Here's our summary of key economic events overnight that affect New Zealand, with news signals from the world's second largest economy aren't positive with data that is causing alarm both inside and outside the country.
Their reactions are also bringing over-reactions.
In a dramatic online posting, Chinese media have unofficially announced that New Zealand and Australian beef imports are to be blocked from entering the country, including Hong Hong, effective immediately. It doesn't seem to include dairy products. Apparently our products bring a risk of foot & mouth disease, presumably because we are close to Indonesia which has the disease. Or, it is a convenient excuse by Chinese wolf-warriors to beat us up until we toe the Beijing line on political issues. In any event, the FMD aspect is plainly false so that aspect will blow over quickly. But the message has been sent.
The negative news isn't only that. There was also some sharply negative data out of the booming US economy. The New York Fed's regional factory survey delivered a huge negative surprise, falling very sharply. New orders and shipments plunged, and unfilled orders declined. No-one saw this coming. A small slip was expected taking their expansion to a more modest level. But the actual report records a dramatic contraction in the region.
Meanwhile, sentiment in the American home building industry turned negative in August, but this really isn't much of a surprise given what is going on in their overall housing markets - and the global retreat in housing markets generally.
After stagnating in the March quarter, the Japanese economy picked up to be +2.2% higher in the June quarter from a year ago, and Q1 was revised higher too. This confirms a string of better data we have been noting for a few months now. But the expansion, while welcomed, wasn't quite as strong as analysts were expecting. Exports helped. Even so, Japan can now claim its economy is now larger than pre-pandemic. It's been a slow recovery for them, and the IMF last month downgraded Japan's growth forecast for the full 2022 to +1.7% from the April projection of +2.4%.
But the big data movements came from China where retail sales data for July disappointed. They came in up +2.7% from the year-ago level, lower than the June gain, and much lower than the +5% expected. It is a bad miss. Industrial production came in weaker too, although not by quite as much. It was up +3.8%. Both sets of data confirm China isn't going to get anywhere near its target of "about 5½% growth" in 2022. Independent analysts will be downgrading prospects on this data. And it isn't an especially good look for President Xi ahead of his appointment to the top job for life.
China's electricity production rose +4.5% in July from a year earlier. "Thermal power" (coal fired) was up +5.3%. Energy production rising faster than output isn't a good look for productivity either.
And house prices in China in July fell more than expected from June, now down -0.9% year-on-year. That's their third straight month of retreat. Forty of their seventy largest cities posted month-on-month declines for new housing. 51 of these 70 posted declines for resales. These official data changes not were especially large, but the consistency of these tiny movements doesn't really gel with individual market reports of stress and retreat.
After this data was released, the People's Bank of China said in an unexpected announcement it was cutting the interest rate on a ¥400 bln one-year, medium-term lending facility loans to some banks by -10 basis points to 2.75% from 2.85%. It is their first rate cut in seven months.
This Chinese data is important for Australia who will be watching nervously. Fears are that Chinese construction could stumble badly as developers’ funding dries up. The key commodities the Aussies will be watching are copper and iron ore of course.
Indonesia posted an outsized trade surplus in July of +US$4.2 bln for the month, boosted by strong coal and palm oil exports from year-ago levels. FMD hasn't affected them so far.
The UST 10yr yield starts today at 2.79% and down -5 bps from this time yesterday. The UST 2-10 rate curve is more marginally inverted today, now at -42 bps and their 1-5 curve is also fractionally more inverted at -31 bps. Their 30 day-10yr curve is now at +60 bps and flatter from this time yesterday. The Australian ten year bond is down -11 bps at 3.29%. The China Govt ten year bond is down -7 bps at 2.68%. And the New Zealand Govt ten year will start today up at 3.47% and down -5 bps from yesterday's levels. Don't forget we have a full RBNZ MPS tomorrow, certain to deliver another +50 bps rise.
Wall Street is higher today, although not by much with the S&P500 gaining +0.3% in later Monday trade. Overnight European gained about +0.2%. Yesterday, Tokyo rose +1.1%. Hong Kong fell -0.7%, and Shanghai closed with a minor slip. The ASX200 ended its Monday session up +0.5% and that was matched by the NZX50.
The price of gold will open today at US$1778/oz which is down -US$26/oz from this time yesterday.
And oil prices start today down -US$3 at just under US$88.50/bbl in the US, while the international Brent price is now just over US$94/bbl. These are back to week-ago levels.
The Kiwi dollar will open today at 63.7USc which is more than -¾c lower than this time yesterday as the greenback makes a bit of a comeback. Against the Australian dollar we are holding at 90.6 AUc. Against the euro we have slipped marginally to 62.7 euro cents. That all means our TWI-5 starts today at 72.1, and down -60 bps.
The bitcoin price is down a mere -0.6% from this time yesterday at US$24,109. Volatility over the past 24 hours has been moderate at just over +/-2.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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57 Comments
It's looking more and more likely that fresh water is going to be the new most-sought-after universal commodity.
I hope we didn't go ahead with that 'gifting' of a fresh water resource to a Chinese water-bottling company. Does anybody know? Such a gift should surely constitute a treasonable offence.on the part of the donor.
Dairy will fall into a distant second place as a New Zealand export as countries far and near desperately seek potable water. This scenario is so obvious it would be reprehensible not to have large water-carrying vessels on the drawing board. One solution could be the fitting of sterile rubber bladders into the holds of redundant oil tankers.
I post this after watching a TV news item showing European rivers completely drying out for the first time in recorded history after their worst drought ever.
What you are missing Baywatch is that this is not just about farmers, this affects the whole NZ economy. If sheep meat is next we are in trouble. With their troubles in real estate and construction as well our income from logs will become even less.
This could be the beginning of bigger trade deficits.
