Cape Brett lighthouse, Bay of Islands
Here's our summary of key economic events overnight that affect New Zealand with news the world's factories are expanding still, and the prices of some key commodities are surging.
But there are now reports that the Whitehouse is about to order its Federal agencies to prepare for a shutdown as its debt limit is now exceeded.
Meanwhile, American new home sales data for August was minorly positive, adding to the good July, but really only taking them back to pre-pandemic levels. Still this latest data is a four-month high.
Global investors who own Evergrande's USD bonds did not receive their US$83 mln coupon payment by yesterday’s deadline. There is a 30 day grace period before a default event is triggered however. At stake are bonds with a face value of only US$2 bln, but it is an event sending reverberations through the US$400 bln Asian debt markets. Evergrande paper is now trading at just 28c in the dollar. Total Evergrande liabilities, which includes much more than its traded bonds, exceed US$300 bln. Given that China's GDP is US$14.5 tln, that is 2%, so the Chinese economy could feel an Evergrande collapse.
And China is arresting the senior management of another failed conglomerate, HNA.
In Japan, consumer prices slipped by -0.4% in August 2021 from a year ago, after a -0.3% drop a month earlier. This was the eleventh straight month of decrease in consumer prices, amid weakening consumption due to the ongoing pandemic. Core consumer prices were flat, in line with forecasts and ending a decrease for the first time in 13 months. (In the linked report ▲ means negative.)
The latest Japanese factory PMI for September shows the sector expanding at a modest level still. New orders slipped but managers are obviously confident about the future because hiring remained strong. Price pressure wasn't noted in this survey. Meanwhile, the Japanese services PMI for September records a small contraction, but far less than for August.
In Taiwan, their export order data grew less than forecast in August on unexpectedly weaker demand for new smartphones. But they were +17% higher than a year ago and +34% higher than for August 2019. More importantly perhaps, the ratio of their firms' exports that are produced offshore is falling.
Singapore industrial production rose +11% in August, better than expected, and +29% above the pre-pandemic levels two years ago.
But despite an 84% full vaccination rate, Singapore is seeing a renewed surge in Covid cases, stressing their hospitals, and they are instituting new social restrictions including work-from-home.
In the past week, the cost of shipping a container held steady at record high rates. At least it didn't rise again. Most pressure in on goods flowing from China to the US and EU. Least pressure is for goods flowing into China, and trans-Atlantic to the EU.
But the Baltic Dry index pushed on up higher this week, now at a twelve year high.
The price of lithium continues to rise, unchecked, and now up +310% in a year. Coal prices remain near record highs in September, amid tight supplies and strong prospects for the winter demand. Iron ore prices however are still falling. But that is not the case for aluminium which rose this week to a 13 year high. Dr Copper isn't so bullish however. But tin prices are in the clouds, at an all-time high caused by high demand from the electronics industry and very short supply. Nickel prices are high too on demand for stainless steel. But 10% of the world's nickel ends up in the Chinese property market, so that is taking the top off recent rises.
The IMF has been reviewing Australia's economic situation and released its staff report yesterday. It noted that Australia needs to address the rising financial stability risks posed by rocketing house prices, which are expected to increase by up to +20% this year. I wonder what they would say about NZ's higher rises? The IMF also warned Australia there would be a “reckoning” for so-called zombie companies once pandemic supports were withdrawn, which could result in a spike in corporate insolvencies, particularly in SMEs.
And staying in Australia, there were another 1043 new community cases in NSW reported yesterday with another 840 not assigned to known clusters, and these numbers are material no improvement. They now have 12,148 active locally acquired cases. Victoria reported another 733 new cases yesterday. Queensland is reporting zero new cases again. The ACT has 19 new cases again. Overall in Australia, more than 49% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far. Vaccination hesitancy is dissolving fast in Australia, so a 90% target there now looks feasible.
