Here's our summary of key economic events over the weekend that affect New Zealand, with news China seems to be hamstrung with a flagging economy that is yet to respond to the stimulus administered so far.
First up, China reported its June CPI inflation rate at 2.5%, up marginally from May, and up from 1.1% in June 2021. But if it wasn't for a +19% rise in fresh fruit year-on-year, and fuel of course (+32%), the 2022 rate may have matched the 2021 rate. The cost of fresh milk rose +0.9% but lamb fell -6.0%. China doesn't really have an inflation problem at this time, 'aided' by an economy in the doldrums. But that 2.5% June rate is their highest in 23 months. Buying heavily discounted Russian oil and gas certainly helps.
They seem to have neither inflation nor an economic expansion.
China's producer cost rises are slowing. After rising at a rate exceeding +13% late last year, PPI inflation is now down to 'just' 6.1% in June, its slowest rise in 15 months. We should note that the pressure on the 'industrial sector' is higher (at 8.5%).
In Chinese society, nationalist fervour is building ahead of the CPC party Congress. But as we have reported before, their economy is struggling and major announcements on vast new stimulus are expected soon. Larger deficit spending is proposed. Local authorities are already distributing helicopter money to keep retail activity bubbling along. But in the industrial heartland things are serious. China’s steel mills are sounding the alarm over crisis conditions in the industry as margins plunge due to weak demand. The starkest warning yet has come from Hunan Valin Iron & Steel Group, which met this week to discuss the rapid downturn in the sector and the measures it needs to take to ensure the company’s survival, including halting unprofitable production. Citing industry experts, the mill based in southern China, said it expects the crisis to persist for five years. Iron ore prices fell again on Friday, weighed by the gloomy demand outlook in China.
A Taiwanese military invasion adventure seems to be a live option for Beijing, to rally the population when the economy is down, and try and cap a Party Congress with a 'glorious win'.
In Taiwan, export data for June was very strong, rising more than +15% year-on-year to US$42.2 bln in the month, far better than the +13.6% rise expected and the +12.5% rise in May. The Taiwanese export juggernaut rolls on. They even managed to keep import growth lower than expected and lower than for May, even with the oil price pressures. The trade balance stumble in May is behind them now.
In the US, the market bears have been thinking they will finally have their day. But better than expected jobs numbers make it a very hard claim to sustain.
Markets were expecting a +268,000 increase, but the seasonally adjusted American non-farm payrolls rose +372,000 in June from May to be +6.3 mln higher than a year ago, and +1.1 mln higher than in the pre-pandemic June 2019. By this measure, this June 2022 data records substantial progress. But it is actually better than that. As regular readers know, we also look at the actual, rather than seasonally adjusted numbers, and June's employed labour force is actually +944,000 higher than May's and continuing a trend that exposes a very sharp rise in actual hiring.
All those extra paid workers buy stuff, and that is expanding their economy faster that many analysts are expecting. The Americans seem to have both inflation and a good economic expansion.
High inflation in a strong labour market is sure to keep the US Fed in its rate hiking mood, the next of which will come on July 28 (NZT), now probably +75 bps. Two of the Federal Reserve's most vocal hawks said they would support another big interest rate increase but a downshift to a slower pace afterward, even as both downplayed the risk of higher borrowing costs pushing the US into recession.
The American jobless rate held at 3.6%. Average weekly earnings rose +5.1% to US$1,106.76 (NZ$1790/week).
For perspective, there are now 158.7 mln people employed in the US, with 6.3 mln unemployed (including 'between jobs'). In China, there are 745.3 mil people employed, with 46.7 mln unemployed (5.9% jobless rate) and average weekly earnings of US$306/wk.
The rise in American wholesale inventories continued in May, but at a slower pace than for April. Their inventory-to-sales ratio remains low from an historical perspective, but as we have noted before, firms are moving to actively reduce this buildup, and that is affecting factory new orders worldwide.
