Breakfast briefing; Opaque China has everyone guessing

Business / news

China's exports fall; Apple warns on delayed shipments; lockdown rumours seduce investors; air cargo market repairs; UST 10yr 4.21%; gold down and oil up; NZ$1 = 59.2 USc; TWI-5 = 69.5

8th Nov 22, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news investor fascination with the possibility China may back off its strict lockdown regime doesn't seem to be reciprocated by official announcements yet.

In China, exports fell in October, their first retreat since May 2020, and prior to that their January 2019. The fall wasn't large (-0.3%) but over the past two years it is well lower than the prior low of a +3.5% year-on-year rise.

China's October 2022 trade surplus was lower too at +US$85 bln, and well lower than the +US$96 bln expected. Imports fell faster than exports but these are actually little-changed in the past seven of eight months.

Apple has warned it will ship fewer premium iPhones and customers will face longer waits for products after strict COVID-19 curbs disrupted production at a key factory in Zhengzhou, China, which is operating at "significantly" lower capacity as pandemic-related restrictions affected assembly of the premium iPhone 14 Pro and Pro Max. Key supplier Foxconn has had to run the facility under tighter restrictions, including daily testing and limitations on staff movements.

Analysts had expected China's foreign currency reserves to dip marginally in October by about -US$18 bln. But in fact they rose marginally by +US$23 bln to US$3.05 tln.

Those rumours continue to swirl about a coming easing of pandemic controls. It is 'seducing investors'. But news of a wider spread of infection, especially in the Guangdong region, remains a real public health and economic worry.

In the US, a detail from the strong October jobs report is worth noting. Logistics firms shrank their workforce by -20,000. This is a sign that the supply chain stresses are easing faster than expected and the great employment run-up during it may be over. But it is an industry with a very much larger jobs footprint now.

In Europe, German industrial production rose in September from August and by more than expected and is now +2.6% higher than year-ago levels. But you may recall that we have already reported than new order levels are not rising.

International air travel made a "strong recovery" in September, including in the Asia/Pacific region, but it is still down -50% from equivalent pre-pandemic levels. Only North America is almost back to those benchmark levels. On the air cargo front the situation is closer to normal volumes, but the Asia/Pacific region is dragging. Again, it is strong North American air cargo markets that is driving this recovery.

The UST 10yr yield started today at 4.21% and up +5 bps from this time yesterday. The UST 2-10 rate curve is unchanged at -51 bps. Their 1-5 curve is slightly less inverted at -39 bps. And their 30 day-10yr curve is steeper at +59 bps. The Australian ten year bond is up +9 bps at 3.97%. The China Govt ten year bond is little-changed at 2.71%. And the New Zealand Govt ten year will start today unchanged at 4.61%.

In New York, Wall Street has opened higher with the S&P500 up a relatively minor +0.2% to start their week. Overnight, European markets were all up too, except London which fell -0.4%. Yesterday Tokyo ended its Monday session up +1.2%, Hong Kong was up +2.7%, and Shanghai ended up +0.2%. The ASX200 closed up +0.6% and the NZX50 ended up +0.5%.

The price of gold will open today at US$1678/oz. This is down -US$5 from this time yesterday.

And oil prices start today marginally firmer than this time yesterday at just over US$92/bbl in the US while the international Brent price is just on US$98.50/bbl.

The Kiwi dollar will open today at 59.2 USc and little-changed since this time yesterday. Against the Australian dollar we have stayed firm at 91.6 AUc. Against the euro we are down slightly at 59.3 euro cents. That all means our TWI-5 starts today at 69.5 and -20 bps lower than this time yesterday.

The bitcoin price is now at US$20,718 and down -2.5% since this time yesterday. Volatility over the past 24 hours has been modest at just on +/- 1.6%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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72 Comments

by chebbo | 8th Nov 22, 7:42am 1667846572

Apple has warned it will ship fewer premium iPhones

Intolerable, surely lines have been crossed here. Lockdowns may have been a rational, science-based approach when we did it, but not if I have to miss out on the latest iGadget for Christmas.

by JohnfromtheTron | 8th Nov 22, 8:32am 1667849579

FOMO has moved from houses to phones...and you damn near need a mortgage to buy one.

by Yvil | 8th Nov 22, 8:52am 1667850746

Apple is falling behind on foldable phones, a dangerous miss. Ericsson used to be the biggest phone maker in the world and they disappeared into oblivion when they didn't recognise touch screen mobiles as next big thing.

by donny11 | 8th Nov 22, 8:54am 1667850875

I think foldable phones are nothing more than a novelty

by Yvil | 8th Nov 22, 9:07am 1667851661

That's exactly what Ericsson used to think about touch screen phones...

by chebbo | 8th Nov 22, 9:17am 1667852274

I still miss my Nokia 5210.

by profile | 8th Nov 22, 11:10am 1667859008

If you we want to go net zero we really need to give up our smart phones. I think that will not go down well with the school strike brigade.

