90 seconds at 9 am: World trade growth is on the skids

Dairy prices flat; US factories contracting; Canada GDP stalls; WTO cuts trade growth forecast sharply; Japan PMIs weak; RBA cuts, Aussie consents tank; UST 10yr yield at 1.64%; oil down and gold up; NZ$1 = 62.4 USc; TWI-5 = 68.1

2nd Oct 19, 7:14am by David Chaston

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Here's our summary of key events overnight that affect New Zealand, with news world trade growth is on the skids.

But first up today, the Kiwi dollar has now slipped to its lowest level in ten years. And this has allowed the overnight dairy auction to post a reasonable gain, up +2% in NZ dollar terms. In US dollar terms it was flat, up just +0.2% with SMP gains preventing an overall slip. But that low exchange rate does mean that in New Zealand dollars, WMP prices are now over NZ$5000 for the first time since the end of 2016. Dairy industry prices are being held up by a sinking Kiwi dollar.

In the US, there has been an unwelcome surprise from their influential ISM factory PMI which was expected by analysts to rise out of contraction but instead slipped back further in, and to a ten year low. They reported a decrease in business confidence with global trade concerns the main reason new orders are falling. And low US car sales aren't helping. This report actually caused fright in equity markets and the S&P500 is down -1.2% in mid-afternoon trade.

North of the border, Canadian GDP also came in weaker than expected, up +1.3% in July which was a slip from +1.5% in June. Following four months of growth, the Canadian economy now seems to have stalled.

The World Trade Organisation isn't optimistic either, Escalating trade tensions and a slowing global economy have led WTO economists to sharply downgrade their forecasts for trade growth in 2019 and 2020. World merchandise trade volumes are now expected to rise by only +1.2% in 2019, substantially slower than the +2.6% growth forecast in April.

In Japan, their latest PMI doesn't make for happy reading in September. Their manufacturing sector is under pressure as firms cut production amid sustained weakness in demand. A sharper drop in output was accompanied by quicker declines in new orders and purchasing activity, while inventories were also reduced.

Japan vehicle sales are a bright spot, juiced up +12% in September ahead of their rise in GST that came into effect yesterday.

In Hong Kong, protesters flooded the streets again to push-back against China's 'celebration' and police responded with live fire. This battle between the people and Beijing's imposed government has moved into a new, riskier stage.

In Australia, their central bank delivered a -25 bps rate cut taking their policy rate down to 0.75%. Most expect it will cut further in the face of expected softer employment growth. QE is closer too to prevent them from slipping into recession.

Staying in Australia, there were two competing PMI reports out yesterday for September. The local one saw factory conditions improving, the one that ties into the international set saw the reverse. Both saw their factory expanding, just at different trajectories.

The number of building consents in Australia are still worryingly declining. They were down -23% in August from a year ago, and for the full year to August, they are down -22% compared to the same period a year ago. These are massive declines, exceeding -50,000 dwellings in a year.

The UST 10yr yield is down -4 bps on the ISM report to 1.64%. Their 2-10 curve positive at +9 bps. Their negative 1-5 curve is wider at -24 bps. But heir 3m-10yr curve is much narrower at -16 bps. The Aussie Govt 10yr is sharply lower at 0.93%, an overnight fall of -9 bps. The China Govt 10yr is unchanged at 3.16%. The NZ Govt 10 yr is at 1.14%, a +2 bps rise from yesterday.

Gold has recovered +US$13 after yesterday's sharp fall or about a half of that, now up to US$1,482/oz.

US oil prices are lower again today, down more than -US$1.50 and now just under US$53.50/bbl. The Brent benchmark is just over US$58.50. Sharply lower demand is behind today's drop.

The Kiwi dollar is weaker today, now at 62.4 USc and as we mentioned earlier that is a new ten year low. On the cross rates we are back up to 93.2 AUc after the Aussie fell on the RBA rate cut. Against the euro we are at 57.1 euro cents. That puts the TWI-5 back down to just on 68.1.

Bitcoin is now at US$8,456 and +2.3% higher than this time yesterday. 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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36 Comments

by powerdownkiwi | 2nd Oct 19, 8:16am 1569957363

"QE is closer too to prevent them from slipping into recession".

If you're counting properly, it doesn't. It merely kicks the can down the road, closer to the 'road closed' sign.

And I challenge you about 'worrying'. If the rate at which we were populating and sprawling was unsustainable, David, then a reduction is to be welcomed. Along with an acceptance that we were measuring the wrong things. Someone in the media is catching on:
https://www.odt.co.nz/lifestyle/magazine/whiff-crisis-and-patchouli

by murray86 | 2nd Oct 19, 1:24pm 1569975843

Yes they are, but i have a problem with a lot of the rhetoric that is coming out now. It seems a majority of the commentators are calling for additional charges being placed on environmentally polluting activities (and i do include climate warming activities too in this) but my question is what happens to those extra charges? Do they just go to the companies bottom lines? Or do they go into politicians coffers or more likely, their back pockets? Those who are making these calls are missing a really very important point. Making something more expensive will NOT change behaviour. It can actually make it worse!

