Here's our summary of key economic events overnight that affect New Zealand, with news global equity values have slumped as investors reassess valuations following the US Fed's hawkish stance on inflation.
In the US, the Dallas Fed survey of factories in the American oil patch are still struggling, even if less so. The fall-off in new orders isn't as sharp in August and the Outlook, and Business Activity scores are less negative in August than in July. Production is still expanding although at a now-small rate. But employment remains very strong. These firms are now less negative about their future than a month ago.
A new report claims the American financial system, with nearly US$23 tln in assets, "is more liquid and better capitalised than ever". Their overall Common Equity Tier 1 Capital (CET1) is now 11.0%. However for perspective, for the main banks in New Zealand that same CET1 level is 11.9% and if Kiwibank is excluded it is 12.4%. RBNZ capital-boosting efforts are paying off.
International companies are shifting to build new manufacturing capacity in the US. This is best exemplified by the rush to build EV battery capacity there, with now 14 new such ventures announced. Even Chinese companies are part of the overall shift, although they are tending to base their new facilities in northern Mexico.
A survey of American companies operating in China found them gloomy about future prospects. Optimism about the future business outlook has dropped to a record low in 2022. That said, those companies continued to report strong performance metrics for the past year, with almost 90% saying their China operations are profitable.
This separation between the world's two largest economies isn't leaving China feeling very happy at all.
China’s factory activity likely contracted again in August, an updated Reuters poll is showing, as pandemic flare-ups and a distressed property sector pummeled demand while a power crunch in southwestern China hit production.
And in a sign of some desperation, Beijing is sending high-ranking officials, including central bank governor Yi Gang and several cabinet ministers, across the country to supervise their recent stimulus policies. In advance of the upcoming Party Congress, they had better come back with 'good news'. It will be a tough gig for those sent to the provinces. They can't do much about the drought in the next few weeks. Food reserves are starting to be released from their strategic inventories, the first announced is for pork.
Singapore is still reporting very high rises in producer prices at +19%, but just not raging up as fast in August as they did in July (+28%).
Taiwanese consumer confidence was low again in August, but it has stopped falling. Recall it is at levels last seen in 2010.
In Australia, retail sales bounced back, triggered by the return of international tourists (much of which came from New Zealand) and stronger than expected local demand. Their July retail trade was up +15.8% from year-ago levels, far more than can be accounted for by inflation.
And staying in Australia, a Labor politician who in opposition said the financial advice market was 'cooked' is now in a position to recast it to benefit investors rather than the industry. The obvious conflict of interest in broker commissions, which were right off the table so long as Josh Frydenberg was Treasurer, could now be back for review. Maybe now they will get some movement on this toxic issue. Even the NZ FMA still seems scared of addressing it.
The UST 10yr yield starts today at 3.11% and up +8 bps after markets digested Powell's speech. The UST 2-10 rate curve is less inverted at -31 bps. Their 1-5 curve is also less inverted at -15 bps. And their 30 day-10yr curve is now up at +71 bps. The Australian ten year bond is +11 bps higher at 3.71%. The China Govt ten year bond is little-changed at 2.67%. And the New Zealand Govt ten year will start today at 3.98%, up +11 bps and back at a two month high.
Wall Street is little-changed in Monday trade with the S&P500 flat after Friday's large fall. Overnight, European markets were all about -0.7% lower. Yesterday Tokyo ended down a very sharp -2.7%. Hong Kong shed -0.7% in its Monday trade. But Shanghai managed a minor +0.1% gain. The ASX200 closed its Monday trade down almost -2.0%, while the NZX50 ended down -0.9%.
The price of gold will open today at US$1738/oz and virtually unchanged from this time yesterday.
And oil prices start today up +US$3.50/bbl at US$96.50/bbl in the US while the international Brent price is now at US$102.50/bbl.