The US reported that consumer debt (not housing) rose by +US$22 bln in May, less than expected (+US$32 bln), and much less than the April rise of +US$36 bln. They now collectively owe US$4.54 tln in consumer debt, a per capita rate of US$13,660 each. For perspective, New Zealanders owe NZ$2,600 each as a per capita average.
Meanwhile, the top has come off the recent rise in American mortgage interest rates.
Canada also reported jobs numbers for June, shedding -43,200 jobs in the month although almost all of those were part-time jobs. Canada has been shifting from part-time to full-time for most months in 2022, although this month there was not compensating growth in full-time jobs. Canada's jobless rate fell to 4.9% which is a record low for them. The US is at 3.6%. Australia is at 3.9%. New Zealand is at a 3.2% unemployed rate.
In Australia, the insurance claim costs of their on-going flood catastrophes in NSW are already at AU$100 mln. Some insurers are calling on immediate restrictions on rebuilding on flood plains. That may affect more than 15% of households there, perhaps thousands who can't return. New Zealand premium costs are sure to feel the impact from stressed Aussie insurers.
Globally, the FAO Food Price Index slipped in June from May as both vegetable oils and cereals slipped in price. But both dairy prices and meat rose again, meat to a new record high and dairy back close to its 2013 record level. What is interesting is that even on an inflation-adjusted basis, global demand for meat and dairy remains very strong, and alternatives seem to be making no headway into these markets. Perhaps the very sharp run-up in grain prices is putting them at a disadvantage. An early pioneer, Beyond Meat, has seen its share price crash -75% in a year. Its sales are dragging and costs skyrocketing as consumers loose interest in the product.
The UST 10yr yield starts today back up at 3.08% and a +19 bps rise in a week. The UST 2-10 rate curve has stayed negative - just, at -2 bps. Their 1-5 curve is little-changed at +17 bps. Their 30 day-10yr curve is marginally flatter at +151 bps. The Australian ten year bond is -3 bps lower at 3.55%. The China Govt ten year bond is unchanged at 2.86%. However the New Zealand Govt ten year will start today also unchanged at 3.64%. A week ago we were at 3.71% so a -7 bps retreat since then.
The price of gold will open the week at US$1743/oz. A week ago it was at US$1808/oz, so it has fallen -US$65/oz since.
And oil prices have moved back down -50 USc to just under US$102.50/bbl in the US, while the international Brent price is still just under US$106/bbl. A week ago these levels were US$107 and US$111/bbl, so a -US$5 shift lower in a week.
The Kiwi dollar will open today unchanged from Saturday at 61.9 USc. Against the Australian dollar we are also unchanged at 90.3 AUc. Against the euro we are still at 60.8 euro cents. That means our TWI-5 starts today at just on 70.6 and a minor +25 bps higher in a week.
The bitcoin price has fallen since this time Saturday and is now at US$20,892 and down +4.3%. Volatility over the past 24 hours has been high at +/-3.0%.
Due to staff availability, there will be no video summary today.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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31 Comments
A couple of reasons why I think China won't invade Taiwan firstly China needs an "enemy" to distract the population when things aren't going well at home and secondly imagine the loss of face if it fails (and there are many variables at play in invading Taiwan).
Invading Taiwan would be a senseless and ultimately suicidal act for China. Of course that doesn’t mean it won’t happen. We have seen recently, a bit further to the west, how ego and imperialist dreams can trump rational decision making.
Although , what is ‘rational’? While it may not be rational in terms of the wellbeing of the Chinese people, to invade Taiwan, it is possibly rational in terms of the CCP’s consolidation of power. However, that assumes victory, which is a big assumption indeed…
Your last comment encapsulates the crux. In the west we commonly make the mistake of assuming the way we think is also the way 'they' think. thus what is rational to us must also be rational to them. But that is often not the case. while we tend to view the invasion of Ukraine and possibly Taiwan as being irrational, to the other players there clearly seems to a rationale to support their actions, even if we cannot see it. Even a response to our actions may not be what we expect .
