Here's our summary of key economic events over the weekend that affect New Zealand, with news the sudden Middle-East explosion is likely to put safe-haven assets back in the spotlight this week.
But first, China said its giant foreign exchange reserves were little-changed in August. They don't provide transparency of which currencies they hold them in, but we do get some of that from the US data which shows Chinese holdings of US debt is about US$800 bln (25% of the Chinese holdings) and falling. That means the Chinese hold about US$2.4 tln of other country debt. Many will be rogue nations like Russia, Iran, North Korea (?) and a wide range of third world countries. The Chinese fx reserves now have high risk attached to them, and will become an increasing problem for them (not to mention the debtors). Like this.
Hong Kong and southern China are bracing under Typhoon Koinu. Their stock market will be among many institutions not opening this morning, perhaps all day.
In India, their central bank kept its key policy rate unchanged at 6.5% as expected on Friday but said it would keep liquidity tight using bond sales to bring inflation closer to its 4% target and this focus on bond selling was not expected. Indian CPI inflation is currently running at 6.8%. It didn't release details of what it expected to sell, but is was suddenly active and that drove benchmark bond yields sharply higher, up 13 bps yesterday, the most since August last year, to close at 7.34%.
In Japan, household spending unexpected rose more than expected in August from July (+3.9%). It might still be lower than a year ago, but the month-on-month rise impressed financial markets.
In the US, there has been a positive 'surprise' from their labour market in September. We had suggested the expected +170,000 gain might have an upside, but no-one expected gains as strong as the +336,000 (sa) delivered. Nor the big upwards revision for August (up from +187,000 to +227,000).
These are the seasonally adjusted headline numbers, but as regular readers know we look at the actual unadjusted survey results. And they show actual payrolls rose +585,000 in September (+394,000 in August) to now be at 157.0 mln people on employer payrolls and a new record high. Looking deeper to include the unincorporated self-employed, there are now 161.7 mln in their employed labour force. Only +29,900 of this monthly increase was for part-time work.
If there are any downsides, they include that their jobless rate was unchanged from 3.8%, their participation rate made no progress at 62.8%, and their weekly earnings were up +3.75% from a year ago, little premium to inflation's 3.65%.
US vehicle sales rose to an annualised rate of 15.7 mln in September according to updated NADA data. And there seems to be "significant progress" in union negotiations with the carmakers. The carmakers seem to be caving quickly now.
US consumer credit data actually fell in August when a small rise was anticipated. Overall it fell by -US$15.6 bln, driven by a sharper -US$30.3 bln fall in car and student loans, to US$3.7 tln. That was offset to some extent by a +US$14.6 bln rise in credit card debt (to US$1.25 tln).
It now appears more likely that another US Fed rate hike will be coming soon. A hot labour market and good pay and conditions increases will be seen as fueling inflation by the regulators. They will feel they need to get ahead of these pressures. Bond yields are rising again. The global geopolitical situation will have a say too.
Rising yields are causing big changes in where investors hold their liquid funds. According to LSEG/Refinitiv data, investors offloaded American bond funds worth a net -$6.3 bln this past week, the biggest amount since December 2022. Money market funds meanwhile, received about +$43.2 bln in inflows, the highest since April 2023.
And it wasn't only the US's labour market that turned in a much-better-than-expected result. The Canadians did too. They expected a +20,000 gain in employment in September but delivered a +64,000 gain and they also upgraded their August data sharply. But in Canada, it was part-time work that drove most of their gains.
This is a holiday weekend in Canada, their Thanksgiving Day and they will be closed tomorrow (NZT). It will also be a Federal holiday in the US, Columbus Day, but that has fading recognition and is not actually a holiday in many states. The bond market may be closed tomorrow, but their stock market will be open.
This coming week will bring the US CPI for September on Friday NZT. A 3.6% rate is expected, down fractionally from August's 3.7%.
In Australia, the RBA has been looking at household financial stress in their latest Financial Stability Review. They say early indicators show that financial pressures have increased and the incidence of severe financial stress has increased but remains low. The group of borrowers at higher risk of falling into arrears on their mortgage remains small. You can find this review on page 53. Household financial stress, where it occurs, does not vary much across the country. (Interestingly, Australian media played up the big percentage rise in stress, without mentioning it went from tiny to very small.)
