain on our potential. Our major exports are now only competitive because we have lax environmental regulation and imported labour living in bunk houses. This is a recipe for disaster.
A viable solution would be to forcibly stop housing being used as a speculative asset - e.g. by taxing capital gains (above 10 year bond yield rates) on land sales at 100%. This will lead to serious drops in land prices - so would likely need some form of backstop. But I really can't see another way.
The insanely high house prices have destroyed a whole generation and deleted the next.
Possibly. By the way, do you think the boomers are immortal? Who will pay the prices that the boomers need and expect? The Xers?
I think the marginal buyer has to be the millennials, unless boomers and Xers capture the whole housing stock on offer.
The price ultimately gets paid. They repeatedly voted against mandatory super contributions, opting instead for pay as you go. Now that generation earns little from their life's savings, and are facing high labour costs for years to come, just as their demand for services (health and property) are going to explode.
I don't think house prices are going anywhere anytime soon, values around it are likely just going to adjust. Individuals need to work out how to develop skills and market themselves directly as contractors, wage and salary earners are in for a bloodbath.
The boomer generation, who were/are a huge voting block wanted to have their cake and eat it too; no universal provision for their aging costs (super and health), no inflation to diminish their retirement savings, basically 85-90 years of comfortable living off 40-50 years employment.
Well, money is now worth less if it's not out there doing something, and there are going to be less taxpayers to pay aged care bills, which will also be increasing in cost as there are less younger workers. There's fundamental gravities that ultimately can't be avoided.
There was a post war golden age that has set a false standard for what life for the average person is supposed to be about that is going to fast erode.
US Manufacturing Slides To Weakest Since Dec 2020, New Orders Tumble
Remember, Economists and Western central bankers last year all said acceleration and then finished 2021 shouting inflation, while there was Xi Jinping right from its beginning spilling “shaky” and “outlook remains uncertain” to the uninterested mainstream.
China’s economy does not, obviously, account for the entire world’s system. However, as Xi was saying, it does account for much of the marginal growth either expected or realistically obtainable. Without Chinese growth, what would/should anyone legitimately come to figure for everyone else (and this includes America)?
Like Germany or Japan, China is a bellwether, a useful gauge for marginal growth prospects worldwide. The US does not necessarily “need” the Chinese economy for its own sake, however the US is no island and China’s problems aren’t actually problems for just China; historical nihilism the result not the cause.
Good demand for housing. We're diversifying our investments (we'd become grossly overweight due to the bubble in housing) and have had enquiries about viewings before we've even advertised.
Enjoying my time in Europe. We where sitting at a small cafeteria in a public square this afternoon enjoying a serranito for lunch. There was a girl throwing a tennis ball for her sausage dog, despite the ball being difficult for the dog to bite due to its size the dog was very reluctant to drop the ball for her to throw again. Some children where throwing oranges into the fountain, seeing who could get the greatest distance. There where some young couples drinking beer and smoking togeather, enjoying a laugh in the sunshine. For the first time in a long time everything just sort of felt normal, everyone seemed much happier. It made me realise how much I've missed the world and travelling. Going forwards I think I'll be working less and splitting my time evenly between Europe and New Zealand. One cannot deny the natural unspoiled beauty of New Zealand but for history, arts, culture, food etc. Europe is just...lightyears ahead.
Like everywhere, pick your spot. NZ offers that seclusion, privacy & mostly clean sharp air & sunshine & the heritage of its beautiful natural surroundings. The history is new, very new and so too a culture & identity that is still evolving, trying to find itself even. Therefore those thousands of wonderful historical locations, Europe and on, are a vital experience for every NZr. On the other hand you don’t have to venture too far away to find the other side though. Tenements, industrial sprawl and ruins thereof. We had a very happy experience living & working in a blue collar area of the USA but fully aware wouldn’t have lasted a week in other locations, and not that distant.
Actually Europe has got far better in terms of pollution and industry.
However it's been eye opening how many empty houses there are in Spain and Portugal, particularly in smaller towns and cities. A consequence of declining population and urbanisation I suppose. Seems you can get a perfectly good 1 or 2 bedroom apartment for under €100k in a smaller seaside city, a doer-upper for a fraction of that. My wife noted it was probably cheaper to holiday in Spain than live in New Zealand.
I've not looked into it too closely but the median person in Spain earns €32,600 p.a. [link] which is equivelant to NZD$54,191. The median person in New Zealand earns NZD$56,160 p.a. [link] so I can't argue that kiwis are much better off.
Both economies lose workers to more industrious northern neighbors of course.
Sounds like my recent trip to Christchurch. Had lunch a couple of days in Riverside Market along the Avon River, everyone seemed happy and chatty, also drinking beer and enjoying the sunshine. I didn't see a sausage dog though, but there was a decent queue outside Fritz's Wieners.
NZ has become a cultural desert. The literature publishing business is now completely monopolized by university publishers who will only publish 'stuff' written by those who have graduated from their expensive writing courses, with only one or two private publishers barely hanging on. Of course nobody outside these courses will read these works knowing that they have been written by woke student writers with no adult life experience outside a university. The teachers of these courses have a woke agenda which I imagine has to be closely adhered to qualify for publication.
Then, there is the popular music scene, which from the evidence of recent events is reduced to importing UK DJs ridden with Omicon, DJs which aren't exactly renowned for writing or playing their own music. Apparently, NZ DJs or musicians don't make the grade.
Friends of my kids live somewhere there,1000km radius, sent the ad for their $500,000 dollar house. Massive and we'll appointed, granite benches, multi bathroom's etc. Basically the same price as it was sold for originally ten years ago and twice since. Talk about a different world.
Seemingly any part/island. I'm sure there's some crappy areas near Honolulu. Few places have views or are what I'd call a beach property, so shudder to think what those would cost.
End of the day, the demand by people to live in Hawaii far exceeds the available property. Oh, and because of its location the cost to build is 4 grand a square metre.
People blame Orr and this and that for our housing but it's really just another instance of the same wider real estate market playing out.
Demand is not flat, in fact, Texas is one of the fastest-growing states in the US. And it's not just spare land abundance per se that makes land prices cheaper, but land policies that allow land to be easily purchased and developed. If land abundance was the main prerequisite for affordable housing, then they would be giving land away in Aussie
Texas is an economy that has been reliant on oil, knows the party is ending, so is offering unsustainable tax breaks to attract any industry it can to try and secure it's future, a la Dubai, or a host of middle east oil Emirates.
And the issue with cheap land policy is that long term, the maintenance and modernisation costs are not accounted for.
Paradise doesn't really exist, compromises abound.
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