Greta was right when she accused the politicians of just talking, but doing nothing. If we are to change behaviours, the rules must change. And here is where the problems lie. The worlds leaders, and that includes the politicians in NZ, are far too cozied up to the money to change anything! Oh sure they will change a few easy rules. The low hanging fruit that increases all ordinary peoples costs and difficulties in living. But they won't legislate, with significant penalties for breaches, the farmers, the major industries or the banks to make them fully accountable for their actions in driving this. They will succumb to the lobbyists and wealthy multi-national corporates who want their patch protected so they can continues to reap their profits and avoid taxes. They have been doing this for years, decades and centuries, and they will not change now!

by ham n eggs | 2nd Oct 19, 8:58am 1569959918

"Greta was right when she accused the politicians of just talking, but doing nothing"

Nope.
Its YOU that must change your consumption.
YOU that must change your proliferate lifestyle.
YOU that must opt to significantly curb your standard of living.
Try getting elected on that platform

by Kate | 2nd Oct 19, 9:52am 1569963132

I keep asking myself why Greta didn't decide to appear at the UN via video link.

by kiwimm | 2nd Oct 19, 12:32pm 1569972736

Because she was not just there to give a 5 minute speech. She was there to meet with and influence a wide range of people. Like it or not, this is something that works better in person.

by Kate | 2nd Oct 19, 10:38pm 1570009081

meet with and influence a wide range of people

Sounds good but the reality is the UN is a massive theatre that costs unbelievable amounts in terms of these face-to-face meetings - it likely has the largest carbon footprint of any single organisation in the world. And of its various organs, those involving climate change, the UNFCCC and the IPCC, are the worst offenders given the size and regularity of their meetings.

If ever there were "do as I say, not as I do" organisations, these are it;

https://unfccc.int/
https://www.ipcc.ch/

by murray86 | 2nd Oct 19, 10:01am 1569963661

That last line - that's where it lies. People will not voluntarily change their life styles. Too many have bugger all choices. They have to accept what they can afford. The environmentally friendly options are too expensive or not available. Yes there are choices that can be made by all of us, but when you are the only one making that choice while the others around you seemingly just don't care, how does that make a difference?

Our Government and Councils are shying away from declaring climate emergencies - why? Because the money is lobbying against it by highlighting POTENTIAL costs of doing so. they may not be real costs, they may not eventuate, but it is enough to scare them away from doing things. Governments and councils can plan on a staged pull back from vulnerable land. they can plan and gradually implement improved waste disposal, sewage treatment and energy saving measures, but the money doesn't want them to unless they profit from it.

by ham n eggs | 2nd Oct 19, 11:08am 1569967682

The point being its not the money lobbying against it, its actually the masses ... they are the ones who will demand the continuation of their lifestyle.
And theres plenty more in 3rd world just waiting for a boat to get some of what we're having ....
Yes you could outlaw all frivolous consumption ... but actually thats almost everything ... tourism, sport, non work personal travel, cafes, non essential medical care, half of retail, fashion, freighting consumer goods etc ... but it would soon collapse all incomes / standard of living.

The Environmentally friendly option is basically no consumption or local only

Can a staged pullback happen in reality?
No
1) Overshoot of population
2) Not under the current debt based system which demands growth in resource use
3) The masses live in cities ... the worst possible eco design ... they are designed for consumption efficiency only

An unplanned collapse it is

by mfd | 2nd Oct 19, 12:55pm 1569974120

I disagree. In many cases, the environmentally friendly choice is cheaper. Ditching the car for a bike, or ebike if necessary, saves heaps of money. Ditching or reducing meat in your diet saves heaps of money. Buying less plastic tat saves heaps of money. Buying items second hand saves heaps of money. All of these will have much more impact than spending big on solar panels and an electric car.

by RickStrauss | 2nd Oct 19, 9:15am 1569960943

I can actually make it worse!

