90 seconds at 9 am: More, older hungry mouths

NY factories in sharp turn down; KMPG pays huge fine for integrity bust; China surrenders at WTO; China bank contagion worry; UN revises population forecast; UST 10yr yield at 2.09%; oil and gold stable; NZ$1 = 65 USc; TWI-5 = 70

18th Jun 19, 7:14am by David Chaston

Here's our summary of key events overnight that affect New Zealand, with news there will be 3.2 bln more people to feed by the end of the century.

But first, markets are in a bit of a holding pattern today, waiting on policy direction from upcoming US Fed and ECB meetings. But the data continues to roll in.

In the New York region, factories there have turned very gloomy. Business activity took a sharp turn downward, according to New York Fed's June 2019 Empire State Manufacturing Survey. Their general business conditions index plummeted twenty-six points, its largest monthly decline on record, to -8.6. New orders posted a "significant decline".

The national NAHB housing market index also fell in June, although not as sharply. Tariff concerns are being reported by home builders now.

And staying in the US, their securities regulator has fined KPMG US$50 mln and charged them with altering past audit work after receiving stolen information. The SEC’s order also finds that numerous KPMG audit professionals cheated on internal training exams by improperly sharing answers and manipulating test results. KPMG moved to get the case behind it by agreeing to the big fine.

Equity markets are in that holding mode. The S&P500 is up a modest +0.2% which follows similar small gains in Europe. Yesterday the NZX50 fell -0.6% and the ASX200 fell -0.4% (and we should note that ANZ shares actually rose +0.2% on the day). Tokyo was little changed, Hong Kong was up +0.4% while Shanghai was down -0.8%.

China has lost an important case relating to its export of subsidised products. At the World Trade Organisation, China has halted the dispute over its claim to be a market economy. By raising a white flag before a ruling became official, that means Beijing must accept continued EU and US “anti-dumping” levies on cheap Chinese goods.

And back home in China, worried officials are grappling with the contagion of a failed bank. The bank failed almost four weeks ago, but liquidity pressures on many other smaller banks have been spreading since and it is now becoming a national issue.

The United Nations has downgraded its population forecasts overnight. They now say the current population of 7.7 bln will peak at under 11 bln at the end of this century, and will rise to 9.7 bln by 2050. All the while, they say, the demographics will grow older fast and an increasing number of countries will face population declines - and China is one of them. The bottom line though is that in the next hundred years the world's population is still expected to rise by +40%.

The UST 10yr yield is at 2.09% and in a holding pattern until we hear from the US Fed. Their 2-10 curve is slightly narrower at +22 bps while their negative 1-5 curve is slightly wider at -20 bps. The Aussie Govt 10yr is up +2 bps at 1.39%. The China Govt 10yr is down -1 bp to 3.27%, while the NZ Govt 10 yr is unchanged at 1.67%.

Gold is down -US$3 today at US$1,338/oz.

US oil prices are marginally lower overnight. They are now just on US$52/bbl. The Brent benchmark is now at US$61.

The Kiwi dollar is holding at 65 USc. On the cross rates we have recovered a bit to be at 94.8 AUc. Against the euro we are little-changed at 57.9 euro cents. That all puts the TWI-5 up to just on 70.

Bitcoin has risen again overnight and is currently +2.3% higher at US$9,263. That pushes up the price in NZ dollars to over $14,000 for the first time since March 2018. The bitcoin rate is charted in the exchange rate set below.

