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US labour market strong; US factory expansion modest; Canadian building consents dive; China PMIs weak; German retail grows unexpectedly; Aussie house lending falls; UST 10yr 3.25%; gold and oil down; NZ$1 = 60.7 USc; TWI-5 = 70.3

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US labour market strong; US factory expansion modest; Canadian building consents dive; China PMIs weak; German retail grows unexpectedly; Aussie house lending falls; UST 10yr 3.25%; gold and oil down; NZ$1 = 60.7 USc; TWI-5 = 70.3

Here's our summary of key economic events overnight that affect New Zealand, with news the American dollar has jumped to 20-year high as jobs data supports aggressive Fed rate rises and quantitative tightening. This will have tough, tough consequences for many other countries, especially those with debt in US dollars.

All eyes are now turning to the US labour market culminating in the August non-farm payrolls report out tomorrow. Today their jobless claims data for last week was a low +177,000 new weekly claims with now under 1.4 mln people on these benefits, a new modern low.

And so far there is no evidence yet in their job cuts and layoffs monitoring of anything but a strong labour market.

The consensus expectation for the growth in non-farm payrolls is +300,000 (sa) and continuing their two year streak.

There were factory PMIs out overnight for August. Both report an extension of the modest expansion in their factory sector. The widely-watched ISM one reported a rise in new orders and that was despite a sharp contraction in new export orders. The employment aspect turned higher after a retreat last month. Price pressure softened.

The internationally benchmarked Markit one reported similar trends although the new order intake was weaker in this survey.

Canadian building consent levels fell a rather sharp -6.6% in July, an result that was not expected. (They expected a -0.5% slip.) Its a situation very similar to Australia where housing construction is going into a steep reversal.

The surging US dollar is especially tough on Japan, and may be quite inflationary. Toyota is a major buyer of steel and those costs are rising sharply. They also insist their parts suppliers use 'Toyota steel' - and have raised prices recently to those suppliers, some by as much as +30%.

In China, the private Caixin factory PMI came in weaker than expected; in fact it is now contracting. A small expansion was expected but it actually reports the first contraction in the sector since May. It comes after widespread lockdowns and electricity shortages. Output grew at the softest pace in three months, both new orders and buying levels fell for the first time since May; and employment fell for the fifth month running. For the first time in quite a while, it was matching the official factory PMI so there is now question their manufacturing sector is retreating.

China has locked down the megacity Chengdu, in Sichuan Province, one of its biggest and most economically important cities. It is the country’s most drastic move to stop a coronavirus outbreak since Shanghai went into a damaging two-month lockdown in April.

And still about China, they have reacted with the expected indignation and denials over the release of this report which is likely to have a significant economic impact of firms doing business in the Uyghur regions in the west of China.

In the Taiwan Strait, Taiwan has shot down an unmanned Chinese drone, the first-ever such action on Chinese airspace incursions.

In Moscow, there has been another unfortunate accident. The boss of oil giant Lukoil accidentally fell out of a high-rise hospital window. A very Russian way of maintaining the discipline of the elite. Lukoil is Russia’s second-largest oil-and-gas company.

In the EU, there was a surprise in the data for German retail sales for July. They actually rose from the prior month, even after adjusting for inflation. A further retreat was expected, so this is a big miss by analysts there. But year-on-year, there is a small -2.6% retreat in retail volumes - quite modest given the tough situation the Germans find themselves in.

However, German factories contracted in August, a 26 month low, and the wind is going out of there manufacturing sails. In France, their factories aren't in contraction mode yet, but new orders fell in August. Overall the EU has just tipped into a factory contraction, but at least the cost pressures are subsiding now.

Globally, factories are barely expanding and now at a 26-month low. Output falls across consumer, intermediate and investment good sectors are widely recorded, but input cost and output price inflation are both easing. China weighs heavily on the global results.

In Australia, lending for housing retreated in July at a fast rate. In fact lending to investors fell at its fastest pace since mid-2015, and lending to owner-occupiers fell at its fastest pace since 2008. Bank lending to their construction industry dived a startling -35% in July from June. There's more than a whiff of fear in these figures.

The UST 10yr yield starts today at 3.25% and up an unusually sharp +11 bps from this time yesterday. The UST 2-10 rate curve is much less inverted at -25 bps. Their 1-5 curve is also much less inverted at -12 bps. And their 30 day-10yr curve is much steeper at +97 bps. The Australian ten year bond is +11 bps higher at 3.73%. The China Govt ten year bond is little-changed at 2.65%. And the New Zealand Govt ten year will start today at 4.05% and up +8 bps.

Wall Street is down -0.6% in late Thursday trade which makes it a -3.1% fall so far this week. Overnight, European markets were all lower by about -1.7%. Yesterday Tokyo fell -1.5%. Hong Kong ended down -1.8%. And Shanghai fell another -0.5%. The ASX200 closed its Thursday trade down a full -2.0%, but the NZX50 was the outlier, ending up an unusual +0.1% on the day.

The price of gold will open today at US$1698/oz and down another -US$16 from this time yesterday.

