Here's our summary of key economic events over the weekend that affect New Zealand, with news the drive to 'fix farming', especially livestock farming, might be igniting a new and potentially dangerous round of food price increases, dangerous especially for the poor.
But first, the western-backed Asian Development Bank has been funding projects in China, even though China has built its own 'development bank', the Asian Infrastructure Investment Bank which has delivered funding for emerging economies along its Belt & Road projects, in its own interests. (The capital of the AIIB was US$100 bln, equivalent to 2⁄3 of the capital of the ADB and about half that of the World Bank.) The ADB plans to provide China with up to US$7.5 bln in financing from 2021 to 2025, down from US$9 bln between 2016 and 2020. But now the ADB is saying time is up on these projects and is moving to end what has become a charade by China. China's Belt & Road projects now top US$1 bln in 'investment'.
China is claiming a big increase in foreign investment in July. But there are reasons to be sceptical. Markets are. They expect a -10 bps trimming of both their 1yr and 5yr Prime Loan Rates when they are reviewed later today. It says a lot if China is cutting rates while the rest of the world is raising them. The Chinese Government 10yr bond yield is near its 20 year low (excepting the brief pandemic low).
Also low is the flow in the Yangtze River and that is now critical. It seems it will be at least a month yet before any relief is likely. The implications for some regions and cities are rather grim.
Japan's inflation rate rose to 2.6% in July from 2.4% in the prior month. This was the 11th straight month of increase in consumer prices and the fastest pace since April 2014, amid surging fuel and food cost following Russia's invasion of Ukraine, as well as a sharply weakening yen.
In the US, in the heart of their summer holidays, all eyes are turning to the central bank shindig at Jackson Hole, WY, and especially the Powell speech upcoming on Sunday August 29 NZT. It is likely that a contingent from our RBNZ will be there, but no word yet on who.
The US dollar has resumed its rally and yields on US Treasury bonds have risen as markets come to realise they can't beat the Fed and that interest rates will keep on rising until inflation is beaten - even if that means enduring a recession. This makes the Powell signals all that more interesting.
It does raise the question of whether any sort of 'soft landing' can be achieved through this process.
Across the US and Canada, assessors are out this coming week looking at the corn and soybean crops. Yield is the one thing satellite imagery can't assess, so the results of these annual 'tours' are crucial in working out how much grain is about to come to market.
North of the border, Canadian retail sales fell by -2% in July from June, preliminary estimates showed. That is a backtrack from June, when retail sales rose +1.1% from May, and May was upwardly revised.
In Australia we should note that at the end of last week, energy from renewables were the largest feed into their electricity networks nationwide, for the first time ever.
We should also note that cattle prices have hit all-time highs in New Zealand recently. Not only are schedule prices up (especially in the South Island), but saleyard prices are too. However some saleyard activity will be constrained by wet weather, which may boost prices further. What is unusual is that this record is coming three months earlier than the usual October seasonal rise. Lamb prices are rising too, and out of season as well, but they aren't yet at record levels even if very close.
Meanwhile, carbon prices are on the rise again, after having flatlined for the past six months. At NZ$85.50/NZU they are matching their February 2022 high. The EU carbon price is also rising again, up to €96/tonne (NZ$155) and also matching their February 2022 high. It is hard to escape the sense that these prices are just getting started. One consequence will be that livestock and grain prices are about to follow them sharply higher as land is converted from food production to 'forests'. Only the wealthy will be able to keep up, sadly.
And speaking of carbon taxes, Indonesia has confirmed it will impose these on its nickel exports soon, almost certainly before the end of 2022 and probably announced at the upcoming G20 meeting to be held there in Bali (which is also the epicenter of their FMD outbreak). Indonesia is home to almost a quarter of global nickel reserves, and the metal is one of its major exports, along with coal and palm oil.
The UST 10yr yield starts today at 2.97% and up +9 bps from this time on Friday and up +15 bps from this time last week. The UST 2-10 rate curve is less negative today, now at -26 bps. Their 1-5 curve is slightly more inverted at -16 bps. Their 30 day-10yr curve is now at +77 bps and a little flatter than this time Saturday. The Australian ten year bond is unchanged at 3.48%. The China Govt ten year bond is staying lower at 2.64%. And the New Zealand Govt ten year will start today up at 3.57%.
The price of gold will open today at US$1748/oz which is up +US$3/oz from this time Saturday but down -US$54 for the week.
And oil prices start today at just on US$89.50/bbl in the US, while the international Brent price is now just under US$95.50/bbl. These levels are little-changed.