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

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22 Comments

by Uninterested | 18th Jun 19, 8:20am 1560802848

That population estimate is making the assumption that there is no virulent disease, famine, war or major earthquake that comes along.
I think famine is very likely they way the world bails out countries where they have even the slightest beginnings of a famine.

by Fritz | 18th Jun 19, 8:49am 1560804591

Yeah seems unlikely for all those reasons.

by keithwoodford | 18th Jun 19, 10:08am 1560809290

Famines are almost always caused by wars and other social upheavals, rather than by nature. This is well understood by those who work in that field, but less understood by non specialists. Population growth is now a regional rather than global issue, with Africa and the Middle East becoming the obvious pressure points of the future
KeithW

by powerdownkiwi | 18th Jun 19, 10:38am 1560811130

Disagree. Wars and social upheavals are usually scarcity-per-head driven. Weimar Germany led to WW2. Content, well-fed people tend not to go to war until their supply-lines are threatened - and those supply-lines start under someone else. If sucking their resource leads to the disenfranchised fighting or being socially restless (or trying to scam your junk mail), don't confuse caused with causal.

by murray86 | 18th Jun 19, 1:28pm 1560821302

Treaty of Versailles led to WW2, but same effect, it was crippling Germany's economy. So ultimately the western powers bought it on themselves after WW1.

by mikekirk29 | 18th Jun 19, 8:31am 1560803495

Liquidity creasing in Chinese banking system eh.
I thought the CCP were omnipotent in these management issues.
Just hose it down with some more printing.
Countrywide was just a little pimple on the backside of US banking system I recall...
Meanwhile, NZ is proposing a bill to help farmers in bother. Whose debt is up 270% apparently, on 20 years ago.
And RBNZ stiffening capital requirements on major systemically important banks.
Theme anyone?
No risk of course.
Nothing of banks leverage and derivative problems and systemic risks of major banks to economies was fixed in 2008 and not since.
See James Rickards.

by Tom Joad | 18th Jun 19, 8:43am 1560804236

... and Deutsche Bank becomes 2. Deutsche Gute? and Deutsche Schelchte!

by Davo36 | 18th Jun 19, 10:50am 1560811811

It's so juvenile isn't it, to think that you can simply have a 'good bank' and a 'bad bank'.

And so in a couple of years you'll hear Deutsche Bank staff saying "Oh no, that's nothing to do with us, that's part of BAD Bank, we have nothing to do with them".

by Fritz | 18th Jun 19, 8:51am 1560804670

There's trouble brewing, globally and locally.
But she'll be right.

by Smalltown | 18th Jun 19, 9:28am 1560806922

Yeah lets bail out the farmers.
No. Their trading account may be up SC but their asset base in a lot of cases will be in the 10s of millions as they benefitted over the generations from NZs crazy CGT rules.
Force them to divest of some of their parcels, we didnt force them to go on a buying spree.
Lets not go back to the late 70s where the sheep farmers had 800 mill subsidies but there was nothing for the needy.
Lets get rid of the the idea that"...they're not making any more land, eh?" and treat a farm only as an income producing operation.

by Foxglove. | 18th Jun 19, 1:11pm 1560820280

Well that was the SMP’s designed by Muldoon to safeguard his power base. All subsidies eventually implode and these were of the worst. Cost ordinary NZ’s $ billions the country could ill afford. Instead of the reality check it needed, the meat industry blundered on until Douglas cut it all out. And then the farmers and processors that had made hay while the sun shone, really did hit the wall!

by Advisor | 18th Jun 19, 8:44am 1560804268

UNSW has already paused “further upward changes to academic and English requirements [for overseas students] until market conditions improve"
Market conditions? Who are running these universities - academics or stock traders from 2007?

https://www.macrobusiness.com.au/2019/06/universities-slash-entry-stand…

by Advisor | 18th Jun 19, 8:48am 1560804487

And there's more...
Now private education providers are lining-up to cash in, with international students services business, Education Centres of Australia, preparing for an Initial Public Offering (IPO) off the back of surging revenue from international students. ECA told fund managers it made about $100 million a year at the revenue line, had more than 15,000 applications in 2018, takes on more than 7000 students a year and has had more than 50,000 graduates.

