Inshore islands, Coromandel peninsular
Here's our summary of key economic events overnight that affect New Zealand with news China is being buffeted with some pretty major forces it is struggling to control.
First, their central bank has injected NZ$20 bln (¥100 bln) into their financial system overnight through seven and 14-day reverse repurchase agreements, the most since February, as the Evergrande situation seems to be getting worse there. Evergrande bond holders can't find buyers, which points to sharp losses and ugly margin calls, both of which can cause a cascading impact and general contagion. The whole situation is starting to look like an uncontrolled crash.
Worse for China, a top analyst sees Q3 delivering zero growth as the overall economy slows fast now. One reason is that their carmaking industry is stumbling and for the same reason the US auto industry is too - a lack of computer chips.
This overall economic pullback has meant that Chinese firms are far more reluctant to invest overseas. Through August, the 2021 levels are more than -4% lower than in 2020.
And the iron ore price has dived further in China in what is being described as a "brutal collapse". It is now below ¥600/tonne and a -55% fall since it peaked May 2021. Their environmental agency is planning a new winter air pollution campaign that is expected to curb steel mill activity sharply. There are tales of 'panic selling' surfacing now, especially in Australia.
China's bid to join the TPP comes with problems for them, as the process requires all existing members to agree, and that includes sceptics like Australia and Japan. It may have boxed itself in to having to either negotiate seriously for economic reform with these antagonists, or be seen as just an opportunist trying to derail the new AUKUS alliance. Either will be somewhat humiliating for China. If it feels that way, it could lash out.
In the US, the closely-watched University of Michigan sentiment survey came in at the same level in September as it was in August - and that isn't good because August was a sharp dive to a decade low. The worries all center around inflation. There is unease that it won't be transitory, which for consumers could be self-fulfilling. A strong view is that now is not a good time to buy a house.
Singapore's exports sagged in August and by more than expected. A good bounce-back from a weak July was expected but it didn't happen, so this has been a big miss. In fact August exports were lower than for July and that ate into the year-on-year gains which are now pretty modest.
In Australia, they have approved a major expansion to coal mining, just before the United Nations Cop26 climate conference in Glasgow, Scotland, where Australia will be pressed to commit to tougher emissions reduction targets. It now seems likely Australia will ignore those calls.
Meanwhile, the cost of lithium is racing higher as the rest of the world moves away from fossil fuels. Technical and battery-grade lithium carbonate prices increased by over 20% in the first half of September and in China have doubled so far in 2021.
And back in Australia, there were another 1284 new community cases in NSW reported yesterday with another 1167 not assigned to known clusters, so still going backwards there. They now have 14,175 active locally acquired cases. Victoria reported another 510 new cases yesterday, so it is worse there too. Queensland is reporting one new case. The ACT has 30 new cases again. Overall in Australia, more than 45% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far. That is 70% who have been vaxxed and flat-lining. In New Zealand it is now 72% rising fast still. Kudos to the Herald for championing a 90% goal. At the +60,000 per day rate we are currently at, that is less than two weeks away.
The Friday session on Wall Street has traded lower since its opening, with the S&P500 now down -0.9% in early afternoon trade and falling almost -1.0% below where it ended last week. Overnight, European markets were mostly -1.0% lower. For the week, Paris lost -1.8%, London lost -0.9% and Frankfurt lost -1.2%. Yesterday the very large Tokyo market recovered +0.6% to end the week up +0.4%. And Hong Kong recovered +1.0% but ended its week down -3.7%. Shanghai rose a minor +0.2% yesterday but that left it -2.3% lower for the week. Evergrande isn't helping. The ASX200 closed down -0.8% to end the week flat. And the NZX50 Capital Index closed up a strong +1.2% yesterday in a rally that built during the day, and for the week was up +1.3%.
The UST 10yr yield opens today at just over 1.37%, so up another +3 bps from this time yesterday. That puts the interim weakness during the week behind us. The US 2-10 rate curve is at +114 bps and marginally steeper. Their 1-5 curve is steeper too at +79 bps, while their 3m-10 year curve is steeper at +131 bps. The Australian Govt ten year benchmark rate starts today at 1.33% and also up another +5 bps. The China Govt ten year bond is at 2.91% and unchanged. The New Zealand Govt ten year is now at 1.88% and up +7 bps and back up to where it was a week ago, after falling to 1.79% in between.