Also falling are world food prices. They may not have fallen in September from August, but they are -11% lower than year ago levels. The drop would have been more if it wasn't for sharply higher sugar prices. Dairy prices are down -25% in a year (as the GDT auctions confirmed), and global meat prices are lower too. Grain prices are -15% lower than a year ago. These are the changes for producers, not consumers. Food prices should not be driving inflation.
The UST 10yr yield starts today up +2 bps from yesterday at 4.80% on the implications of the strong US labour data. The new conflict between Israel and Gaza may well add to risks this week however. Their key 2-10 yield curve is less inverted by and now by -29 bps. Their 1-5 curve is now at -69 bps and marginally more inverted. Their 3 mth-10yr curve inversion is unchanged today at -64 bps. The Australian 10 year bond yield is now at 4.58% and up +2 bps from yesterday. But the China 10 year bond rate is down -1 bp at 2.70%. The NZ Government 10 year bond rate is unchanged at 5.61%. A week ago it was 5.39% so up another +22 bps in a week on top of last week's +13 bps.
The price of gold will start today at just on US$1833/oz and up +US$4 from Saturday. Although that is down -US$17 from a week ago, it would not be surprising to see this price rise sharply from the Gaza conflict explosion.
Oil prices have stabilised lower at just under US$82/bbl in the US. The international Brent price is just on US$84/bbl. These are five-week lows and are -US$8 lower in a week. But the new Middle-East conflict may well change these levels when trading resumes.
The Kiwi dollar starts today at 59.9 USc and a very minor slip from Saturday. Against the Aussie we are marginally firmer, now at 93.9 AUc although up +½c in a week. Against the euro we are unchanged at 56.6 euro cents. That all means our TWI-5 starts today at just on 70 which is actually little-changed in a week.
The bitcoin price starts the new week at US$27,926 which is up a very minor +0.1% from where we left it on Saturday. From a week ago it is up +4.0%. Volatility over the past 24 hours has been very low at just under +/-0.7%.
The easiest place to stay up with event risk is by following our Economic Calendar here ».
48 Comments
Global cereal production set to reach a record high in 2023. Thank you MS Swaminathan
"Over the past 70 years, yields of all major field crops in the United States registered
a remarkable increase. For example, average corn yields rose from 20 bushels
per acre in 1930 to 140 bushels per acre by the mid-1990s. Over the same period,
cotton yields rose nearly fourfold, soybean yields increased more than threefold,
and wheat yields climbed more than 2.5-fold. More than half of the yield gains are
attributed to genetic improvements achieved by plant breeders."
"Global total factor productivity, a measure of overall efficiency (i.e., agricultural output divided by total inputs like fertilizer) increased by 79% over the same period. And while global land-use for agriculture increased by 25%—from just over 1.7 billion hectares in 1970 to just under 2.2 billion hectares today—without the increased yields made possible by technological advancement, a further 3.1 billion hectares of land could have been converted."
https://www.fao.org/worldfoodsituation/csdb/en/
https://m.timesofindia.com/city/chennai/how-100kg-seeds-from-mexico-mad…
https://www.ers.usda.gov/publications/pub-details/?pubid=42531
This record is brought to you by:
- record synthetic fertiliser use Turning fossil fuels into fertilizer into food into us: Historic nitrogen fertilizer consumption » Darrin Qualman
- topsoil loss How Soil Erosion Threatens Food and Farms | Union of Concerned Scientists (ucsusa.org)
- ongoing deforestation Amazon rainforest: Brazil deforestation rate 2022 | Statista
- overdrawing of soil nutrients UK is 30-40 years away from 'eradication of soil fertility', warns Gove | Soil | The Guardian
- mass killing off of global insects Chart: Massive Insect Decline Threatens Collapse Of Nature | Statista
+ aquifer depletion.
Cool. Looking forward to those food price reductions coming through. Having those along with reduction in building materials will get the country moving again. /s
Uncertainty about everything if the Israeli & Palestinian conflict escalates beyond the immediate zone. It may well be that is exactly what the Iranians, prompted by Russia, intend while the West’s attention is otherwise occupied in Ukraine.