The Kiwi dollar will open today at 61.7 USc which is almost -1c lower than this time on Friday. A week ago it was at 64.5, so a weekly devaluation of -4.3%. Against the Australian dollar we are also lower at 89.8 AUc. Against the euro we have fallen to 61.5 euro cents and also a -½c drop. That all means our TWI-5 starts today at 70.8.
The bitcoin price is now at US$21,446 and very little-changed from this time Saturday. A week ago it was US$24,076, so an -11% fall from then. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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33 Comments
I still can't believe that John Key signed NZ up as a founding member of the Asia Infrastructure Investment Bank. Who would do that????
He also belatedly signed NZ up to half of Len Browns rail tunnel black hole project. Again, what a complete waste of money.
Yeah it was dumb. Without a decent rail network there would be even less places to build houses and John’s mates and son would be even richer.
People who are still crapping on about the CRL in 2022 generally are resistant to the actual reasons for building the thing and why we needed it so I've learned to save my time. It's quite liberating, letting people choose to be idiots. Que Sera Sera.
And to the UN Declaration on the Rights of Indigenous People for which Helen Clark opposed. People with short memories wondering why Labour is incorporating iwi involvement in all policy and legislative matters.
The statement in support of the declaration:
- acknowledges that Maori hold a special status as tangata whenua, the indigenous people of New Zealand and have an interest in all policy and legislative matters;
https://www.beehive.govt.nz/release/national-govt-support-un-rights-dec…
And me too. I have a special interest in all sorts of policy matters. Just waiting to see the line of humble bureaucrats lining up at the gate.
Why do so many people think Iwi should be spelled in all capitals? I've never understood this.
Why does it matter? I have edited my comment to please the pedants on this site.
Just genuinely curious as to how it came about. I've seen it in all sorts of places but have never understood if it's a typo or if people think it's an acronym for something.
*Shrug* maybe people subconsciously treat it as an acronym. Mind you, I have seen people suggest that it's an acronym for "I Want It".
Mate of mine learnt Maori 20 years ago. Then he was taught that Tangatawhenua has the meaning of "people of the land" and is a direct reference to the people that were here when the last wave came.
Even go to the Ngai Tahu website and you can see they recognise that people were here both before, and after them. Waitaha for example. But it is also known the Kati Mamoe in the deep South ere here before Kai Tahu and they only lumped themselves in with Kai Tahu for expediency when dealing with the crown.
Multiple waves of people from Polynesia has never been proven. Definitely different arrivals hundreds of years apart, the the origin is unknown for any one of them, let alone all of them.
But this probably won't change the narrative, or the view of a lot of Maori.
Ngai Tahu claim to represent those earlier people, through conquest and subsequent inter-marriage.
Not all of the earlier people agree, but they have struggled to get recognition and Ngai Tahu played some crafty games at the time of their Treaty claim.
And he used the profit from selling off 49% of the government owned electricity production and we all have been paying higher electricity rates ever since. In the USA, hydro power rates are about 1/3 of ours. Rort for his Chinese friends that we pay for.
Well, we could talk about the restructuring out of prompt payment discounts under the current government we have now and the damage that did to consumer prices, but I guess that's not a great vehicle for race-baiting.
"The bitcoin price is now at US$21,446 and very little-changed from this time Saturday. A week ago it was US$24,076, so an -11% fall from then."
A plunge on Friday, yo-yo down to $20,764 and yo-yo up to $21,526. What a ride, unfathomable.
The US dollar has resumed its rally and yields on US Treasury bonds have risen as markets come to realise they can't beat the Fed and that interest rates will keep on rising until inflation is beaten - even if that means enduring a recession.. - Really?
Treasuries bear-steepened after painful German PPI data ignited a wave of govvie selling in light Friday trade. Link
German nat gas & electricity prices surged, PPI rising 5.3% in just July. Highest monthly increase on record. And that's just going to add more to the growing recession. Businesses are getting killed by this, and they *cannot* pass the costs to consumers. Link
Not that anyone can afford it, but Japan is further behind in its "recovery" from '20 recession and so really, really can't afford massive price hikes that are just now filtering into the economy. BoJ is just along for the ride, like ECB and Fed. Link
There's Much That Ails Us Today, But It's Not Inflation
Tight money (collateral, mostly, but also balance sheet constraints) visible long before this rate hikes. While Fed was still full-blast QE, the real monetary system had already turned deflationary. All it meant was enough time for the recession results. Link
I am shocked. Shocked, do you hear:
One consequence will be that livestock and grain prices are about to follow them sharply higher as land is converted from food production to 'forests'. Only the wealthy will be able to keep up, sadly.