"Historically, the energy costs of manufacturing a product roughly tracked the weight of the thing produced. A refrigerator weighs about 200 times more than a hair dryer and takes nearly 100 times more energy to fabricate. But it takes nearly as much energy to make one smartphone as it does one refrigerator, even though the latter weighs 1,000 times more."

The “Energy Transition” Delusion: A Reality Reset | Manhattan Institute (manhattan-institute.org)

by RickStrauss | 8th Nov 22, 11:20am 1667859632

One way or another people will be forced to deal with reality.

Some folk just want to be allowed to live at a cost to next generations, to climate as to property speculation.

by Pragmatist | 8th Nov 22, 12:35pm 1667864108

Cool, now look at the full lifetime energy requirement. A fridge uses 10x as much energy every day as a typical phone.

Unsurprising that the manhatten institute is publishing what after a few seconds reading looks like nothing more than a pro big-oil propaganda piece.

by profile | 8th Nov 22, 6:03pm 1667883790

If your smart phone could replace a refrigerator you would have a point Praggers.

by RickStrauss | 8th Nov 22, 9:54am 1667854452

I wonder how many years we have left of manufacturers competing on hardware. Screens aside - as screens are probably going to be all there is.

I expect in future the current competition on the basis of specification - fastest chip, the most lenses, etc. - will be replaced with dumb devices and frames streamed from the cloud. Google's Pixels look like the first inklings, where they don't seem to feel the need to compete like for like on hardware, because their AI and Cloud services outdo the competition.

Perhaps the market will split somewhat, with a subset of devices for less connected places.

by GV 27 | 8th Nov 22, 10:18am 1667855933

They should have tried harder. The Tensor chips are still middling and now they've thrown away their photography and video cred, and are being left behind by the iPhone. These were generally what saved Pixel phones despite the rest of the spec sheet being decidedly on the light side. Yes, the processing is good, but they've now fallen notably behind Apple, even on the Pixel 7 Pro. Not a lot of reason to choose it over a Samsung anymore.

by RickStrauss | 8th Nov 22, 10:27am 1667856477

That's still talking local processing, though. I'm suggesting the long-term trend is less processing at the edge and more in the Cloud, with devices competing far less on local hardware and moving toward being dumb terminals.

We're at the stage of adding yet more camera lenses (a la Gillette and blades), mostly unnecessary incremental chip generations, and searching for screen form factors as attraction via fashion.

by Yvil | 8th Nov 22, 10:36am 1667856974

That's an interesting view RS.

by RickStrauss | 8th Nov 22, 11:01am 1667858484

Not something I'm necessarily keen on either. Just something I think is likely.

However, I'm hopeful that a market split might provide viable local hardware and tinkerer options.

by Carlos67 | 8th Nov 22, 10:00am 1667854856

We used to have flip phones, they came and went. Price is the limiting factor, they are so expensive its just ridiculous. I just bought a new laptop with 10 times everything performance wise for less.

by Yvil | 8th Nov 22, 10:35am 1667856910

Do you have your laptop with you at all times? Does it fit into a tight jeans pocket?

by peter.may | 8th Nov 22, 11:48am 1667861283

No Yvil - I dont & I certainly dont want to become as addicted as almost everybody around me! But maybe thats age (80) talking!

by PocketAces | 8th Nov 22, 7:41am 1667846507

Look after the phone you've got. You don't need to replace them every 35minutes. Nobody die

by GV 27 | 8th Nov 22, 7:49am 1667846967

Been taking it as a personal challenge to find better and better phones but spend less and less each time I get one. Switched from the Galaxy S to the Galaxy A series and never looked back. Only downside is with a young family my camera isn't quite up to it anymore as I'm taking way more photos.