The Kiwi dollar will open today at 61.6 USc and a +¼c gain from, this time yesterday. Against the Australian dollar we still down at 89.1 AUc and a 5 year low. Against the euro we are still just under 61.6 euro cents. That all means our TWI-5 starts today at 70.8 and a small gain.
The bitcoin price is now at US$20,266 and up +1.4% from this time yesterday. Volatility over the past 24 hours has been moderate at just on +/- 2.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
40 Comments
"is more liquid and better capitalised than ever"
Numbers. In a computer.
https://www.zerohedge.com/energy/what-will-be-real-world-consequences-e…
Sure, consider the source, and the last para avoids the 'ultimate scarcity' problem, but it points to the nonsense in the above sentence.
https://www.oftwominds.com/blogaug22/fed-powerless8-22.html
'The fantasy that the Fed can reduce supply-driven inflation arising from systemic constraints on essential inputs is not just delusional, it's toxic'
'Financial Capital' is indeed an illusion - there are just debtors, creditors and trillions of IOUs denominated in currencies. The net financial debt of the world is zero. What matters are real resources - the things that people think they are going to be spending their IOUs on. If the last couple of years has taught us anything it is that we need to focus our development plans on the sustainable use of our limited resources. The focus on the finance is both ridiculous and terminal for the planet.
Numbers in a computer that have real effects on people's lives, right now, maybe not when dystopia is upon us, but right now. The money in my bank account and investments are just numbers in a computer but they allow me to buy food and pay my bills (without using actual bills) today.
A new report claims the American financial system, with nearly US$23 tln in assets
All this tells you is the size of the US Govt 'debt' held onshore. So, US Govt has $30 trillion total Govt debt and 7 trillion of that debt is held offshore, hence $30 tln debt - $7 tln offshore = $23 trillion net assets of US private sector.
Once you appreciate that Govt debt is by definition a non-Govt asset, the world gets simpler (and yet more ridiculous)
"Aren’t we seeing an erosion in state capacity alongside all this centralisation and expansion? Aren’t outcomes in health, education and welfare trending down rather than up? What’s going on? You can’t have effective public services without bureaucracies, but it’s not clear that the torrents of money flowing into them are delivering more value to the public or to the marginalised communities some of them are named after. It’s almost as if the primary role of the administrative state is shifting from serving the people to the redistribution of wealth to the staffers, lawyers, PR companies, managers and consultancy firms that work in them, or for them. A billion dollars a year in public sector consultancy is an awful lot of money when you’re running out of teachers and nurses because you don’t pay them enough, and the fire trucks are breaking down."
https://thespinoff.co.nz/the-sunday-essay/28-08-2022/the-sunday-essay-a…
https://charleshughsmith.blogspot.com/2022/08/economies-can-burn-out-to…
Charts at the bottom of the article.
Recently read "Parkinsons Law, in the Pursuit of Progress". Explains the nature of the bureaucracy well.
Infratil certainly seems quite happy about the government's health care reform:
"The government's restructuring of the health system is expected to deliver benefits across the sector," its annual report said.
Given that this was written in a report to shareholders, I doubt the "benefits" they're talking about here refer to public health outcomes.
https://www.rnz.co.nz/news/national/473734/bullish-investors-pour-1b-in…
That was a good read, but leaves you thinking how would you even begin to start tackling the public sector/bureaucracy "hive mind"?
There are so many dependents on this system - those with direct employment in these types of jobs, their families who might then depend on the salaries paid, and then a whole host of private sector firms, consultancies etc.
If you think of that bloc as a potential voting force, no wonder the gravy train isn't scheduled to make any stops.
It seems like one giant club. Once you're in, you're not going to speak out about any waste or inefficiency because you might be the one who then misses out.
There clearly has to be some kind of administrative/non-public facing component to any service delivery. Air New Zealand isn't just a bunch of pilots and cabin crew. McDonalds has more than just burger-flippers. I'm sure there are public service staff doing stellar work to deliver good outcomes for Kiwis.