Yes an escalation here will come with a lot of baggage. One has to wonder what Hamas was thinking. They had to know that Israel would retaliate hugely and the cost for Palestinians will be huge. Under the circumstances Israel is not a nation known for restraint. So the only scenario that makes any sort of sense is a greater design and expectations of support or a multi-faceted plan, all of which is not entirely apparent and/or visible. Because of the nature of the attack, combined with their history, Hamas will not get much if any international support. Watching the news, I did wonder how they were able to get the number of missiles into Gaza without being discovered.
Iran.
Don't disagree. But what would Iran gain from it other than destabilising the Middle East and the ensuing chaos from that? The US would step up it's military presence whole sale to ensure oil flows continue. The Arab/Islamic world is more fragmented than the western world, so any hope there that such actions would force unification would likely be futile. The US will prop up Saudi, and possibly other western friendly states (Oman, Dubai, Kuwait). Are they being pushed by the Russian/Chinese alignment? That would have to be on the US Intel radar and would have been for some time. Will the US step back from supporting Israel? Israel has nuclear weapons and with their strong theocratic roots will likely be more willing to use them than even the US. From that basis alone I would suggest the US won't step back, just to prevent that escalation. The whole thing is playing with a very hot fire!
Agree...the US needs to tread very carefully .... Are they being baited ? I certainly wouldnt be sending the pride of the fleet as a statement of solidarity ...better to keep your powder dry.....
So faraway
Both sides are as intransigent as the Irish (one side of my ancestry so I can definitely say that). Probably something to do with everyone thinking they have God on their sides, like all major conflicts
Amazing how quickly the USA sends a carrier over to support a non-NATO member in Israel, meanwhile in Ukraine...
The Arabs can't sink a carrier, the Russians can...
In modern times those carriers are floating coffins.
Not only that they stupidly decide to send the pride of the fleet..... Very high risk move in my book.... CVN 78 not smart at all ....
Certainly put an end to all of those protests. All now united behind united behind Netanyahu. Interesting.
You think...some would be asking how did the intelligence missed this build up?
Israelis, digging up their original passports, and going Back Home. #ReverseAliyah Link
Interesting comment, The idea of living in a surveilance state/technocracy is not the idea they had in mind when they made "Aliyah"
Many in the Alt-Media Community wrongly thought that Russia and China favored Palestine, hence why those two’s balanced statements here and here surprised them. Even fewer knew that President Putin fully supports the IDF as proven by his official statements over the years that were documented here. Link
Laxatives can have the same effect.
On a more serious note - DC rubbishing China re holdings, demonstrates bias. What we are watching is the demise of the US hegemonic cluster. It had a 2-century run, but is currently being led by zombies and intellectually-average people - just when it need an incisive FDR. China knows exactly what it is doing - why would you hold irredeemable debt guaranteed by a nation of folk who sell houses to each other, keystroke-issuing said debt?
No wonder gold is being accrued - not that gold can solve the global overshoot...
Edit - just seem Foxglove above; totally agree re Israel/Palestine. And listening to Morning Report and yet again despairing - I wonder if any of them have bothered to study Israel's gestation?
DC's view represents reality more than yours
China's has been lending to countries that havent got anything to show for the last 200 years which is highly risky for China - unless of course your grand plan is to be the world authoritarian power - good luck with that
Peter Ziehan might agree with you, Luke Gromen would not. China have a plan and if you want to consider the merits, this is a good start -
Interesting analysis of Peak Cheap Oil and the Global Reserve Currency. It suggest China knows what its doing.
Ingrid Hipkiss hasn't really hit her stride, and feels very lightweight when talking about bigger issues. A lot of the load is being carried by Corin Dann. They would have had a good portion of the weekend to prepare for today's crosses on the subject.
The Fed is using mythical, nonsensical wage-price spiral theory to justify more rate hikes. Even assuming it was a real thing, it isn't, there isn't any evidence for one. Weekly and hourly earnings keep slowing down despite nonsensical Sept payroll #. https://buff.ly/3tj33KV Link
Getting mighty fed up with National (and now Labour as well) talking up the spectre of a second election if Winston First is in the mix ... give us a break, both Chippy and Luxon would crawl through broken glass for his seats come Sunday if needed, and there is no limit to the number of plump, juicy rats that would be swallowed.
I feel like MMP would be better if no discussion of potential coalitions was allowed prior to seats being determined, as well as no specific 'ruling out' of partners.