And oil prices start today down -US$4/bbl at just under US$86/bbl in the US while the international Brent price is now just under US$92/bbl.

The Kiwi dollar will open today at 60.7 USc and down -½c from this time yesterday. Against the Australian dollar we holding at 89.5 AUc. Against the euro we are holding at 61 euro cents. That all means our TWI-5 starts today at 70.3 and another small retreat and all because of the muscular USD.

The bitcoin price is now at US$19,741 and down -1.2% from this time yesterday. 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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49 Comments

Fiscal policy is nothing new in its contribution to inflation. Old Sleepy Joe has a lot to do with it. Take his and the Dems energy policy. If he hadn't screwed the USAs energy system inflation would be a lot less. Now he'd whingeing about the oil companies/refiners exporting too much gas and fuel when a few months ago he indicated they should be helping out Europe. I have a few choice words to describe him but not here.

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Same. Joe's controllers have a lot to answer for.

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they keep throwing fuel on the fire with the right hand while the left hand holds a water sprinkler

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When was inflation this high last time? Probably should get 1980's playbook out.

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A few things have changed since then.

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The Great Clutching at Pearls

Wars are not incidental to neoliberalism. They are an essential part of the programme, because untrammelled consumerism requires massive acquisition of natural resources. Constant war has the helpful side-benefit for the global elite of enormous profit to the military industrial complex. The cost in human misery and death is kept at a discreet distance from the Western world save for refugee flows, which meet with a response increasingly founded in the denial of humanity.

The promotion of continual war has led to the acceleration of crisis. Much of the current cost of living explosion can be directly attributed to the provoked, prolonged and pointless war in Ukraine, while neoliberal doctrine forbids control of the horrendous associated profiteering of the energy companies.

There is going to be public anger, come spring, of a strength and reach not seen in my lifetime. The ultra wealthy and their political servants know this, and therefore strong action is being taken to forestall public protest. The new Policing Act is only one of a raft of measures being brought in to clamp down on avenues for free expression of public discontent. Demonstrations can simply be banned if they are “noisy” or an “inconvenience”. The 2 million person march against the Iraq War in London, for example, could have been banned on both grounds.

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I don't think the UK government are on the right track imposing more rules on protests. The pressure will be on police to enforce them, which will just ramp things up.

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https://consciousnessofsheep.co.uk/2022/09/01/a-basket-of-bad-ideas/

'There are two show-stoppers here though.  The first is that no amount of borrowed or printed currency is going to generate energy which simply doesn’t exist.  The second is that all of the proposed interventions assume that the problem is short-term.'

This NH winter is looking more and more like showdown-time.

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Brilliant. A Californian once told me that most Hollywood movies are made by nincompoops for nincompoops. Sounds like their politics as well. Still, a bit of complaining and they may well reverse it tomorrow afternoon. That tactic has been known to work elsewhere.

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I continue to be impressed with the level of power and influence some attribute to western powers, and that they believe autocratic, authoritarian leaders are nothing more than puppets dancing to the west's tune. How it has been the west that fermented Putin's lust for power, wealth and ambition to restore Imperial Russia and Vlad the Destroyer becoming the next Peter the Great. And of course it is the west who have stirred the CCP's ire at not having been able to completely wipe out the Nationalists and have total control over everything they can reach out to touch. 

This chap talks about the military industrial complex making huge profits from war, but guess what? Russia and China have their own MICs too! And Russia especially makes $Billions exporting arms every where with no constraint. It is no accident that virtually every terrorist in the world is armed with a weapon designed and built by a firm called Kalashnikov in Russia, and also use Russian built and exported rocket propelled grenades. 

But then someone has to like the bad guy I guess?

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'Vlad the Invader' is a better sobriquet for Putin. How many now? Chechnya, Georgia, Uzbekistan, Ukraine?

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He could also become a pirate - "International Rules-Based Order"

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Vlad is only trying to take back that which was part of his childhood country, USSR. Rightly or wrongly isn't the point. Same with CCP. Strong China has Taiwan and Tibet. Weak, they are independent. That is how WW2 worked. That is how the US empire has worked.

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Yes. I wasn't surprised he denied Gorby a state funeral - the architect of his beloved Russian superpower's downfall

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Designed by Kalashnikov, probably with the help of German prisoners, but mostly built in China. Genuine Russian Kalashnikovs are quite sought after.

Also "the West" and "Western" should be capitalised. You capitalised everyone else!:

https://en.wikipedia.org/wiki/Western_world

 

 

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Please forgive my typing skills this Friday morning? I find the faster I type, the more dyslexic my fingers get!

But yes Norinco are a major arms exporter that people seem to forget, not to mention the other Chinese MIC companies. $billions made in arms exports there too!

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“Of all the weapons in the vast soviet arsenal, nothing was more profitable than the Kalashnikov. It's the world's most popular assault rifle. A weapon all fighters love. It's so easy, even a child can use it; and they do. The Soviets put the gun on a coin. Mozambique put it on their flag.”

- Yuri Orlov Lord of War

 

“Nine out of ten war victims today are killed with assault rifles and small arms. Those nuclear weapons sit in their silos. Your AK-47, that's the real weapon of mass destruction.”