Solution? Update my 2019 Galaxy A for the new Galaxy As coming next year. Probably spend? $650 every three years. I can live with that. Beats the hell out of $1600 every 12 months for sure.

by Averageman | 8th Nov 22, 8:04am 1667847890

100% agree, except I run for more years between phones and do a battery replacement in the middle. The whole latest IPhone thing, while funny, is in diminishing 'new features' cycle, at ever higher prices.

by KH | 8th Nov 22, 8:08am 1667848119

My 5 year old $400 Huawei remains a fine phone. But my sons new $200 Oppo is better.

by GV 27 | 8th Nov 22, 8:13am 1667848388

Mid-rangers have definitely stopped developing as fast now that the Huaweis are virtually unusable :(

by KH | 8th Nov 22, 8:28am 1667849315

The old Huawei works fine. But a new one is doomed as USA sanctions on Huawei block most of what you want.

by GV 27 | 8th Nov 22, 8:32am 1667849567

Such a shame too. They basically had an answer for Samsung in every segment. It's the only reason the cameras got sorted out on the S range and the feature sets stopped being so crippled on the A series phones. Consumers really did lose out from those sanctions.

by Yvil | 8th Nov 22, 8:55am 1667850934

by Carlos67 | 8th Nov 22, 10:02am 1667854958

Not if its a iPhone they are designed to last until the next model arrives.

by Carinaz | 8th Nov 22, 7:55am 1667847327

Is Central government - a help or reason of current crisis

https://www.stuff.co.nz/business/money/300732921/central-banks-will-not…

by GV 27 | 8th Nov 22, 8:05am 1667847910

Love the "no more sugar hits for households, we just have to take the pain" meme.

Buddy, households are already taking the pain. The people insisting there's some sort of hit that we have to take for the greater good have absolutely no understanding of the rational responses households have already made to spiking living costs. There's no easy wins left, now we're meant to throw in a meaningful drop in living standards.... because why, exactly?

by Advisor | 8th Nov 22, 8:45am 1667850303

Most Kiwis believed our love affair with houses is a romcom that has most of us riding away in the sunset with multiple properties. However, this is turning out to be a real tragedy for many.

now we're meant to throw in a meaningful drop in living standards

I didn't think we would make it this far without a significant drop in living standards occurring. For over 2 decades, we've shifted our economic model towards labour-intensive businesses, housing speculation and lower-skilled migration.

Now that the cheap debt wells are drying up, we can no longer keep up our 'first world' lifestyle.

by Averageman | 8th Nov 22, 8:05am 1667847942

A good share of the cause. That and incompetent Govt.

by RickStrauss | 8th Nov 22, 9:56am 1667854568

For the last two decades. Happy to feel rich by running up the bill and passing it to following generations, instead of focusing on enabling the country to live within its means and increase its means.

by Brock Landers | 8th Nov 22, 7:59am 1667847569

Everybody is rapidly learning the folly of operating in China.

by Foxglove. | 8th Nov 22, 8:17am 1667848622

China has everyone guessing as per the caption here. Perhaps that is why their vassal North Korea has been prompted to tickle up their southern neighbours. China has repeatedly proclaimed if North Korea starts up a war they won’t be supporting them. But things can change.

by 8014 | 8th Nov 22, 8:17am 1667848677

International air travel made a "strong recovery" in September, including in the Asia/Pacific region, but it is still down -50% from equivalent pre-pandemic levels.

I'd be interested to learn what % of international travel is people redeeming flight credits built up over 18-24 months vs actual new travel spend. Our household is still using flight credits, even after 3 international flights in the last 6 months.

by bender | 8th Nov 22, 9:28am 1667852911

Global overheating says shame on your household unless overwheming mitigating circumstances.

by GV 27 | 8th Nov 22, 8:30am 1667849403

https://www.interest.co.nz/property/108301/pm-jacinda-ardern-says-susta…

So the government wanted house prices to come down. They blew out by 40%. Then they wanted them to stay level. Now they're dropping and households are facing negative equity.

Why is no one challenging them on this and the comments that they made about house price stability, given that house prices no longer stable? If that was the desired outcome, and they have failed on it yet again, when do we start asking the 'r' question?

by Yvil | 8th Nov 22, 8:59am 1667851154

Good question

by DMC45 | 8th Nov 22, 1:06pm 1667866006

It was these quotes by Ardern that finally turned my POV to be against her and the government.