All the "Good Stuff" gets sold oversea's, always has because they pay top dollar and locals will not pay. Even when I was a kid we picked "Export" strawberries in one chip and the locals got all the second grade in the tinfoil chips. The Japanese went a step further they wanted all their berries to be an exact size as well as colour so we had to simultaneously pick and grade and pack them with up to 3 types of chips on the go at once. Even the layout in the chips had to be so with the berries pointing the right way. Local fruit was just chucked in the tinfoil. Point is we are going to struggle to make money just "Feeding ourselves"
Why is it then that when I'm in the UK NZ produce is cheaper and of export quality? The NZ public have been rorted for years. We pay for the pollution and don't even have the ability to access cheap, quality produce that should be abundant in an agricultural country like NZ.
Isn’t it an international market? If China stops buying ours, they will need to buy someone else’s, and whoever was buying that will buy ours instead. A downturn in China is a problem, but similarly that should affect the international price regardless of whether the destination is China.
Phew alright! Food safety concerns, my backside. Comrade X why don’t you just skip back to your homeland and sample a helping of bat casserole in one of your prestigious wet markets. Bearing in mind of course that a recent example of food safety concerns in such in Wuhan failed to halt the transmission of a virus that China was quite happy to export globally, crippling economies and costing millions of lives.
It's a bit rich xingmowang. We don't have an outbreak because of our good bio security. Neither does Australia, for the same reason. They simply detected some FMD in some imports, it didn't get into their farming systems which are being monitored even more closely.
Immediately stopping all imports because something hasn't happened yet is kind of like immediately stopping all Chinese people coming to NZ because they might bring COVID.
This latest ban from China is purely political, they can get beef from south America. Be interesting to see how far they will go with this as dairy and sheep meat are not so easily found. Let's hope everyone settles down, but I can't help thinking this is linked to our backing the western view in the Pacific. Even though I hate to say this, I can't help thinking the present leadership in China put policies in place regardless off the consequence to the general population. Very similar to the regime in Russia at the moment. Is there a connection? I hope not.
The price of gold will open today at US$1778/oz which is down -US$26/oz from this time yesterday.
I'm starting to feel like gold is only a hedge against inflation if the monetary system collapses.
In such an instance id imagine bread would be worth more than gold or dollars.
lonewolfnz,
Over the past 20 years, the gold price in NZ$ has risen by 314.34%(goldprice.org). The NZX50 has risen by 521%-since March '03).
I have never seen the attraction of this non-income producing 'asset' which also comes with dealing and holding costs. The price has however risen slightly more than the index over the past 5 years-58.90% against 50.05%.
As regards Foot and Mouth, are we looking out for people who might intentionally bring it here?
I'm not actually suggesting China, at least not unless the US and China start shooting each other, but the COVID lab "leak" did make me think of it.
Are there any labs with it in the country already, where it might "leak" from? Are they working on modified patentable versions and vaccines against the same?
The hardest thing to stop is the lone wolf, who could be an unbalanced eco-terrorist, or a foreign agent.
It could also be leaked by accident. I am reminded of the horrific injuries of the young woman who caught Meningitis in a Wellington lab a few years back. She came here from the UK and went back without arms and legs, so don't think it can't happen.
Well those border patrol tv programmes give us an ongoing parade of traveller's attempting to smuggle meat products into the country. IF they are caught they get a paltry fine, when really the consequences to our society could be far worse than bringing in a suitcase stuffed full of meth.
Have to say unfortunately that dark concept occurred to me at the outset too. Infused & loaded volunteer carriers can arrive & spread through airports, railways, all municipal facilities nationwide, only an international flight away. No need to slam the planes into a symbolic target, the populace itself will do the job on itself.
This. This will take a while to work its way through the Green circles within politics and hopefully they stop being naive and realize we need some practical policy around energy transition to a greener energy structure. Coal and fossil fuels still have their place. Just ask Germany who pissed $2T at renewables and is back burning lignite. Look at Norway who have a $1300B fund for their government to spend on pensions, health, education and infrastructure.
Where's our saved sovereign wealth from oil and gas exploited to date? We could use that. Surely politicians got us that benefit from out resources?
Also, I can't imagine our politicians sold off a bunch of our generation companies with no plan for ensuring additional supply security in future. That would be too ridiculously short sighted, surely.
Coal and fossil fuels still have their place.
If you look at the quote in full, the context is that coal and fossil fuels don't have a place as baseload power, they are too expensive. Contact are looking to put in some winds farms down south if Rio Tinto stay. And are putting in another geothermal plant for baseload. We have so much consented but not built renewable power it's sillly. The market is failing us, generators don't want to build more renewable because it will lower the market price of electricity which will lower their profits. The oligarchy have too much dominance.
https://www.stuff.co.nz/business/129581158/smelter-deal-could-clear-way…
I agree, and yes massive investment is required to make green tech work. So selling (or using our own) fossil fuel products to help pay for it all seems like a good idea if they are expensive then? I know NZ isn't located in the best place geographically for distribution and the entry cost is very high to establish, however we already have small parts of the infrastructure required here sitting semi-idle. Just seems a shame to see it all go to waste due to some misplaced idea that we'll all have solar panels and wind farms tomorrow, lowering todays living standards whilst driving costs up. Lets encourage a bit of modern industrialism for a change, and it will need a leg up with fossil fuels.
What I wonder about The Person is how is all this funded. All I can see is they charge consumers, what if they have very little to spend? Probably the Govt (that means us tax payers ) will have to stump up. Next problem is we need more export earnings. Got any ideas?
> our products bring a risk of foot & mouth disease, presumably because we are close to Indonesia
distance from west papua to nz 4.6k km
distance from Borneo to China 1.7k km
They would have to justify it on open borders, not on distance, but then they would have to ban all beef imports.
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