Here's our summary of key events over the weekend that affect New Zealand, with news of a surprisingly healthy rise in US payrolls.
But first, a key index of American business spending, and especially for investment, has come in at its lowest in two years.
And the impact of the trade war on the two main participants is becoming clearer. Chinese exports to the US of goods that were slapped with tariffs dropped -14% by a total of -US$18 bln. in the year to June. This was equivalent to 3% of China's total annual shipments to the US. America suffered a heavier blow, with tariff-hit exports to China falling -38%, or by -US$23 bln. This drop was equivalent to about -15% of all American annual exports to China. And this data is sourced from official US trade sources.
And China is getting clearer - it's goodwill gesture to buy more US farm products is conditional on being treated as an equal. A Beijing insider's social media account has said these purchases won't happen if the US continues to "flip-flop" in its positions.
In its own turnabout, China's investment in projects outside the country are drying up quickly. The Westland/Yili deal is an anomaly. Only $US$35 bln has been committed in the first half of 2019, the lowest since 2013. That represents a -75% drop from the peak of such M&A activity in the first half of 2016.
China is increasingly worried about the rise and rise of the iron ore price. And their peak steel trade group has now called for authorities to step in to control the market price, calling for "relevant government departments” to crack down on "monopolistic and intentionally unreasonable” pricing, The call saw iron ore prices fall nearly -4% on Friday. Miners BHP and Rio Tinto's share prices also fell.
In Japan, officials are turning optimistic about their economic prospects after industrial production data turned higher. Now their business conditions index is reflecting that. The prospect of a recession is fading in Japan and economic growth becomes the new reality again.
Globally, May data for international passenger air travel showed solid growth, increasing by +4.3% in year-on-year terms. However, the trend rate of growth has clearly slowed over recent months. In the Asia/Pacific region it was up less at +4.0%.
In the US, non-farm payrolls rose much more than expected in June, up +224,000 and smoothing out the very low May result. But that May result was actually revised even lower. April was too. The average for the two months isn't flash. The average for the past three months is below par as well.
In this June result, factory payrolls only rose a modest +17,000 reinforcing the weak survey results that the regional Feds have been reporting. In its semi-annual report to Congress, the Fed said the trade war tariffs are having a material and negative impact on American manufacturing. (see p30.)
Most of the payroll gains in June were from hiring in healthcare (+50,200), company admin jobs (+51,000), local government (+29,000) and in transportation (+23,900). These four accounted for about 70% of the overall rise. The other 22 categories accounted for the rest.
Average hourly earnings are up +3.1% over the past year.
Wall Street was down on these results, figuring that the US Fed is now less likely to add monetary juice any time soon if current payroll growth is running at about its 2018 average. The S&P500 was down -0.2% on Friday, although that is less than the -0.5% falls recorded in Europe earlier. Asian markets ended flat on the day.
The US Fed next reviews its policy rate on August 1 (NZT). Given that US economic growth in Q2 seems to be running at only +1.3%, the chances of a rate cut, while they may have receded, are not zero. Still, with their mandate for both foster employment and 2% price stability, with the US jobless rate now at 3.7% and inflation at 1.8%, it will be hard to make the case that some emergency policy shift is required. It's complicated.
In Canada, it might be even more complicated. Their inflation is running at 2.4%, but their jobs data for June was particularly weak, with jobs shrinking and their unemployment rate rising.
In Germany things are clearer, even if they are not good. Factory orders took an unexpectedly large dip in May, down almost -9%, and that is much more than the -5% fall in the previous month. For a very large economy, shifts as large as these these have global implications.
In Turkey, its strongman president has sacked the head of their central bank. The governor of the bank had tried to keep their currency from falling to try and limit inflation. But inflation is now running at 19% there. The official benchmark interest rate is 24%, but the high interest rate policy hasn't stopped their currency plunging, in part because investors feared this sacking would happen anyway. Even sharper falls in the Turkish currency are now expected, and that means even higher inflation can be expected. Turkey can't really afford anything these days.
The UST 10yr yield is now at 2.04%, a +9 bps jump on the US payrolls result. Their 2-10 curve is now at +17 bps and their negative 1-5 curve is at -16 bps, both narrower. There have been strong recoveries in other sovereign bond yields as well. The Aussie Govt 10yr is at 1.36%, up +8 bps overnight and a +2 bps rise over the week. The China Govt 10yr is up much less overnight, only +1 bp, and down -9 bps over the week to 3.19%, while the NZ Govt 10 yr has mimicked the Chinese, up only +1 bp overnight and down -6 bps for the week and now at 1.54%.