However, it does seem that the gulf between how our frontline public service staff (teachers, cops, nurses, firefighters etc) are treated and their 'back office' counterparts is growing wider and more unfair every day, and more funding seems to result only in favourable outcomes for the latter group, which then uses the frontline staff as a shield against any potential cuts by claiming that if we don't keep funding them more, standards will slip.
I wouldn't mind paying more tax if it meant better public services. More cops on the beat, more nurses, more teachers to reduce class sizes. I'm not happy paying more to see the "Koru Club Set" grow its membership at the expense of those on the frontline, which is inevitably what will happen.
The productive workers in the sector often get punished by unilateral policies such as wage freezes, implied diversity quotas, removal of performance-linked pay, etc. The outcomes is these workers leaving to join back as contractors or consultants at higher hourly rates.
In 2017, the Labour-led government lifted hiring caps on public agencies, which they claimed would reduce Crown spending on outsourcing its core workings to consultants and contractors. From the inside, the agencies and departments have instead increased payroll costs on non-core activities and hired more levels of bureaucrats to manage the outsourced contracts.
I prefer my health professionals to follow evidence based medicine, good riddance to them. Especially in midwifery, where there's a whole contingent who base their practice on woo rather than science and are known for advising their clients not to vaccinate their babies.
The cure to high prices is high prices. No wonder frackers are wary.
"A combination of strong supplies and pipeline restrictions sent AECO day-ahead cash prices — the region’s primary gas price benchmark — plunging to just a few cents per MMBtu on August 18.
...Skyrocketing Canadian gas production is driving the spot price collapse. Data from S&P Global Commodity Insights shows that Canadian gas production reached 17.7 Bcf on July 11, up more than 500 MMcf/d since the start of the month. The July 11 level is just a hair below the all-time record high for Canadian production of 17.73 Bcf on April 14, 2006, according to a dataset that stretches back to January 1, 2006."
https://www.spglobal.com/commodityinsights/en/market-insights/latest-ne…
In 2007/8, I was with Goldman Sachs, in predicting $200/barrel oil.
Now, I know it can't happen - indeed the widening debt wedge says we already cannot afford energy of this low an EROEI.
Put bluntly: Society can no longer afford itself.
The questions nor are: Will the rich jettison the rest? Can they do that if the system fails? Can we agree to support the lower-echelons (either locally, or globally - the latter I don't see happening).
And what method are we going to use to account for stuff? Because this one has passed its use-by date.
and in contrast to Canadian natural gas -
"42 E&P companies we monitor posted record pre-tax operating profits of $52.8 billion ($41.56 per barrel of oil equivalent, or boe) in the April-through-June period and record cash flow of $64.8 billion ($51.11/boe).
...the $52.8 billion in Q2 2022 profits exceeded the total amount earned for all of 2014, when oil prices last exceeded $100/bbl.?"
https://rbnenergy.com/camelot-eandps-bask-in-soaring-second-quarter-pro…
"To get a sense of scale, how much nuclear energy would be required to replace all European natural gas?
Using France as a model, more than 250 nuclear reactors would be needed, implying something like 50 to 150 new nuclear power plants, depending on the capacity of each plant and number of reactors within each.
This seems like a big number. But it is also the equivalent of five times France’s current nuclear capacity, which was brought online over a period of about 15 years. So it is certainly doable, as it has been done before."
https://rogerpielkejr.substack.com/p/how-much-nuclear-energy-would-be
'So it is certainly doable, as it has been done before.'
Maybe just stick to referencing logical stuff?
:)
https://www.lemonde.fr/en/politics/article/2022/08/24/macron-warns-fran…
the end of abundance, the end of insouciance, the end of assumptions − it's ultimately a tipping point that we are going through that can lead our citizens to feel a lot of anxiety," Mr. Macron continued. "Faced with this, we have duties, the first of which is to speak frankly and very clearly without doom-mongering," he said.
Brave man - note the zero coverage in the NZ media, and your need to splurge this morning.......