Why, you son of a gun! It's all your fault.

by JimboJones | 2nd Oct 19, 9:40am 1569962420

I'm pretty sure making something more expensive would change behaviour.
A fair amount of pollution is actually caused by the likes of you and me driving everywhere, flying everywhere, eating excessive amounts of food, throwing away excessive amounts of rubbish, etc. And while we don't pay the true cost for those 'privileges', we will continue.

by RickStrauss | 2nd Oct 19, 10:23am 1569965031

Indeed. It's not like the cost won't be paid...it's just we're pretty happy to pass these costs on to other people instead.

by murray86 | 2nd Oct 19, 10:28am 1569965335

"driving everywhere" Our towns and cities are designed and built on the premise of people being able to, and therefore having to commute to and from their jobs. Public transport is only a partial solution, and push bikes don't work for the majority and most places. So what is the solution? It is too easy to point the finger, but ultimately the change must start at the top. Our Government and Councils must fundamentally change the way they have thought, and considered issues in the past to develop new, and yes likely risky, solutions.

by CJ099 | 2nd Oct 19, 10:41am 1569966075

Yes agreed the majority of us should be able to work from our homes these days and not have to commute at all, that would certainly help to cut down on pollution. Yet this is still very much discouraged in this country, even in the Tech Industry.

by JimboJones | 2nd Oct 19, 11:31am 1569969097

Most of us drive to the dairy to buy a bottle of milk. We would drive half way across town to a store that is marginally cheaper than one closer to us. Most of us wouldn't get on a push bike even if it was practical.
A lot of our daily car usage is not really necessary, we do it because we can and its cheap. And also because our government and councils are encouraging us to (based on our voting).

by Plutocracy | 2nd Oct 19, 1:09pm 1569974992

The infrastructure doesn't help. I'd love to bike more short-distance trips but I'd have to dice with some pretty car heavy roads that have little cyclist provisions. If there were separated lanes like some of the European countries have, I'd readily bike more (as would kids I imagine).

by rastus1 | 2nd Oct 19, 1:03pm 1569974619

..that's perception not reality. Just takes a little effort to get on with it. I continue to cycle 12ks plus everyday, rain hail or shine. . There is a huge % of the population that could easily do the same. But it seems they would rather spend their commute time sitting in traffic, paying gym fees, fretting about their weight, their health and their car payments. Gas is too cheap and most of us are just dumb.

by Kate | 2nd Oct 19, 10:40am 1569966055

I'm pretty sure making something more expensive would change behaviour.

Yes, it sees ordinary people take to the streets;
https://en.wikipedia.org/wiki/Yellow_vests_movement

As per the link, with respect to fuel carbon tax rises as an initiative to reduce carbon emissions,

The domestic consumption tax on energy products (TICPE, la Taxe intérieure de consommation sur les produits énergétiques), which is not calculated based on the price of oil, but rather at a fixed rate by volume. Part of this tax, paid at the pump, goes to regional governments, while another portion goes to the national government. Since 2014, this tax has included a carbon component—increased each year—in an effort to reduce fossil fuel consumption. The TICPE for diesel fuel was raised sharply in 2017 and 2018 to bring it to the same level as the tax on petrol.

Value added tax (VAT), calculated on the sum of the price excluding tax and the TICPE. Its rate has been stable at 20 percent since 2014, after having been at 19.6 percent between 2000 and 2014.

The protest movement against fuel prices mainly concerns individuals, as a number of professions and activities benefit from partial or total exemptions from TICPE.

The protesters criticized Édouard Philippe's second government for making individuals liable for the bulk of the cost of the carbon tax. As the carbon tax had progressively been ramping up to meet ecological objectives, many who have chosen fossil fuel-based heating for their homes, outside of city centres—where a car is required—are displeased.

Exempt industry - tax individuals. When governments work like this, no wonder people take to the streets.

by theglc | 2nd Oct 19, 8:58am 1569959888

The turning point is always going to be peak population at which point negative growth can also be per capita growth and higher standards of living as populations decrease.

However that depends on how we get to peak population, if it is managed the above can happen. If it is not managed then the turning point is likely to be quite dire.

But because peak population isnt in the near distance, governments will continue on their 3 or 4 year plans of unsustainable growth across all areas most notably population, debt, business and consumption. Who has the balls to change it....

by ham n eggs | 2nd Oct 19, 9:01am 1569960113

We appear to be getting close to peak Debt
Peak population should follow closely behind

by scarfie | 2nd Oct 19, 9:36am 1569962217

It might be less imminent then you think. The growth rate worldwide is at 0.6%, down from a peak of 2.1% in 1961. Plot that to see the Seneca curve and we may be a few decades out here from the peak.

by Hamish | 2nd Oct 19, 10:47am 1569966451

and yet bankers and governments still chasing inflation..

by profile | 2nd Oct 19, 11:55am 1569970536

Peak baby was in the 1990's, we've had peak 18 year old. It is only average life expectancy that hasn't peaked - currently going up at 5 hours a day in the UK for example.
Now the hand wringers can fall back on fretting about the "wrong" people having babies.
"There will never be more children than there are today: the world’s population will continue to grow, but only because almost everybody is living longer."