Gold is down to US$1,398/oz and a fall of -US$16 in the Friday session. India has raised its import tax on gold.
US oil prices are little-changed. They are now just on US$57.50/bbl. The Brent benchmark is also little-changed at US$64.50.
The Kiwi dollar is down -100 bps in the past week against the US dollar, half of that coming Friday night as the US dollar strengthened. It is now at 66.2 USc. On the cross rates we are also lower over the week at 94.9 AUc. Against the euro we are unchanged at 59 euro cents. That all pushes the TWI-5 down to just on 71.1.
Bitcoin had a very volatile week starting near its high of US$12,399 and along the way crashing at one point to US$9,770. It is now at US$11,457 with total weekly volatility of +/- 13%. 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 ».
37 Comments
It seems the CCP don't understand that miners are very sensitive to political risk. Countries that stop shipments arbitrarily fall rapidly down the preferred customer rankings. So Indian, Korean, and Japanese steel makers are preferred to Chinese ones. Miners only survive by being able to cope with acute political risk, weather risk, commodity price risk and event risk.
The preferred customer lists are not published of course, but the political risk for mining investment is:
https://www.fraserinstitute.org/sites/default/files/annual-survey-of-mi…
Page 9 has a table. New Zealand's position is embarassing. The best provinces for mining investment have a stable political system, good environmental standards, clear mining laws that are fair to all parties and high safety standards. We should be in that group, but, ironically, we seem to prefer to encourage mining in lawless places with no environmental standards, which seems odd.
I wonder why they have no confidence in NZ at present?
Could it be the CURRENT govt we have that unilaterally decided over night WITHOUT industry consultation to STOP all offshore oil exploration ?
Would that potentially knock the confidence of companies looking to invest in NZ......hmmmmmmh
I think that survey was taken before our Appointed Ones made that most sagacious choice. Too many people driving cars, cluttering up the roads, presumably. The car per person monitoring department had to (a) reduce the number of cars on the road at any one time and (b) bring in more people, so the cars actually on the road have more people in them. I think that was why, but I might have got it wrong.
My view is that it was neither wise nor how businesses can work and was more to do with a PROMO op for our PM before JET SETTING to a climate conference.
Business needs confidence in the country for investment for it to be both feasible and work.
How to destroy ALL confidence is to NOT consult and even WORSE NOT to have a PLAN to replace that industry.
Energy Realities
https://economics21.org/inconvenient-realities-new-energy-economy
Ok, I'm heading back into my dream world thanks Andrew, much more comfortable.
"20 years of extraordinary growth and getting on for $3 trillion of investment, and wind and solar still produce only 7% of the world’s power and meet only 3% of its final energy needs.
...If you translate the 20-45% decarbonization target for the total energy system into a target for the power sector, you will find that it has to deliver a 30% or 90% emission reduction by 2030 to stay on track for a 2 degrees or 1.5 degrees trajectory respectively. That would mean building an additional 10 to 15 times current installed capacity of wind and solar."
https://about.bnef.com/blog/liebreich-need-talk-nuclear-power/
Unfortunately suggests that much will not change until the climate forces it upon people.
Alternatively, the earth's response may mop up the excess carbon dioxide by such things like the increase in the biomass of the vast forests of the Northern taiga before the human response gathers momentum. Or, surely not, the timescales of the two turn out to be similar for unfathomable reasons based on deeper cyclicality embedded in the structure of the universe.
And maybe a mythical creature will descend from the heavens and rescue us!
"We show a persistent and widespread increase of growing season integrated LAI (greening) over 25% to 50% of the global vegetated area, whereas less than 4% of the globe shows decreasing LAI (browning). Factorial simulations with multiple global ecosystem models suggest that CO2 fertilization effects explain 70% of the observed greening trend, followed by nitrogen deposition (9%), climate change (8%) and land cover change (LCC) (4%)."
https://www.nature.com/articles/nclimate3004
It's still too soon but the time will come when we all have to consider max 2 children per parents, worldwide.
"...it is anticipated that by 2030 around two thirds of the world’s population will live in countries where fertility lies below the replacement level. A few years earlier, between 2020 and 2025, it is projected that the world will reach another historic milestone. Those years will mark the first time when at least half of the global population will reside in a country where women will have, on average, fewer than 2.1 births over a lifetime."
https://www.un.org/en/development/desa/population/publications/pdf/popf…
Re: And maybe a mythical creature will descend from the heavens and rescue us! Like this one by any chance. :)
https://shareblue.com/baby-trump-blimp-ruin-trump-july-4/
And maybe a mythical creature will descend from the heavens and rescue us!
Like Alan Greenspan, Donald Trump, or Mike Hosking.