I always consider the source
:)
And I note when folk are peddling spin
:)
And I prefer to stick to facts.
http://wiseresponse.org.nz/wp-content/uploads/2021/09/ASSESSMENT-OF-THE…
Sounding a little arrogant there PDK. Most posters here acknowledge and accept that the politicians are in denial, and have no idea of the scope of the problem. I would go so far as saying especially the Greenies, who have the least excuse of all of them. The debate doesn't even come close to the scale of the issue, the proposed solutions are not real solutions but head in the sand delay and obfuscation tactics by the political classes. No one digs to the core of the issue and says bluntly that there are simply too many people on the planet, even you. They just talk about replacing fossil fuels with something else, and where you do come in and point out, there is no effective "something else". So there can only be one real solution - cutting back on population size. It is a global problem. A looming possible solution is war, even nuclear holocaust. But that is an extreme, and would result in an 'own goal' even for the antagonists, while taking so many more with it. It'd be nice to think we are better than that, but there is significant doubt about that!
I read an interesting theory the other day that said we as a civilisation have effectively pulled the ladder up after ourselves by extracting all of the easily accessible energy sources on the planet. If we suffered a catastrophic event and a large portion of the worlds population was wiped out, we probably would never again advance to the industrial age simply because the resources that we needed the first time around aren't there anymore.
Sounds plausible. We'd still have knowledge of certain things that wouldn't see us sinking back into mediaeval times, but we'd probably end up a hybrid society like SM Stirling's Emberverse, but with mountain bikes.
I largely agree with PDK's concerns but want to move past Cassandra-like wailing to solutions.
If a large proportion of the world's population was wiped out the remnants would have more resources than they knew what to do with.
Also unlike previous civilisation collapses, knowledge of technology and science isnt restricted to any one single order.
I prefer zombie based apocalypse foretelling, but this is also fun.
There is a History channel series called Ancient Aliens which exposes evidence of previous civilisations on the planet. The series bases all its presentations on physical evidence. I was somewhat sceptical when I started watching it, but have found other links that back up what it presents. Fascinating, but pulled together it looks like humans have screwed it up a few times previously. Possibly as many as five times. So yes it seems the species is not so great at learning to be better. The focus on power and dominance seems to be what screws us all in the end.
Murray - I'm just out of tolerance for spin-doctors, cherry-pickers and emotive-referrers.
Nuclear (we seem to be past asserting that fossil energy is abundant, at least) only does electricity, and (proven tech) has a finite-resource issue, besides the long-term-pollution one.
That would mean replacing/adapting all the FF-dependent apparatus (boilers, trucks, the works) to electricity. Meaning a huge grid upgrade too. Perhaps double the grid, in the First World. Yet the reality is that we're failing to maintain and are triaging, even now. The build can't be 'extra to everything currently being done', so it has to displace some current activity. What activity(ies)?
As to population, I do as much hollering as anyone. Knew enough to limit our offspring to 2, 1, or none, 36 years ago (reciprocal problem evolution-wise; those who don't work it out breed the more than those who do - with implications...).
Always a pleasure Gummy.
From a doable department.
"Plans For New Reactors Worldwide
(Updated July 2022)
Nuclear power capacity worldwide is increasing steadily, with about 55 reactors under construction.
About 90 power reactors with a total gross capacity of about 90,000 MWe are on order or planned, and over 300 more are proposed. Most reactors currently planned are in Asia, with fast-growing economies and rapidly-rising electricity demand."
https://world-nuclear.org/information-library/current-and-future-genera…
"Kishida turns Japan’s energy problems into nuclear opportunity
...According to Tezuka’s estimates, if Japan restarted 27 nuclear reactors, the amount of natural gas it would not need to buy would amount to about 14 per cent of the 155bn cubic metres of the gas Europe imported from Russia in 2021."
https://www.ft.com/content/5ebd1a2f-ffa0-4d0c-bbbd-c0baae22fb49
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.