The S&P500 is up +0.2% in late afternoon Friday trade, and up +1.3% for the week but still more than -2% below its record high. That follows a general pull-back of close to -1% in European markets overnight. Yesterday, the very large Tokyo market rose an impressive +2.1% to reduce its weekly loss to -1.2%. Hong Kong was fell -1.3% yesterday leaving it with a -1.6% weekly retreat while Shanghai fell -0.8% to cement in a -1.4% weekly loss. The ASX200 ended down -0.4% on the day and -0.7% for the week. The NZX50 Capital Index ended the day down -0.4% but for the week it did manage to post a +0.2% gain.
The UST 10yr yield opens today up again at just over 1.46% and +5 bps higher from this time yesterday and a 3 month high. A week ago it was 1.37% and rising. The US 2-10 rate curve is steeper at +119 bps. Their 1-5 curve is also steeper at +88 bps, while their 3m-10 year curve is steeper at +140 bps. The Australian Govt ten year benchmark rate starts today at 1.40% and also up +7 bps. The China Govt ten year bond is at 2.89% and up +1 bp. And the New Zealand Govt ten year is now at 1.89% and up +6 bps from this time yesterday and back to where it was a week ago.
The price of gold will start today marginally lower, down -US$5 at US$1747/oz. A week ago it was at US$1753/oz.
But oil prices have moved higher again overnight and compared to yesterday's levels are up another +$1 to just under US$74/bbl in the US, while the international Brent price is even higher at just under US$77.50/bbl. At these prices, we are seeing many more rigs being brought back into production, especially in the US.
The Kiwi dollar opens today at just on 70.1 USc and more than -¾c lower than this time yesterday. It is -¼c lower in a week. Against the Australian dollar we are softer at just over 96.6 AUc. Against the euro we are -50 bps weaker at 59.8 euro cents. That means our TWI-5 starts today at 73.6 and below the top of the 72-74 range of the past eleven months, and little-changed in a week.
The bitcoin price has fallen today, and is down at US$42,089 and a -6.2% retreat from this time yesterday. A key reason this time is that China has moved to ban all crypto trading, mining or holding. Volatility in the past 24 hours has been extreme at just over +/- 5.4%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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75 Comments
On a serious note, Singapore has started talks about the endemic in August. They have accepted that everyone will get covid sooner or later (which is hard to accept for me personally) and they want to slow down transmissions so that more people can use medical help and survive. 5000 cases a day is what they say is ok to handle and they don’t want to see more at this point.
There has also been a shift in how covid is threatened - most of the patients will now be staying at homes or community facilities rather than hospitals.
Of course everyone is going to get covid. Only a politician would conveniently portray otherwise. The powers at be would have known from the start the vaccines were never going to work as advertised - but they made a great story for our saviour politicians. Why do you think Pfizer et al never agreed to indemnify?
Singapore already lives with deadly endemic diseases like dengue - and their individual healthcare funding rewards people who maintain good health - so are in a much better place than cliff bottom NZ heathcare.
Here is how it is in Norway. They are now ending all emergency restrictions. With 67% vaccination rate...
And the world obviously is not ending as some of the commenters here will have us believe.
Here's some more balanced commentary not linked to a paywall site David
To American bitcoiners, the dollar is a symbol of entrapment by a profligate Federal Reserve. But to Salvadorans, it signifies security, an escape from the abuses of government and the reason why they’ve enjoyed relative price stability since 2001 after formal dollarization overcame decades of chronic inflation. And for the poorest Salvadorans – the 25% who earn less than the poverty line of $5.50 a day – those for whom a bank, with its exorbitant fees and constrictive identify requirements, is a non-starter for managing their meager savings, the clearest manifestation of that security is in banknotes.
https://www.coindesk.com/policy/2021/09/24/why-el-salvador-is-botching-…
2.1 million Salvadorans are ACTIVELY USING @chivowallet (not downloads).
Chivo is not a bank, but in less than 3 weeks, it now has more users than any bank in El Salvador and is moving fast to have more users that ALL BANKS IN EL SALVADOR combined.
This is wild!
- Nayib Bukele
Oh dear arrests underway by the CCP. Last January one Lai Xiaomin of Huarong Asset Management was executed for corruption. Problem for these new detainees is that the CCP can easily translate failure and incompetence into corruption. One of the worst management aspects you can encounter is that of fixing problems by finding someone to blame. Oh well, live by the sword die by the sword but it does demonstrate just how savage the lower layers of the cake are in China, death penalty still being engaged at will.