Congratulations David. Thank you for being a decent chap.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”
― Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds
https://www.armstrongeconomics.com/humor/green-deal-mentality/
PS If you want to know stuff in advance, this is the website. Do watch "The Forecaster".
Another consequence will be that landowners with SNA's will be given responsibility for maintaining biodiversity, whilst the pines are promoted.
https://www.stuff.co.nz/national/politics/local-democracy-reporting/129…
So Fonterras business is selling milk powder. They use coal to dry it. Now they have to pay farmers not to produce milk for carbon credirs. Great business model, I can see that working.
Fonterra aiming to phase out coal use in only 15 years time...15 years?
Damned if we do and damned if we don’t situation. We tie ourselves in knots chasing profits from carbon farming, reducing our export revenue and pricing protein from meat beyond the resources of the poor. Reducing our carbon footprint, doing the right thing while the largest emitters kick the can down the road. Versus looking after our country, economy and people first and prepare ourselves for adapting to the climactic conditions that are upon us.
If we did what you suggest politicians and servants would not get trips to Paris.
Haha. Good one.
Good time to be in the chicken business...
It's exceedingly difficult for farmers to adapt to weather deluges like we have just seen, or the increasingly worse droughts that will also happen (see the Yangtze and most of Europe). Building the adaptation infrastructure (huge dams/pipes/enormous stop banks/canals etc) requires... enormous amounts of carbon. It's a false economy, one where you will be constantly chasing your tail building bigger and more infrastructure, causing more climate effects, causing the need for bigger mitigations...
Good news that China's population is set to halve by 2070. Less hydroelectric power needed, and they'll have plenty of empty buildings to convert to warehousing.
Not before we reach roughly 9.5b people however. The ensuing consequences of overpopulation may wreak us all.
There will be a high cost in saving people from themselves, except for those who cause these costs.
As is always the case.
And exactly as I said a couple of months ago, NZTA local Marlborough reps are basically saying some of the roads around Marlborough are becoming unfixable. They have had AGW induced deluges over the past few years and they only seem to be getting worse. This latest one likely reversed all the fixes they have been working on over the last year. Can't be long before we start abandoning the roads and possibly other infrastructure around the country as AGW effects really start to be felt. And remember, due to the lag in the climate system, we are likely only experiencing the cumulative pollution up to the 1990's now, it doesn't take a rocket scientist to know it's going to get a whole lot worse.
Carbon trading is a pretty dumb way to ration limited resources - you end up taking with one hand to discourage use, and then subsidising with the other because poor people can't afford to buy food or fuel for their knackered old cars. Now give speculating investors the opportunity to buy and trade carbon units and you have an obvious disaster - with prices spiking / falling and undermining any attempt to support redistribution. Traders hold $1.1bn worth of NZ carbon units (and have made over $100m in the last month).
I would give everyone a universal basic allowance of carbon dollars and run two currencies - with a NZD and carbon dollar price for fuel, gas, and air travel (and food later). If people needed more than their allowance, then they would have to pay an escalating price to top-up. Then let people borrow their carbon dollars allowance from future years to buy heat pumps or solar panels etc.
Agree, carbon trading is simply a fantasy, it won't result in lower carbon outputs, it's just a market wet dream which will enable polluters to simply export their pollution and costs to other sectors, primarily food, so that we socialise the losses, yet again. Simple solution is the same solution that is tried and tested: tax carbon. Then companies will have to compete to lower their emissions, so they pay less tax, which every business in the world tries to do.
Problem is, it has to be everywhere, else we just export our pollution. A blanket worldwide carbon tax needs to be enacted however, humanities survival is most likely dependent on it.
And therein lies the rub. All countries need to do it. Unfortunately a globally enforceable carbon tax will drive up the price of food and energy, disproportionally affecting the poor. Although that is the true price to the planet’s climate for food production. No easy way out of this climate mess mess. If I was living in or near a floodplain in a valley anywhere in the north or west of both islands I would be concerned given what we have just witnessed in Nelson and Marlborough. Luckily by a fluke we live on a hill and all we have to worry about is the front of the hill slipping away taking our house with it. Bugger.
Indeed, it's the great squeeze of our time. Actual action will require us to squeeze our food supplies, squeeze our energy supplies etc. I don't hold out a lot of hope.
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