The fact they couldn't publicly admit that house prices needed to actually come down (even then) to be affordable was just abysmal.

by Jonny.Foe | 8th Nov 22, 8:34am 1667849664

People need to read more about China. I am not fan of the regime, but their strategy has not exactly been a secret. The plan was to:

let foreign capital and companies into the country with strict controls and conditions (avoiding shock therapy)
tolerate the exploitation of their cheap workforce and natural resources in return for technology and employment, improved living standards etc
educate the workforce aggressively with the skills needed for the future
amass trillions in foreign reserves by running a huge trade surplus, and use these to secure the supply of critical natural resources (cobalt etc) from subservient developing countries
aggressively build self-sufficiency, so that...
once everything is in place (tech, skills, supply of materials etc), cut exploitative foreign companies / capital loose and focus internally on building living standards

Perhaps we are finally seeing the final stage of this strategy coming into play?

by Audaxes | 8th Nov 22, 8:38am 1667849904

China’s Xi Jinping Plans Visit to Saudi Arabia Amid Global Reshuffling

by Zen20 | 8th Nov 22, 8:45am 1667850345

As usual I think you have nailed it!

by donny11 | 8th Nov 22, 8:46am 1667850386

Meanwhile in the West

Allow China to undercut your industries by keeping the Renminbi artificially low. Pressuring many businesses that produce real goods and services to close
Start selling debt to China in exchange for real goods & services.
Lower interest rates so this debt is managable
This lowering of interest rates fuels asset bubble's, making housing unaffordable for many.
Eventually this cheap money spills over into consumer inflation
Raise interest rates to deal with this inflation
Economy crashes
Blame Putin while China buys up your economy at fire sale prices using all this debt they have accumulated.

by Jonny.Foe | 8th Nov 22, 8:52am 1667850770

I seriously think they laugh at how easy it is - and we are sending primary / low value-add products like crap timber, milk powder, meat etc. A virtual colony.

by Advisor | 8th Nov 22, 9:54am 1667854470

99% of people in the West still believe we buy all our manufactured goods from China only because of the wage differential.

Hardly the case considering our top imports by value from China are broadcast equipment, computers, office machinery and electronics.

Labour input costs make up a tiny portion of these items and much of the West does not have the skill availability, infrastructure or knowledge ecosystem to manufacture complex goods at scale.

Meanwhile in NZ, BusinessNZ welcomes measures to alleviate severe skill shortages for restaurants, cafes, and other industry members.

As usual, we're aiming for the skies!

by RickStrauss | 8th Nov 22, 10:14am 1667855687

Sadly, poor government over the last 20-30 years has focused on feeling wealthy only through rewarding speculation on land (i.e. living it up at a cost to following generations) rather than rewarding productive enterprise and those who add value.

by Jonny_Utah | 8th Nov 22, 10:51am 1667857864

Sounds more like a tributary.

by Jonny.Foe | 8th Nov 22, 12:08pm 1667862491

Maybe - although 'tributary' probably doesn't describe our dependence. Maybe 'plaything' would be better!?1

by HouseMouse | 8th Nov 22, 9:51am 1667854315

It all makes sense, until you realise:

- being a hermit kingdom in the modern era is a path to poverty, not greater wealth, and

- especially when you have a rapidly ageing population which is not good news for a stronger domestic economy

by singautim | 8th Nov 22, 2:35pm 1667871313

If your economy depends on physical labour you are right. But modern economies depend on wisdom.

by Audaxes | 8th Nov 22, 8:35am 1667849743

What's up?

US says Zelenskiy risks allies’ ‘Ukraine fatigue’ if he rejects Russia talks – report

by MidNZ | 8th Nov 22, 8:40am 1667850041

Are there any other methods of fighting inflation other than hiking the OCR?

At this point people with a decent sized mortgage are already experiencing the diversion of tens of thousands of dollars from discretionary spend to mortgage payments (or will be at their next refix of rates). How much blood is left to squeeze from that stone before it makes sense to look elsewhere?

by redcows1 | 8th Nov 22, 8:57am 1667851040

You'd think with tens of thousands in discretionary spending they'd have a fair bit saved.

by GV 27 | 8th Nov 22, 9:01am 1667851310

It's a good thing all the other living costs people face have stayed perfectly flat over the last 12 months.

by Yvil | 8th Nov 22, 9:06am 1667851562

The increase in living cost 7.2% has been exceeded by the increase in wages 8.3%

by GV 27 | 8th Nov 22, 9:24am 1667852684

Food price rises are 11%.