America, and the Repulican party, are in a far worse position than I thought, if youtube, facebook and twitter are the 'freedoms' they think are worth fighting for.
Based upon the Trump rallies and storming of their own capital building, it was those platforms that allowed stupidity and bigotry to organise itself and gain strength..
China has become more powerful in the period it has banned those things and America has become significantly weaker.
But China has got it wrong, right?
America, in the space of a generation, has caused massive inequality and oppression within its own people. Hardly the leader of the free world any longer. Regan would be horrified at what the modern republican party, and America, has become. The Fed is worse than the CCP in what it stands for. Choosing the make the lives of the top 10% much better at the expense of all other people within their own country! Having lived in the US, in a republican state, for a number of years, I know first hand the hell that many people are living through there. China might be the new shining light on the hill. US more the corrupt, imploding, former movie star.
It's nice to have a readable and coherent status given. "We are staying the course to transit towards a COVID-19 resilient nation. But we are still at the Preparatory Stage and have not reached the stage where COVID-19 can be considered as endemic. In this journey towards living with COVID-19, we have to make continual adjustments in our measures to protect our healthcare system, and ensure it is not overwhelmed.". (btw, similar population to NZ and 1000 or more new Covid cases each day at the moment.)
"Succinct ,factual, detailed. " The days three deaths included case numbers 72389 and 76190
1 Case 72389, a 79 year-old male Singaporean, has passed away from complications due to COVID-19 infection on 24 September 2021. He tested positive for COVID-19 infection on 8 September. He had not been vaccinated against COVID-19, and had a history of pulmonary hypertension, chronic obstructive pulmonary disease, Graves’ disease, hypertension and hyperlipidaemia.
3. Case 76190, an 83 year-old male Singaporean, has passed away from complications due to COVID-19 infection on 24 September 2021. He tested positive for COVID-19 infection on 14 September. He had been vaccinated against COVID-19, and had a history of diabetes mellitus, restrictive lung disease, hypertension and hyperlipidaemia which, together with his advanced age, made him more susceptible to severe illness.
NZ is reaching acceptance that lockdowns have run their course and Covid will start emerging generally. That raises the question as to whether or not the government and MoH are up to the mark with the pharmaceuticals etc and procedures for those, both vaccinated and unvaccinated, that will undoubtedly be severely afflicted? Obviously early and as successful as possible intervention will be vital to ease pressure on hospitals etc and vital again that GPs are armed and ready to go, and play their part. Suggest the government would be responsible to issue some information in this regard as it would undoubtedly allay some fears and install some confidence for the playing field going forward.
We have a government that doesn’t seem to want to do anything until they have to. There should be plans in well place by now for the next stage. But are they? Certainly most of the public are in the dark and talking to our GP doesn’t seem they are getting much direction either.
Total Evergrande liabilities, which includes much more than its traded bonds, exceed US$300 bln. Given that China's GDP is US$14.5 tln, that is 2%, so the Chinese economy could feel an Evergrande collapse.
.. for Beijing the real risk is not whether foreign creditors are impacted - in fact Evergrande's willingness to default on offshore bondholders while preserving operational cash flow and continuing to build homes shows just how much China "cares" about Blackrock's P&L - but how an Evergrande crisis could impact China's massive, $60 trillion, property sector, something which CCB International, the Chinese investment bank, touched on in a recent research note in which it said that Evergrande "contagion risk has spread from financing to land sales, property sales, project deliveries and home prices." Link
While we were digging through the data for today's household net worth report we stumbled upon something that seem beyond ridiculous: the ratio of Household Net Worth to Disposable Net Income. At 786% in the latest quarter, the chart at first appears to be a mistake but we triple checked it, and... well, here it is. Link
Both the U.S. and China have been a utopian Paradises of moral hazard for the past 30 years.
After 30 years, the equation in China has changed: debt in the official banking sector and in the informal shadow-banking sector has soared along with purely speculative excesses while "good growth" has stagnated. That's the problem with incentivizing moral hazard: the profits from speculation, corruption and fraud far outweigh the puny profits earned by legitimate enterprises. So where do you put the borrowed billions? In Evergrande and other conglomerates of speculation.