by kiwimm | 2nd Oct 19, 1:08pm 1569974929

"The world has probably not reached ‘peak child’ yet. However, we are likely very close to a long flat peak; the number of children in the world will not increase much more. We are close to the peak"
https://ourworldindata.org/peak-child

by Cowpat | 2nd Oct 19, 9:07am 1569960474

I look forward to the newly 'revamped "inclusive Barfoots September numbers to provide clarity and insight on New Zealand's economic future.

by waymad | 2nd Oct 19, 12:36pm 1569973008

Perhaps it's gonna be like the Australian BOM - they 'cool' the past numbers to 'warm' the present.....and all to keep the commissions a'comin'.....

by profile | 2nd Oct 19, 7:30pm 1569997838

What a disgrace. Scomo needs to kick over that trough.

by Cowpat | 2nd Oct 19, 9:58am 1569963534

I forecast a banner headline very soon Like Toothpointy I foresee things

by Audaxes | 2nd Oct 19, 10:04am 1569963870

The UST 10yr yield is down -4 bps on the ISM report to 1.64%.

Even though the yield on the UST 10-year is substantially below carry costs as well as monetary alternatives like the reworked RRP, it doesn’t seem to be having much trouble attracting buying interest. Negative carry, it seems, is quite alive and well unfortunately for everyone, not just bond bears.

Flight to safety is pretty broadly accepted. Flight to liquidity much less so, but it’s not really that difficult of a conception once you realize the structural issues that remain (the zoo). There is a liquidity utility to sovereign bonds as collateral (and not just in repo), and therefore financial agents are willing to pay a premium, a liquidity premium, to own them during times of turmoil.

The more obvious the turmoil, the more valuable that utility. As I wrote, and diagrammed, last month....Link

by waymad | 2nd Oct 19, 11:43am 1569969807

DC, as Aad and Wilma Van Leeuwen are in the process of taking MPI to court over compensation, perhaps a nudge to update us all on the M Bovis debacle might be - er - Interesting?

by meh | 2nd Oct 19, 12:54pm 1569974061

You debunk overly rosy projections by techno-optimists, who say we can solve all our problems with smarter computers, and economists, who promise endless capitalist growth. In many countries, the downside of material growth now seems greater than the upside, which leads to what you call “anthropogenic insults to ecosystems”. Is that a fair summary?
Yes, I think so. Without a biosphere in a good shape, there is no life on the planet. It’s very simple. That’s all you need to know. The economists will tell you we can decouple growth from material consumption, but that is total nonsense. The options are quite clear from the historical evidence. If you don’t manage decline, then you succumb to it and you are gone. The best hope is that you find some way to manage it. We are in a better position to do that now than we were 50 or 100 years ago, because our knowledge is much vaster. If we sit down, we can come up with something. It won’t be painless, but we can come up with ways to minimise that pain.

So we need to change our expectations of GDP growth?
Yes, the simple fact is that however you define happiness, we know – and we have known this for ages – that the amount of GDP is not going to improve your satisfaction with life, equanimity and sense of wellbeing..
https://www.theguardian.com/books/2019/sep/21/vaclav-smil-interview-gro…

by meh | 2nd Oct 19, 2:37pm 1569980269

Our time has come to move on. The civilization of our future is an Ecological Civilization that rests on a foundation of cooperation, partnership, and sharing for the common good of all members of Earth’s community of life to which we belong. The imperative to navigate a nearly instantaneous transition from an Imperial Civilization to an Ecological Civilization presents, by order of magnitude, the most daunting challenge our species has ever faced. The outcome depends on whether we embrace this challenge as opportunity or continue to cling to outdated ideas and institutions that no longer serve.
A global economy based on failed and badly outdated economic theories and institutions is driving human society toward social and environmental collapse...
These extreme, growing, and potentially fatal system imbalances are a direct consequence of our human embrace of economic theories and institutions that prioritize growing Gross Domestic Product (GDP) and financial asset bubbles over securing the health and well-being of living people and living Earth.
https://davidkorten.org/living-earth-econ-for-eco-civ/

by powerdownkiwi | 2nd Oct 19, 3:20pm 1569982829

I wonder how many of those who call themselves journalists, have read this thread?

by positivelywallstreet | 2nd Oct 19, 3:45pm 1569984303

Americans think they can function on annual GDP of 1-2%.
https://www.bloomberg.com/news/articles/2019-10-01/u-s-economy-s-slowdo…
So fasten your seatbelts ladies and gentlemen, there may be turbulence.

by Boatman | 2nd Oct 19, 5:52pm 1569991943

So a weak Kiwi$ is the thing that will save us ?

by positivelywallstreet | 3rd Oct 19, 6:58am 1570039106

Only if we migrate to mars.
Why do we need to be saved?
We will be fine at 1.5% GDP