The price of gold has fallen another -US$4 today and now at US$1753/oz which takes it back to about where it dipped briefly to in mid-August. It hasn't been a good day for the yellow metal. Silver has fallen again and is back to year-ago levels.
But oil prices have drifted -50 USc lower overnight so in the US they are now just under US$72/bbl, while the international Brent price is now under US$75/bbl.
The Kiwi dollar opens today at just on 70.4 USc and losing another -¼c since this time yesterday. It is almost -¾c lower than this time last week. Against the Australian dollar we are at 96.4 and down more than -½c overnight. Against the euro we are little-changed at 60 euro cents. That means our TWI-5 ends the week at just under 73.7, still at the top of the 72-74 range of the past ten months but down -50 bps in a week.
The bitcoin price has slipped again today, now at US$46,966 and -1.4% softer than this time yesterday. But it is +5.0% higher than a week ago. Volatility in the past 24 hours has been modest at just under +/- 1.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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110 Comments
A new merged entity, you reckon? Alibaba-Evergrande - AliGrande - has nice ring to it. Keeps ownership of the underlying domestic and global assets; funds the debt and neuters rising private personal power, all in one hit.
Jack hasn't been seen for months, so perhaps this has been a developing solution for some time?
My view is that the Chinese were patiently and quietly on a path to world domination. Xi, however, has tried to accelerate this and an unnecessarily aggressive China has emerged. While China’s economic and military improvement in such a short space of time is incredible, they are making too many enemies - internally and externally - too soon and this won’t end well for the CCP.
All participants of summit of Shanghai Cooperation Organization (SCO) signed the document about initiation of the procedure for acceptance (admitting) of Iran to SCO.
We knew it was coming, but geopolitical ramifications of that are enormous. Multipolar world is here, it is now and we can only guess what work is being done behind the scene for unification of a colossal Eurasian land-mass and market into a single geopolitical entity. Keep in mind the size of this whole thing--it dwarfs both EU and North America in every single metric including, which is hugely important, militarily. Now recent words by Borisov about India being "in-line" for S-500 get new meaning. But then again, I am writing on Eurasian security perimeter for years. Link
Which is why I think he's decided to be the guy to get Taiwan fairly soon, even if it costs him the Chinese navy.
He'd want to sell off his US Treasuries first in a way that doesn't crash their value quick enough to hurt China. No sign of that yet.
But Xi is 68. Surely he wants to get the war over before he's too far into his 70s to drive it.
Worst thing Pooh bear did was make himself leader for life. The CCP generally learn from history, but not on this. As old people with absolute power age, they become incredibly poor decision makers and take action which hurts their own country and leads to a population pissed off at the government. This has happened multiple times before in China's history and either leads to enormous internal government crack downs (red guards of Mao's era) or overthrow of the government (Chinese revolution, Cixi's crazy rule). Even democracies don't work if they are corrupt, as shown under Kuomintang rule. The only hope for the CCP is for them to go back to 2 term leaderships and reforms to ensure there are checks an balances on both the leadership and within the CCP again. They need to recognise that their power and hence their license to rule from their population comes from a government that makes sounds decisions and sound decisions are not made by a dictator. Moving back to what the CCP had post Mao until Xi, marking the most remarkable transformation of their country ever, is the only way we won't end up with another disaster there IMO.
"Houses are for living, not speculation." - Xi Jinping, 2017.
China is doing exactly what it said it would do which is surgically lance this nasty little bubble that has developed in housing. There will be some bleeding but ultimately it's for the common good. The question is why aren't western countries doing the same?
Are they really a democracy when back to back governments get elected to fix a housing crisis then decide they would rather just improve the lives of one part of society over another by ignoring the issues they were elected to fix?
That’s the opposite of democracy - you vote, then the government ignores you. Sounds more like a corrupt autocracy. And that applies to both National and Labour. Same same.
From memory about 70% of new house sales in China are second or third homes. Most aren't even rented, over 20% of urban dwellings stand completely empty. House building has just got way, way ahead of what a country with a declining population will ever need. China had the option to take a controlled descent now or a nose-dive later.
cwbw - democracies only worked in a time of surplus energy. That is the only reason everyone trying to satisfy insatiable wants, worked while it did. But it avoided - denied - any ramifications, and avoided cost when/where ever it could. We could call that an immature approach.
That is coming to an end. It is coming to an end for Chinese consumption, as much as for Western; physics is a tad agnostic that way.