Yes Roger - the mopping up mechanism you describe is working so well that atmospheric CO2 levels are plunging aren't they?
Kingotw I'd take those gloomy forecasts with a kilo-sized pinch of salt.
Decades ago, the UN promised climate disaster; so why hasn't it arrived?
https://www.foxnews.com/opinion/daniel-turner-un-climate-disaster
Furthermore why on earth they placed a CO2 measuring device so close to a volcano, Mauna Loa, is puzzling.
Volcanoes release a lot of CO2.
Is there any disagreement about rising CO2 levels across the globe? I'm not aware of any.
Resorting to "but some folks' models predicted things would have been worse by now so, so" doesn't seem to be the most robust rebuttal. Seems like more of an effort to distract, from an editorial perspective.
No Rick there is no disagreement about rising CO2 levels at all, question is though does a rising CO2 level cause global warming?
Now that's a point that a lot of scientists, including climatologists with "letters behind their name" do disagree with.
You may have read in various papers that a rise in CO2 follows a rise in temperature and not the other way around.
Am - we are a long way past that. That was a straw-man from a decade ago.
Profile's professional straw men are slightly more modern.
No its man made C02 that is the straw-man argument.
The biggest cause of heating is water vapour at 95% of the atmosphere, next is all C02 at roughly 3.7% so of that 3.7% man's CO2 contribution is estimated at 2%.
Well the theory about CO2 causing warming was established as far back as John Tyndall in the 1860s. Energy directly from the sun passes through CO2 molecules on the way down; but much of the energy is re-radiated from the earth's surface as infra-red which CO2 does absorb - causing the molecule to emit heat. It has been accepted by physicists long before climate change became a thing. If you can post a peer-reviewed paper that disputes the above, then please do share.
The direct effect of CO2 are well established - it is the climate feed backs that are conjecture. Published Measurements of Climate Sensitivity to CO2 Doubling. Hence in the satellite era we have just had typical inte-glacial warming rates rather than runaway (big feedbacks) as predicted by the UN etc.
https://landshape.files.wordpress.com/2015/06/climate_sensitivity.pdf
No mention of Deutsche bank laying off 18,000 staff and pulling out of Global equities???
An announcement is expected Monday in the US. Everyone is speculating how bad the announcement will be, but I'm waiting to see what it actually is.
Maybe 43 trillion of derivatives on its books is taking its TOLL
"And China is getting clearer - it's goodwill gesture to buy more US farm products is conditional on being treated as an equal." I am am to understand some of the past commentary, China has placed tariffs on a lot of imports, including American ones for years? If that is the case, what equality? Do they understand the meaning of the word?
Exactly - China is not an equal trading partner. It doesn't act like one and using double-speak to confuse the gullible into believing that the US is the bad guy in this situation.
One would assume that "equal partner" would also need to apply to respect for IP too.
Militarisation of the reefs and islands of the South China Sea betrayed the malintent of the CCP for all their neighbours to see. We are a bit behind on that one. The Taiwanese, Vietnamese, Phillipinos and Japanese are under no illusions at all.
US oligarch intent is equally malicious - https://www.zerohedge.com/news/2019-06-30/zuesse-civil-war-now-america and their military bases are spread far and wide - https://www.politico.com/magazine/story/2015/06/us-military-bases-aroun…
But the popular commentary was that the CCP is not like America, not like any powers that came before, but unique among the powers in not being imperialistic. Got a fair amount of airplay for a while there before the CCP helped clarify things along the lines of "Meet the new imperial power. Just as imperialistic as those who came before." (Including the USA.)
Is that not the truth of the matter. You can go back to Genghis Khan, stampeding hordes, all through Asia, Eastern Europe. In fact calling him an imperialist, would be a wonderful euphemism wouldn’t it. Before and during recorded history all powers that be, given enough might and opportunity, get down to it pretty damn quickly, think Rome! The USA is actually a late arrival. Lincoln’s Seward was all for it, but the civil war rather mixed things up, but he did get Alaska. But really started, accidentally on purpose, under McKinley with the Spanish war at turn of 20th century, and then carried on by one Theodore Roosevelt quite enthusiastically. Yep you can’t be an emperor unless you go get an empire!
Yes and some leaders are quite worried about losing control over their empires, which is what we're seeing over in HK at the moment.
Here's a good video article from the BBC that provides a nice overview on that situation: https://www.bbc.com/news/av/world-asia-china-48599658/hong-kong-protest…
The war of independence was more interesting it seems than most of us realised. Seems the continental army captured all the airports. Not bad in 1770 something! Oops sorry that was the teleprompter and my brain doesn't work as fast as my mouth - Doh!
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