- Jack Valentine Lord of War

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In the EU, there was a surprise in the data for German retail sales for July. They actually rose from the prior month, even after adjusting for inflation. A further retreat was expected, so this is a big miss by analysts there. But year-on-year, there is a small -2.6% retreat in retail volumes - quite modest given the tough situation the Germans find themselves in.

Good Morning from Germany where financial repression is not easing. Although nominal yields have risen well >1% again, inflation has also increased to 7.9%. Real yields (10y Bunds-inflation) at -6.3%, still near All Time Low. Real yields are now NEGATIVE for 76 consecutive months  Link

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Are Germans stocking up on consumer goods, because they expect them to be more expensive in the future?

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The NZ dollar sat on a wall

The NZ dollar took a big fall

All of Orrs horses and all of Orrs men

Couldn't put the NZ dollar back up again.

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Dollar Index Surges Above COVID-Panic Highs, Gold Back Below $1700

Even Bitcoin is back below $20k. Either BTC market really believe the Fed is going to be successful "fighting inflation", or they've realized (like the last time) there wasn't inflation. No need for store of value 'cause the $ isn't crashing. Again. Link

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Audaxes, I hope you don't mind me asking... if you had spare money to invest right now, where would you look at putting it?

This is a genuine question.   I am interested in your point of view.   Any particular sectors or investment types that you consider to be "safer" than others in these times?     Apart from canned beans and US$, I am running out of ideas.

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I am not registered to offer investment advice - but I certainly undertake a liquidity preference as part of my current investment strategy.

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This 'Liquidity Preference', is that just on Friday after 4pm, or can I 'invest' in this 24/7?

 

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G7 government TBills, for instance, all day long.

NZ is way overdue a service similar to this in the US - https://corporatefinanceinstitute.com/resources/knowledge/trading-inves…

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Ha ha!, I think he means, in the usual cryptic Audaxes way, that he's gone mostly cash

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That too. It's way too expensive for individuals to participate in NZ government debt tenders - min bid amount $1million. Plus over protective retail know your customer regulations for most banks to be bothered now.

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Seeing Audaxes reply to my comment and yours, I'm convinced 'they' is a computer program.

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I think we all are Fitz. Probably a bit late to dive into US$. I regret not being able to when it was around $0.7 or earlier. Possibly a managed fund (Fisher, Simplicity or one of the others)? They actively manage their portfolios and seem to be able to limit losses (sometimes). Good luck!

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Simplicity is not an active fund rather passive 

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They do pretty well despite that then!

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Ticket to Aussie

and or shares in an energy company -or BHP

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Buy what you know you will need in the future.

Things are only going to get more expensive, and/or unobtainable.

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"In Moscow, there has been another unfortunate accident. The boss of oil giant Lukoil accidentally fell out of a high-rise hospital window. A very Russian way of maintaining the discipline of the elite"

Can you please crawl out your window...While his genocide fools and his friends rearrange?

 

https://www.google.com/search?client=firefox-b-d&q=can+you+please+crawl…

 

Bob Dylan's prescient advice, maybe with a little encouragement from the Nagant

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In West Virginia those matters are resolved during hunting season.

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... we have our version of " assisted dying " , Russia has their's ... comrade ...

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The defenestration of a Russian oligarch (or wannabe) who coincidentally was one of the rare few who called for the end of Russian aggression in Ukraine.

Thanks David and co. These little titbits don't make it into a lot of the other media

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I guess if you only have the useless NZ MSM as a news source you might have missed it. But it was well covered internationally.

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It was buried in the Granny Herald but I had to go looking for it.

Any bearable recommendations for world news in general(paywall free)? The Guardian and BBC try my patience. 

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There are plenty of good browser extensions out there that will bypass those paywalls for you if thats your thing.

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I use a mix of others: Al Jazeera, World News, Axios, Asia Times, Al Arabiya

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Top of billing in the Herald is reserved for the rantings of the likes of Hosking and Hooton. I'm hating that rag more and more.

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I suppose it might have been less of an accident that being dismembered in the bath of an Istanbul embassy and the remnant scattered in the local woods? Or the incarcerated, Australian-born editor of a website facing a similar fate?, that shows over-the-horizon US forces, laughing as they butcher innocent civilians by drone? But on the other hand, we'll move on from that. They are the good guys - on our side, and all of that.

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Chuckle. Yes, let's just watch the golf in the Gulf, and ignore such unpleasantries....

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Inflation going higher, NZD tanking, rates will be climbing this will put huge pressure on anyone with debt. You can guarantee it will be mortgage payers who will take biggest hit, payments on million plus house’s are going to be massive and as value of that house shrinks no way out for mortgage holders.

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Q1 and Q2 next year will be interesting. I think Q3 and Q4 this year will drop then there'll be an uptick in the next two next year. NH winter could put upward pressure on oil prices which will flow on to CPI here and if the NZD keeps dropping against the USD it's going to be a drawn out affair getting rates back down (not that I'm one to wish for lower rates). 

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