Well said Independent. When a nation and its media pats itself on its back incessantly as housing inequality , in particular over this political term worsens , reflected in housing "wealth" increasing 375 billion in calendar year as housing stock is primarily interchanged by those that have , at the same time average rents are rising at three times the pace of general inflation, and the health and wellness outcomes of those living in substandard and primarily rented accommodation are so well documented both nationally and internationally ,and undoubtedly will be reflected in Covid statistics its government should be ashamed. ,
China giving money to the Taliban, that like killing two birds with one stone. What do you think the Taliban are going to do with all that money ? Not feed the locals thats for sure but instead they will pay you to join them in creating the largest bunch of anti-American terrorists on the planet. Americans "Pre-Trained" like 250,000 Afghans for the local army. Its sounding like the Bin Laden dilemma all over again.
Just a note about commentary on the $1B that has been raised for humanitarian aid in Afghanistan.
News reports make out that the Taliban have guaranteed to distribute the aid freely to all that NEED it, some are quite certain that wont happen.
However when you listen to the translation during the interview, what the Taliban spokesperson actually said was they would distribute to all that DESERVED it.
Deserving is not the same as needing, particularly when i expect that to deserve it you must first observe all the guidelines of the Taliban interpretation of Shariah Law.
In their minds the deserving will be more closely aligned to their own military regime who will eat well, the actual needs of the people being dismissed absolutely.
Worse for China, a top analyst sees Q3 delivering zero growth as the overall economy slows fast now.
Hard to remember a time when it was booming.
Stocks, bonds, gold being liquidated in response - except the very thing that is in very short supply globally - dollars/eurodollars.
Record demand for pristine O/N collateral.
Repo rates below Fed's reverse repo 0.05% cash floor,
Nordea and global credit impulse as AUD/NZD falls for record fourteenth consecutive week
https://corporate.nordea.com/article/67765/global-how-to-position-for-a…
In light of todays vote, Israel and Pzifer booster and waning immunity September 18 2021 https://www.fda.gov/media/152205/download
New record overnight reverse repurchase amount, $1.218T. Still trending upwards.
Property giant Evergrande is collapsing. They bet on an ever-increasing property market and this is the result.
The colossal NZ property bubble is on notice. And once it does burst, the magnitude of its collapse will be unprecedented, considering how the current NZ housing Ponzi is completely out of sync with all economic fundamentals.
How many Chinese appartments have been used as an ATM to pay the uni fees for the kids overseas?
Open the borders and we might find it’s a different world out there.
We have been relying on 75,000 overseas students to study here....can you leave China at the moment??
And can someone in the National party tell me when the cruise ships are coming back
I would say National under Key has set us up terribly and the problems are so complex in our economy that only a crash can sort it out.
With Labour we see a team of good people doing their best and when supported by a competent agency can achieve world class outcomes.But they can’t fix housing and there is no economic vision.
I don’t blame them... our business organisations are corrupted and hopeless... if I was asked to fix the mess that’s where I would be starting.
there is no bi- partisanship agreement between government and business to improve life for New Zealanders....
only lobbying and hidden agendas
"With Labour we see a team of good people doing their best"
Sycophantic crap. You're seeing people who used the plight of the downtrodden to line their own pockets with ministerial salaries and nothing else.
This "National hated the poor but the worse outcomes under Labour don't count because kindness" is the reason our country is so monumentally stuffed.
China was beginning to open up, or at the very least, giving the impression of doing so. This fta was signed pre Xi's leadership. If China had continued down that path it would not have been so bad.
The real sell out happened when Key signed the fta with South Korea, where foreigners purchasing houses here was specifically allowed for, where the then current one with China did allow for us to be able to tighten rules there.
Once the fta with South Korea was signed, we had then to offer the same conditions to China, and it was after that the money started to flood in, especially paying OTT money for houses in what was most likely a bid to hide capital from the Chinese govt.
The other thing Key did, in 2011, was include residential property investment in the preferred investor category which essentially sold residency/citizenships. I did not agree with any of it, but allowing foreign landlords was particularly cynical imho.
It was indeed Key that truly sold us out.
So long as Orr is printing, people will keep buying. However even a mild taper could crash the market IMHO.
If you understood what is going on with Evergrande, there are similarities with the NZ bubble. This is not just about the Evergrande business, it's about liquidity in the system. And that's what Orr has been fixated on for some time.