Agreed. During the Ming and Qing dynasties China claimed 'tribute' from surrounding nations. The tributes were things China needed. But here's the kicker - because China was so great it required tribute, but this greatness meant it was imperative China gave back to the tribute-giver more in value than it received. (The Mongols played China on this quite well with horses.) Western empires didn't do this - tribute was a rapacious resource grab. China's rhetoric around the South China Sea shows this imperial thinking is still well in play.
There's also an element of government ignorance in these Autocratic nations.
Some estimates put Russian military corruption at 40-50 cents in the dollar, officers get paid to claim imaginary soldiers exist, there's new mansions for the brass and cheap Chinese tyres on their gear. So they talk a big game, but their military is clown shoes.
China may be better in this regard, but they're virtually untested militarily for a century.
They need America and the rest of the world too much for their own existence, but could be wrong.
Do you really think America would start a major conflict with China though? Their foreign policy regarding Taiwan is utterly confusing and I believe intentionally so. They don't recognise Taiwan as a nation and claim only mainland is the real China, but claim (sort of) that if China tried to take Taiwan militarily, they would intervene. What would that intervention look like? A few carrier groups sitting between the two sides and imposition of no fly zones over the straits? That would certainly provoke China to fire an overwhelming number of missiles at those carrier groups, starting a massive conflict. And if they repelled Chinese military action successfully (which is likely given the US military might), how long do you reckon they would be sitting there? The US would need to set up a large naval base there to keep those carrier groups resupplied or risk the supply being cut off - what would the Taiwanese people think of that, given the backlash in Japan on their naval bases there. So their other option would then be to bomb China with overwhelming force to prevent any type of military action... which would likely lead to nuclear weapons being exchanged. So going down that path would almost certainly be untenable for the US as it's likely China would have subs launching nukes from near their coast, or using hypersonics which are basically unstoppable. The US would be asking "Is all this worth it for Taiwan, which if we just let it be taken by China, would keep trading with us, but just lose it's democracy". America is still licking it's wounds from Afghanistan where it waged a 20 year long war costing thousands of US lives, for nothing in the end. Does it want to repeat that?
TBH, I think the US would probably just condemn China and back slowly away. Getting into such a large fight just to keep a tiny country a democracy, one which you don't even really recognise as a country anymore... and if intervention meant the potential destruction of the infrastructure built there that provides you with chips etc vs non intervention and letting China take the country with a limited campaign...
Even if the USA didn’t intervene it would be an ugly war, and major sanctions would be imposed on China which would come at huge social and economic cost to them.
Sanctions like the current ones being imposed on Russia? Which has resulted in massive increases in oil prices and resultant cost of living crisis which is now likely to see Biden thrown out? Think about all the cheap goods the US imports from China which would suddenly stop. Biden would have to reaaaallly sell the war to his people to enable that to happen for him to remain in power, quite the double edged sword. And what would be his argument? "Anti communism!" most likely, despite them freely trading with that communist nation for decades. It would be a pretty hard sell. And again for what result? At worst to have your coasts nuked, at best to experience a massive economic downturn?
If cooler heads prevailed, they would likely just say "Meh, give China a wrap on the knuckles, but don't actually do anything militarily." Potentially even just ignore the issue (like they do with so many others, Saudi Arabia in Yemen for instance) and just ask China to please not bomb anything important. Which China wouldn't want to do anyway, given that Taiwan would be a big money earner for them if they can retain the infrastructure/businesses.
I don't think the Chinese have a monopoly on "irrational" . Reading "The Delusions of Crowds" by William Bernstein the American's have a good claim to irrationality as well.
The enemy argument is in the playbook of tyrants and the "face" argument is peculiarly Asian. I would argue that what drives / motivates those in the West is the same of those in Asian nations as well. While there may be cultural differences the motivation remains the same.
Edit - spelling
There is a bit of history of this type of talking from both sides. Situation changes and so the talks. https://en.wikipedia.org/wiki/Project_National_Glory
China can just wait. IMO China is simply going to place the forced integration of Taiwan on the table and tell the Taiwanese, either accept our generous terms now, or we will impose it with far worse terms for you later.
The American empire, in its hubris, deindustrialized itself completely to fund the rise of the China and now finds it only has military power to threaten China. China has used economic warfare, industrial espionage and manipulation of its monetary policy to grow itself into a World power.