Control is something the CCP and Xi want to retain, regardless of the cost.....Losses will be taken and sacrifices enforced on those who don't understand the Chinese state will no longer absorb the losses of speculative excess.
The Evergrande infant formula brand does not have strong market share in China. If you're interested, this is the company that helped to develop the product. http://cowala.co.nz/
"But oil prices have moved higher again overnight... ."
Black gold, the true currency of the world, never disappoints- everyone should have some in their portfolio.
"In Japan, consumer prices slipped by -0.4%..."
Maybe NZ should study how Japan is able to cut interest rates without generating inflation and get it going. Most Kiwis want a lower interest rate and low inflationary pressure at the same time- 2 birds with a stone.
BoJ owns 55% of all listed shares. Major companies have become protected from the normalities of a market economy, that has reduced the incentive to chase productivity through efficiency or innovation.
The situation is and will improve however because the rest of the world is catching up with Japan. I expect on a per capita basis Japanese productivity will improve.
I think the trick is having an economy that's gone sideways for 30 years
Yet Japan is a net creditor nation; has the world's best infrastructure; has low consumer price inflation making daily life less taxing for h'hold budgets; and a household debt to GDP that is far lower than that of NZ.
That is the way it should be in a free economy where competition continually drives increasing productivity improvements. Look at any of the other products that we we buy that come from competitive free economies. Their price trajectories have been continually downwards. In thirty five years the cost of building a house in NZ has gone from costing 2 new Toyota Corollas to 26.
https://www.stuff.co.nz/business/opinion-analysis/300140577/what-can-nz…
The problem lies with our economy not the Japanese.
Tokyo has done better than most of Japan in house price recovery because, like most major cities, they attract the young workers.
Smaller towns, villages and rural areas on the other hand are why you see all those headlines about perfectly good houses selling for under US$10k.
Raze, rebuild, repeat: why Japan knocks down its houses after 30 years
Daiwa House, one of the biggest prefabricated housing manufacturers in Japan, built this town in the 60s during a postwar housing boom. It’s not unlike the suburban subdivisions of the western world, with porches, balconies and rooflines that shift and repeat up and down blocks of gently curving roads. Most of those houses built in the 60s are no longer standing, having long since been replaced by newer models, finished with fake brick ceramic siding in beiges, pinks and browns. In the end, most of these prefabricated houses – and indeed most houses in Japan – have a lifespan of only about 30 years.
https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-r…
Raze, rebuild, repeat: why Japan knocks down its houses after 30 years
Sorry to say but this is wrong. It was true in the past. Many Japanese housing constructions are using the best materials on the planet. For example, Sekisui. New homes now come with 30+-year guarantees.
But oil prices have moved higher again overnight and compared to yesterday's levels are up another +$1 to just under US$74/bbl in the US, while the international Brent price is even higher at just under US$77.50/bbl. At these prices, we are seeing many more rigs being brought back into production, especially in the US.
Many British and European politicians have started to appreciate the necessity of gas as of today, according to the diplomat. "Now the necessity of gas is better understood, literally, in the past few days. Amid the trend of turning to all green energy, this trend has much affected producing companies. The phenomenon is that producing companies have considered it shameful to invest in the production of energy - coal, gas, oil. An understanding is coming that this was a mistake. As a matter of fact, efforts are necessary to address gas pipelines, increasing supplies, particularly of gas - as gas is a transition element from the coal economy to the green one," he explained. Link
Yes. The wind in the UK stopped blowing and now they don’t have enough gas to cover the shortfall. The wind can drop, the sun can stop shining and drought will stop the rivers flowing. But gas will always burn… contingency planning on a real world basis is essential.
Just google "UK energy crisis" and you'll get a number of recent articles on the UKs situation. Heavily invested in unreliables. Also reliant on the French and others. France must be laughing all the way to the bank. I recall a number of around 75% nuclear generated electricity in France
Everyone seems to be reverting to coal [link] now LNG is going to the moon. I think we have to acknowledge the role of China in that we de-carbonised by exporting emissions to them and now they are de-carbonising (which is partly driven by moving to gas from coal) by exporting emissions back to us.