What matters is the extent of negative real interest rates. If you can borrow at 3％ and real inflation is 8％. You make 5％ a year from borrowing money. Sounds great right！Now how do you borrow money？Property, property ＆ more property. What does this mean for property prices？They go up in value as people climb on top of each other in persuit of of this inflation created income.
Global liquidity for sure: Dollar Warning Update From The Islands Which Started It
40 years…that takes us back to 1971…any important financial events occur that year that allowed the excess creation of fiat currency?
Those 40 years in my view are the anomaly, not the norm. But if it’s all you have known, you could be tricked into thinking it’s the norm. It’s called confirmation and recency bias.
Wall Street Breakfast: Fed Ethics Review https://seekingalpha.com/article/4455767-wall-street-breakfast-fed-ethi…
In NZ more than stock market, it is housing market - How many properties does Mr Orr and his deputy / advisor own as the way they are supporting and promoting, will not be supplied if they own number of properties and in reality supporting their investments in guise of economy (as their action/inaction always tilt towards speculators) - conflict of interest.
Property transactions/ownership may not violate the reserve bank code of conduct. But they raise further questions about the reserve banks conflict of interest policies and the oversight of central bank officials.
Just reading through the comments about Evergrande and at least a few people on 'the rocks' of NZ are aware. What people should understand:
The issue is to forestall a systemic crisis that bring down the whole financial sector if left unchecked. Real estate is a key driver of China GDP with strong linkages upstream and downstream. Similar to NZ, bidding land prices significantly higher than the market doesn't matter when the risk is transferred to buyers and banks that financed the purchase. This has worked well for governments, banks and households because house prices have been going up. So over the past 15 years, a serious affordability crisis has emerged in major cities and h'hold debt has soared way above disposable income growth.
As a result of years of seeking easy growth through construction and / or leverage, the misallocation of capital has starved innovative and high tech sectors and (in the case of China) created a headwind for re-balancing towards more consumption driven growth.
Reigning in lending to the RE sector became vital to address the structural issue of capital misallocation. This hasn't happened in China or NZ.
Tail risk is focused in China for now but most NZers are not aware of how this is relevant to them economically. 1. China is our largest trading partner; and 2. we have been following the same path in terms of blowing an almighty housing bubble. Iron ore is being decimated and this will affect the Aussies who shares a similar ignorance of chasing bubbles like China and NZ.
The fallout is coming to NZ suburbs but the sheeple are largely unaware.
The problem, as I see it, is that the govt, RBNZ, and commercial banks are missing the woods for the trees. The misallocation of capital has already built financial instability in NZ. That is why the RBNZ has been focused on bank liquidity. For lack of a better phrase, 'to preserve the ponzi.' The local experts and sheeple don't really get it in my opinion. They're all singing from the same hymn book to dream the problem away.
Predictions are not my game. My intuition tells me that quite possibly the bursting of the NZ property bubble has already started. Just because the regular stream of property sales data shows prices still rising, it's meaningless without proper analysis of volumes, variance, etc.
Just because an index says 'property prices have risen x% over x period", it doesn't mean that a crash isn't already in play. Not sure if you will understand what I'm saying, but you might.
Thanks for response J.C. Understand what you saying, and although I see another 12months before the turn , and New Zealand in recession late 2023 we both could be wrong or one or other could be right, the damage to the New Zealand psyche caused by a prolonged fall irrespective of the turning point will be far underestimated. Few will cash out at the top of the pyramid and tell their tale at the bbq
Happens all the time but this time as caught is highlighted.
https://www.cnbc.com/2021/09/17/fed-officials-owned-securities-it-was-b…
Corruption but as all are involved - who to point.
Why blame just reserve bank, what about politicians...biggest farce of democratic system.
I'm trying to reconcile these odd, (nearly) simultaneous geopolitical events:
- Aussie/US/UK submarine 'deal'.
- France withdraws diplomats from US and Aus over it.
- NZ warships heading to exercises in the South China Sea.
- NZ withdraws the cricketers from Pakistan.
http://www.publicnow.com/view/D11FAEB07639315535B7D6AC29596999BE497BF9
HM - your thinking is pre-assumption-skewed, is my appraisal of your posts. I even wonder if you're a Labour tout, at times. Try and unload assumptions/prejudices; it makes for clearer thinking. And heaven knows, we are entering a time when that will be the resource in shortest supply.
Wow, you really are a proponent of odd theories and commentary aren't you. I have been extremely critical of Lavour and there you are positioning me as a 'Labour tout'. Bizarre.