I don't buy consumer electronics more than once a year but I have this weird hang-up about not starving to death so I tend to do that eating thing every day.

by HouseMouse | 8th Nov 22, 10:09am 1667855358

Yep. Also the increase in wages is pre tax

by Advisor | 8th Nov 22, 9:00am 1667851203

Not a fan of Luxon but I agree with his position on fiscal policy that the government isn't pulling back from its spending spree, particularly on the billions on ill-timed projects, such as those health rebranding exercises, polytech super-merger, etc.

There is merit in the argument that the additional Crown funding being put into circulation chasing limited goods and services will have to be pulled out by the Reserve Bank with even higher interest rates.

by Yvil | 8th Nov 22, 9:04am 1667851458

Well letting more foreign workers into NZ, to alleviate the shortage will help, it won't replace the need for a higher OCR, but it will help the 8.3% wage increase spiralling out of control.

by Zen20 | 8th Nov 22, 9:45am 1667853953

I wonder how much money these foreign workers send out of the country?

by Yvil | 8th Nov 22, 10:39am 1667857181

You can equally wonder how much they spend in NZ whilst living here.

by sparrow | 8th Nov 22, 11:02am 1667858543

Filipino farm workers living on site? Nearly 100%

by Yvil | 8th Nov 22, 8:46am 1667850388

Logistics firms shrank their workforce by -20,000. This is a sign that the supply chain stresses are easing faster than expected and the great employment run-up during it may be over.

Could you please elaborate on this statement DC?

- Could the reason not simply be that there is less demand for goods?

- Are you implying that worldwide record unemployment is due to supply chain problems?

Thank you

by profile | 8th Nov 22, 9:09am 1667851774

Trotter doesn't hold back.

"Virtually every claim made by the Prime Minister in the passage quoted above is either historically contestable, or just plain, flat-out, wrong. For that very reason, it is a powerful illustration of the deeply flawed thinking that has led the Ardern Government to the brink of electoral ruin.

At its heart is a cynical contempt for the truth, and a smug conviction that the falsehoods scattered through it will not be noticed by anybody whose opinion matters. Labour’s leaders have been able to get away with this sort of rhetorical flim-flam since 2017 because the intervention of the unpredictable – Christchurch, Covid – helpfully distracted the country from its government’s moral vacuity. The longer the electorate has had to take stock of its government’s ethics, however, the less it has found to like."

https://thedailyblog.co.nz/2022/11/08/much-worse-than-it-looks/

by Audaxes | 8th Nov 22, 10:05am 1667855151

Small wonder New Zealanders feel disappointed, concerned, and angered by their Prime Minister. And, no wonder at all that, come Election Day, a very much larger number of them than usual will steadfastly decline to make their way to the nearest polling booth and cast a vote.

Yes, they will experience a pang of guilt as they watch their older, whiter, and righter neighbours set off to destroy the Sixth Labour Government.

by RickStrauss | 8th Nov 22, 10:17am 1667855835

And sadly it has meant that the opposition parties don't need to offer workable policy, just need to show up. So we're seeing a resort to rewarding property speculation over productive enterprise once more, Tory tax policy, and no need to address long-term stability or workability.

What a shambles our two main parties are.

by sparrow | 8th Nov 22, 11:03am 1667858639

Don't forget abandoning any pretense of minimum skill levels for migrants.

John Key 101.

by Advisor | 8th Nov 22, 11:18am 1667859536

the opposition parties don't need to offer workable policy, just need to show up

The hope is that ACT can at least maintain its current popularity until election day and bring a big chunk of seats to the centre-right coalition to force the Nats out of their hands-off "conservative" approach into making meaningful reforms across NZ.

by RickStrauss | 8th Nov 22, 11:22am 1667859775

My faith in ACT is tempered by their unwillingness to own their principles.

by profile | 8th Nov 22, 12:03pm 1667862190

Yes, supporting putting the nation under house arrest, ignoring the Bill of Rights/Universal Declaration of Human Rights etc. is a stain that won't wash off.

by Advisor | 8th Nov 22, 12:14pm 1667862859

Don't forget forcing co-governance of public-owned assets with ethnic representatives down the throats of the public.

by Wrong John | 8th Nov 22, 4:31pm 1667878290

The shameless behaviour of the 6th Labour Govt of New Zealand towards its own people (those people that put them there, remember) is one of the 21st Century's more brazen applications, where black has become the new white, where communism is the new capitalism & where the buying & selling of poor quality houses is today's new industrial frontier. This may not end well.