If carbon emissions are ever to be meaningfully reduced then we need countries to offset the equivalent of the products they consume rather than produce. I'm not even an environmentalist and that's clear to me.
Offsetting only kicks the can down the road a few decades until the tree matures. Then what? It will take a timescale none of us can comprehend for that carbon we suck out of the ground to be safely locked away back underground again.
Meanwhile we suck even more carbon out of the ground, and convert food producing land into 'permanent' pine forests. The ETS and hammering animal emissions are just about the feelz and are a total crock. The only way we will get to carbon zero is by turning down the spigots and coal mining 15% DV each year for the next 30 years.
Perspective please.
From Singapore’s MOH:
5. The large majority (98%) of cases were asymptomatic or had mild symptoms. This is due to our high vaccination coverage, which is now at 82% of the population who have completed their full regimen. Of the 254 cases with severe illness in the last two weeks, a disproportionate 48% were unvaccinated with the remainder being vaccinated individuals with co-morbidities.
Been watching some of the scenes of police brutality coming out of Australia and all I can think of is 1984 and the government/big brother cracking down on thoughtcrimes of its people.
Everything appears to be back to front and upside down at present....is this stuff really happening?
Its almost as if western governments have become the same thing that the greatest generation fought to prevent - yet we've turned ourselves into that same thing. Has our society been brain washed?
Very weird times...
Not so much brainwashed - although neoliberalism could be so-accused this last 30-40 years.
More we went, en masse, for a new religion (to replace pie-in-the-sky-when-you-die which was fed to the repressed; you get a better chance next time if you knuckle under this round - hence Negro Spirituals). The new one said economic growth was the goal, and that there were no limits. Essentially a lie, and one that is starting to bite the too-many of us on the bum.
And, of course, like the Inquisition of old, there are a lot of folk reliant on the old religion remaining dominant, who have done - and still are doing - a good job of shooting the messenger
Granny Herald reports on someone stealing a safe with "$4 million worth of cryptocurrency inside." The crypto is not in the safe. It's on a network. The owner has not lost the crypto. He has lost his keys to the crypto. Less than 2% of Bitcoin owners have that kind of monetary value while 98% of Bitcoin owners have less than a few hundred dollars of value.
The owner would have had a recovery phrase for the crypto which he probably kept inside the safe alongside the encryption device. Lesson 1: Don't leave your keys in the lock when you leave home.
If you're rich enough to have $4 mio in crypto, there are custodial services that come with insurance. You can also have multiple keys and secret passwords to crypto (just don't leave them in the lock).
End of story: People should not own crypto if they can't handle basic security measures.
https://www.nzherald.co.nz/nz/crypto-heist-raiders-steal-safe-containin…
Has a safe, but a security system that can be bypassed without raising an alert, after entering the house through a passage CCTV didn't see, then goes in the paper to say 'Hey they probably don't know what they have'
Suspect there's something dodgy here, or this story is the cops putting bait out to make the tapped suspect say something.
J.C.
Yes, despite the article saying that it was crypto stolen, I agree that it was the keys stolen.
However, with your experience, can you clarify that if the keys are stolen then the victim then loses ability to access the crypto?
If so, would the keys not be an integral part of the crypto currency and therefore having the keys stolen then the crypto has been effectively stolen from him/her whether or not the burglar accessed the crypto?
As an aside, the IRD link on stolen crypto and deductability against income is https://www.ird.govt.nz/cryptoassets/taxing/income-expenses/stolen
None of it makes any sense. I find it hard to believe that someone with $4 mio of crypto assets lacks such basic understanding.
Even if he has lost his crypto device, the main thing is the recovery phrase. If he's lost that, he's toast. You never keep the device and the recovery phase together.
Big defaults loom in both China, and the US
No one is worried neither people nor market as everyone know that government and reserve bank will and has to bail out.
Economy - Reserve Bank + Government.
How long, one has to see. Every 50 years near around monetary system changes and last time was in 1971.
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