Tertiary institutions on both sides of the Tasman are cashing-in big time on our loose migration standards. The profits from these cheap labour mills get sucked into their private coffers while thousands of low-skilled migrants who are then pumped into the workforce become the taxpayers' problem.

by Yvil | 18th Jun 19, 9:01am 1560805282

A 40% increase in world population is a serious problem. I assume this increase comes mostly from 3rd world countries. Is that not a good reason to help these countries out of poverty?

by RickStrauss | 18th Jun 19, 9:11am 1560805907

Certainly highlights how short-sighted are comments along the lines of "What does it matter who owns the land? We can always legislate over it."

Food security will be a massive issue and selling off NZ's food supply chain into foreign state-corporate ownership will not benefit NZers in the next 50-100 years. NZ governments will look rather stupid alongside foreign governments who have taken a longer-term view. At least some limitations have been placed on foreign buy-ups, but one hopes the OIO is not running lolly scrambles.

by ham n eggs | 18th Jun 19, 9:54am 1560808459

No
Quite the opposite
The last thing the planet needs is more people demanding the consumption footprint of those not (currently) living in poverty

Of course its all hypothetical - theres no chance in hell there will be a 40% increase - we are WAY WAY WAY in overshoot. As soon as the financial system tips and supply chains are disrupted, all hell will break loose
My money is on a 90% decrease

by powerdownkiwi | 18th Jun 19, 9:57am 1560808675

Yvil I hope that comment is tongue in cheek.

Wealth is the ability to buy processed parts of our planet. It is having trouble supporting the current level of consumption, and we are drawing it down at an increasing rate. Raise the third world to the US rate of consumption, and you'd require 10 planets, except you'd be drawing them down so.......that wouldn't last either.

And we don't 'help these countries out of poverty' - in most cases if not all, we are the reason they're hammered. We are at the end of a supply chain that starts under them, via World Bank and IMF 'loans' and so forth. Google: Shell and Ken Saro wiwa - did you buy Shell petrol after that date?

To raise the global population to our level of 'wealth', and do so without resource draw-down, requires a global population of one billion.

Can we get past this stuff, please? Surely commentators hereabouts have got the point by now.

by Roger Witherspoon | 18th Jun 19, 9:02am 1560805324

Deng Xiaoping:
China is not a superpower, nor will she ever seek to be one... If one day China should change her color and turn into a superpower, if she too should play the tyrant in the world, and everywhere subject others to her bullying, aggression and exploitation, the people of the world should identify her as social-imperialist, expose it, oppose it and work together with the Chinese people to overthrow it.

by RickStrauss | 18th Jun 19, 9:18am 1560806330

Many ASEAN neighbours might beg to disagree these days. (In fairness, Deng may have been quite a different kettle of fish to Xi Jinping.) Also of interest, these statements were all made by American presidents:

1. "We do not covet one square inch of the territory of any other nation."

2. "The United States wants no territory."

3. "America has never been an empire."

4. "We are not imperialistic."

5. "The US is the only great power without a history of imperialistic claims."

6. "America covets no one else's land. We seek no one else's treasures."

by Yvil | 18th Jun 19, 9:46am 1560808009

6. "America seeks no one else's oil" LOL

by powerdownkiwi | 18th Jun 19, 10:06am 1560809212

Yes - Venezuela has gone quiet of late in the Western media no? One suspects the US will intervene militarily as their own shale plays dwindle. And they have to be eyeing-off Iran - certainly can't afford for China to get Iranian oil. Given the alternatives, this is the last great global stoush - not enough energy left for another. Can you imaging waging war on solar power?

Yet that is where we will be by 2050 - local, solar, post-growth, global population 5 billion or maybe less. We are in acleft stick as a species - we can't afford to pump the entropic waste gas into the atmosphere, but we can't keep this pace up without the burning and the stuff is both lowering in quality and running out.

by Audaxes | 18th Jun 19, 11:14am 1560813272

For the fifth month in a row, US total cross-border investment was an outflow (-$7.8bn) - the longest streak of outflows since 1982... Link

Are net central bank UST sales necessary to raise scarce USD funding for their domestic banks?