Ok Mr Pseudo Science explain rationally how on earth those 4 occurrences are rationally linked?
8 billion people on a planet capable of supporting 1-2 billion.
We've always fought over resources; this time it's global.
“Tis all a Chequer-board of nights and days
Where Destiny with men for Pieces plays:
Hither and thither moves, and mates,and slays,
And one by one back in the closet lays.”
Hi David
I think you're missing something significant with australia vaccination rates. They have been very constrained with pfizer and modera supplies. Lots of over 60s didn't want Astra zeneca but were not allowed the rna options. They've just taken a big delivery of modera and more pfizer. South and West Australia have just opened up the rna vaccines to anyone over 12 years. See the massive turn out in queensland this weekend to get access to these. I think you'll see their rates climb again as supply of better options picks up.
Will be interesting to watch.
Thanks for your regular updates. They are appreciated.
Jo
""Kudos to the Herald for championing a 90% goal."" Contemplating the maths then 90% will be way more than twice as good as 80% or three times better than 70%. Delta is said to have a R0 infection rate of about 6 so anything below 83% means it will expand without lockdowns. So 70 = disaster, 80% = not good and 90% = maybe OK. Add fudge factors for uneven distribution of who is vaccinated ~ some suburbs will be better than others; who is being infected ~ eg retirement villages; and sociability ~ teachers, bus drivers. Allow for immunity declining with time and I'd be happier with 95% of over the 12s. Then all I will have to do is keep myself vaccinated with boosters when required and avoid small children.
Delta R0 is indeed around 6 .
R0 is not the important measure here though - by definition it describes rate of virus spread in complete absence of control measures - such as various degrees of social distancing etc. - which modify and lower the R* .
It is clear as a day that we will have to maintain some of those ; as we do protection ( imperfect as is is ) vaccines provide will flatten the curve much more than your rough-and-ready calculation shows ; it is not going to be 10 weeks vs 12 weeks for everyone to get Covid - but something like 20 weeks vs 50 weeks instead . This will make a huge difference to how may of us get proper medical care and not die as the result.
What is your source for 39% less likely. Searching google I found this: ""Data Pennsylvania released Tuesday showed that 1 in 17 unvaccinated people have tested positive in 2021 compared with 1 in 122 vaccinated people."" Obviously that is not scientific sampling but it appears to be a seventh or 86% less likely. So R0 of .14 x 6 = 0.84 and that is success. I suspect your 39% is more authoritative than my 86% but that data is changing daily.
I'm going off the Israel heath ministry
https://www.google.com/amp/s/www.forbes.com/sites/williamhaseltine/2021…
Thanks. Found this on the American CDC site "" Studies so far show that vaccinated people are 8 times less likely to be infected and 25 times less likely to experience hospitalization or death. Vaccines remain effective in protecting most people from COVID-19 infection and its complications ""
I expect the Israeli figures are showing the decline in immunity with time - most of their vaccination was over 6 months ago.
Conclusions: (a) get vaccinated and persuade everyone else to do so (b) don't expect it to solve the pandemic - it will merely ameliorate it and may return with a vengeance just when the public, the media and the pollies have lost interest.
Your Israeli website has figures for may, July and August showing dramatic rapid decline in effectiveness. We need better and recent data.
Just watched Chis Luxon being interviewed by Jack Tame. What a complete contrast to Judith.
I have not formed an opinion as to how good a PM he could be, but I think he would make a decent leader of the opposition and that is what every democracy needs.
So c'mon National caucus, get on with rolling Judith. If you don't have the guts to do it when you are polling only half your traditional figure, then you never will.
Yep because Jacinda is doing Sooooo much better. How about we just leave her in charge until she owns 10 houses and then start to complain ? Judith has to go or ACT will overtake National in the next election. National need to get their ACT together real fast and regain those lost votes. Luxon wants to wait but we don't have that luxury, the Labour party needs to go and as fast as possible it is totally destroying this country.
Yes anyone who considers voting ACT needs to read their policies on immigration and foreign investment first. To be fair to Seymour he is punching above his weight as the defacto opposition.
But with National fronting such a hopeless leader it really is giving a free pass to Labour which isn't good for anyone including Labour itself. Luxon may prove to be too much into religion to be any good as a future PM, but he did today give a credible interview as Opposition spokesman on Local Government pointing out the flaws in Labour policies in regard to councils and 3 waters. Judith would only have given another disastrous interview.
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