There is reason for the disquiet but it is after the election that it will really kick in. NZ has never had a coalition of three where there are two junior partners of similar representation. Personally I would predict such a coalition, to either the left or right of the divide, involving WP/ NZF, to not even reach mid term. This is WP’s last grand entrance, he doesn’t want to be only the kingmaker, he will want to rule as if the king.
I suggest they are just fear mongering. I think Winnie is just too smart for that. I believe he knows he has almost burnt his bridges, and if he wants to stay in the limelight he needs to mellow somewhat. Time will tell, but if Winnie gets to make the call Luxon will be our next Prime Minister, and as other say, what will they (NZF) get for it?
what will they (NZF) get for it?
Why, fat salaries for trolling while achieving nothing of consequence, of course.
We have had a 4 way with National/ACT/Maori/United Future during the Fifth National Government, the 3 junior parties there were pretty similar in size, and they were pretty stable. As was the Sixth Labour Government with NZF, cracks only starting showing as the election drew near.
It would be better if there was a veto on polls, polling and discussion of polls, from a certain time before an election.
It allows inept, lazy journalism - focusing on the polls, rather than the existential issues bearing down on us.
Is that still NZF policy? It certainly was a decade or so ago.
Absolutely. Strategic voting would largely be history. Actually policy might become a focus.
Sounds like National are likely to receive more votes than Labour, so they're going to lobby for a second election to try entice some swing voters who may have voted minority parties to switch to National. Cause you know, there's probably a lot of people out there who vote for "the winning team" rather than on policy. A second election brings the benefit of hindsight. "Are you sure that's your final vote? Look at our numbers, you don't want to be a wasted vote...do ya?"
If there was a second election, to be honest, I would probably pinch myself and vote Labour (I voted NZF on Saturday). And that’s really saying something.
I kind of feel that the longer this drags on, the worse the Nats are looking.
Why would you not vote NZ first again?
Am I completely wrong and the electorate will just give in if National and Labour threaten and follow though to keep sending us back for another vote, until they get what they want? We diverse what we are getting if that is the case.
Yes I might.
That’s the thing I struggle with in terms of the idea of a second election. How many people would change their vote?
Might team red or blue tweak their policies? ‘We have listened’. I doubt it.
Loads of people would then not vote NZF, to do so would be stupid. In other countries they have a run off system where you just end up with the major parties to vote for because all the rest get dropped in the first round. You then have to change your vote or not vote, makes no difference there are only 2 parties to vote for.
First the second election is a hypothetical. National and ACT know they are expected to make it work and have come out this morning saying so.
I don't think Labour or National are capable of anything more than token changes without a complete change in MPs. This takes years. Proper change comes from making these parties sit on sub 20% of the vote for an electoral cycle or two. I still think in this hypothetical second election we will one of them chosen and other routed so 61 seats can be archived without Winston. This will also serve a warning to both they need to realign.
I don't quite get what both parties are trying to achieve with this messaging. They are endorsing NZ First as the protest vote option, they are telling everyone that a vote for Winston can make a difference. Do a significant number of NZ First votes think a hung parliament is a bad outcome and take this seriously? Labour would be destroyed in the second election as voters switch to make sure National can govern without them.
Are they trying to activate the indoctrinated FFP two party boomers to go after their children who might vote Winston? Or are they just coming together to preserve the two party system but being too out of touch to do it effectively?
Winston is the protest vote and people that were looking for a place to protest have found a home
Other countries make 3 (or more) party coalitions work so no reason why NZ cannot - doesnt mean its good for NZ given the negativity involved - and of course one party may sit outside a coalition and vote accordingly
You have to ask yourself why is it this negative? and is it NZ First's fault?
It's just cope from the two parties and MSM that they can't dictate politics in the way they want.
This election does feel like judging the tastiest turd contest
From Miles Hurrel
Farmgate Milk Price range to $6.50 - $8.00 per kgMS, with the new midpoint up 50 cents to $7.25 per kgMS.
NZX50 could be in for some significant falls. Interesting how this is starting to get more airtime now. Vested interests etc etc
https://www.nzherald.co.nz/business/stand-off-why-the-nzx-may-be-next-i…
Luxon has left it a bit late to tell everyone that if they cannot work a deal with NZF then there may be another election. Should have taken my advice and ruled him out from the get go. Once Labour did so it was all over for Winnie and he just would have not got the votes.
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