Why would it force a war when it can continue building its fleet, continue expanding its diplomatic and monetary chains over Taiwan, to the point that the KMT party wants reunification on good terms for Taiwan.
The Americans want war because they think they can win it militarily. The disgusting people who rule the US and decide its foreign policy, simply do not comprehend how to appropriately use soft power to build force over time and are instead resorting to threats of aggression to make no real policy gains. The US was once the manufacturing basin of the world, which could during ww2 produce at such unimaginable rates of a jeep every 5 minutes, a rail car every 15 minutes and a cargo ship per day, endlessly throughout the war. It could not summon such industrial output now to win any conventional conflict against another industrialized power.
As we are seeing in Ukraine, the sheer quantity of equipment burned through by both sides in men, material and weaponry is astonishing and what actually matters is how many men you can muster, how many shells/rifles etc you can manufacture and the willpower of your people to fight. It is a total policy mistake driven by the Hubris of the American empire's assumed right to rule the earth.
The US discovered that it's cheaper for them to manufacture in the Americas about 24 months ago. They already have 11 steel mills under construction:
https://chiefexecutive.net/peter-zeihan-on-the-geopolitical-fallout-of-…
Also the US is energy & food independent.
Complex manufacturing is the only area where they are not 100% however they are building semi conductor chip plants currently, 3 I believe:
https://www.fierceelectronics.com/electronics/chip-fabs-are-coming-us-w…
IMO the US will be selling via proxy the desperate shrinking Chinese middle class back their consumer electronics within 24 months. They'll probably be selling the Chinese Navy the diesel to power their new Aircraft Carrier too lol.
An early pioneer, Beyond Meat, has seen its share price crash -75% in a year. Its sales are dragging and costs skyrocketing as consumers loose interest in the product.
No, investors are cooling on its shares - that's not the same thing. Beyond Meat are still increasing sales and have an approx 25% compound annual growth rate over last couple of years. Their problem is they are investing heavily in expansion - and some of their decisions are a bit wonky.
The linked article states Q1 revenue growth was 1.2%, so technically not untrue that sales are now stagnating but not a trend yet.
... " loose interest " is what ya get when Adrian Orr has a panic & starts shunting the OCR down ...
Beyond Meat are indeed expanding , as Tesla did , a few years of significant losses , before they get into the green ... juicy fat profits ... the industry they're in is growing rapidly ...
Interesting articles in link.
Bit contradictory though.
CEO saying they are struggling because the price of meat has risen?
Study showing they use 90% less energy and 99% less water. And yet they still cost more than meat, what other costs can be so much higher, for I would have thought energy would be the main one for any food production, drop that 90% and nirvana.
Figures of 90% less energy and 99% less water are not the reality for plant-based meats.
KeithW
The growth rates, measured as percentages, are actually very modest for a food category starting from a very low base, and even more modest when measured in tonnages relative to real meat. Plant-based meats are here to stay but at this stage real meat farmers do not need to fret too much. And let's be quite clear: NZ has no competitive advantage when it comes to plant-based meats. The production and manufacturing sectors of this industry will be in the continental crop-growing nations. As with so many issues, the hype and the reality were never in tune, particularly as they relate to the specifics of NZ.
KeithW
I think I'm being pedantic here?
Steak is plant-based meat.
The alternative is plant-based meat 'substitute'?
I think I had a Beyond Meat burger at the Meat Stock BBQ show back before covid. I was surprised by how realistic it was and rated it well above the processed MD or BK type burgers. As a person who has 4 nice big beef cows wanting to go flatting in my freezer I think I will stick with the real thing.
Mine are very low carbon footprint beasts, I collect the calves from about 5km away on my trailer and they stay here until farm processed by a local home kill processing place about 7km away. As for water use there is a lot falling from the sky right now around Auckland, no one seems too worried about it running to the sea at the moment.
Sure in SOME COUNTRIES this maybe a bad use of land, or precious water, but in OUR COUNTRY it's an efficient use of the land. There is 70mm of rain forecast to fall in the next 48 hours here, I have 15.7 H It will all go to waste and flow to the sea as the ground is already saturated.
Of course, their answer to how close you collect everything is, that if you cut out the middleman (cow) you could just eat the grass direct.
But that would be as much fun and logic as cutting out the middle man by pouring your beer straight down the toilet.
Did you know that cows eat meat?
They grow microbes (small animals) in their rumen which get flushed out into their abomasum and small intestine where they are digested providing the cow with most of its protein needs.
Hopefully a meat substitute can be formulated for cows that would like to become vegetarian in the future.
Aren't you ignoring their methane emissions here as well? I mean I love a steak and milk based coffees. I'm reluctant to use soy or plant based milk substitutes. I'm also concerned about the planet.
It's completely hypocritical, we need to own our hypocrisy, try to make some changes and be open to new ones as they come along. We shouldn't just try to pretend these threats to our future don't exist.
I am completely open to owning new hypocrisies. Let me know what your's are and they may be new ones I don't know about yet, and can have a crack at them as well. We don't have to disown our old hypocrisies as we pick up new ones, do we?
Invading Taiwan would be an act of desperation as success is far from guaranteed, and this coming from one with experience in amphibious assault operations and WARPAC and CHICOM weapon systems, strategy and doctrines. Not only would any success by a Phyric "victory', but casualties, in every way, could be horrendous - mililtarily, politically and economically.
As the war in Ukraine has shown, PGMs, modern intelligence, and PGM use, from standoff platforms and the cost-benefit ratio of modern missiles, both SAMs and tactical SS, MANPADs and ATGAMs, favour the defender. Logistics would be an absolute nightmare. Politically, the results of China's "Wolf Warrior" diplomacy, would be chicken feed, for want of a better term, compared with the approbrium, isolation and sanctions resulting from Russia's actions in Ukraine. And finally, above all else, China is an Importer of food all forms of energy and an exporter of manufactures to survive and while it has built up stocks of food and energy, they will be pretty ephemeral in the event of a blockade as would cash flows denial of access to export markets.
China is engaged in a massive and widely publicised arms build up, especially of its navy, but at present and near term future has very limited ability to project power and, more importantly, guarantee its mercantile marine transit to and from, say, the oil fields of the Middle East. The life of both its navy and mercantile marine would be both short and exciting.
Exactly. Great post.
despite all that, it doesn’t mean they won’t invade. I think there have been some clear signs in recent years that Xi and the CCP have a rather deluded and extremely inflated sense of their power.
Just finished Winston Churchill's "History of World War 2". The Allies wouldn't invade Normandy until they had a ridiculously high superiority on land, sea, and air, much to Joe Stalin's annoyance, as he was wanting them to take the heat off Russia ASAP. Has China had any war tacticians since Sun Tzu? They don't have the superiority against Taiwan that they need. Taiwan will be hoping they never have it. The days of Taiwan's government thinking they are a de facto Chinese government are long gone. They are all Taiwanese Nationalists now, and a surprisingly high number of them will be willing to fight for their homeland, unlike most of the Chinese military, who are more interested in enlarging their bank accounts by any dodgy means possible, rather than doing any actual fighting.
Great series. "History will be kind to me, for I intend to write it" comes to mind.
A small correction: It's not "History of World War II", it's "The Second World War". And it's not a history, that would require historiography. It's a memoire (and a good one).
consumers loose interest in the product.
Please Mr Chaston, tell me you did this just to wind me up.
The salt rubbed in to their debt and inflation wound. Good job lockdwn fanboys.
"Covid learning loss has been a global disaster
Millions of children are still out of school. The costs are stacking up"
https://www.economist.com/international/2022/07/07/covid-learning-loss-…
"Across New Zealand fewer than 60 per cent of students currently attend regularly. The new target is for 70 per cent of students to be regularly attending by 2024 and 75 per cent by 2026."
"No learning loss in Sweden during the pandemic: Evidence from primary school reading assessments"
https://www.sciencedirect.com/science/article/pii/S0883035522000891#fig…
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