American producer prices weak; Canada rental market tight; China moves to isolate Hong Kong economically; Japan machine orders tank, RBA trials crypto payments; UST 10yr yield under 1.80%; oil down and gold up; NZ$1 = 66.2 USc; TWI-5 = 71.3

American producer prices weak; Canada rental market tight; China moves to isolate Hong Kong economically; Japan machine orders tank, RBA trials crypto payments; UST 10yr yield under 1.80%; oil down and gold up; NZ$1 = 66.2 USc; TWI-5 = 71.3

Here's our summary of key economic events overnight that affect New Zealand, with news economic weakness seems to be spreading.

American producer prices came in lower than expected in December, indicating that firms pricing power is weak. And that is especially true now for services.

The latest regional Fed survey is from the New York/Northeast region and that shows a very modest expansion persists, but still far below the levels they were used to in the 2017-2019 period.

Nationally, the Fed updated its Beige Book review of all these surveys and that shows "modest" and flat conditions in the final six weeks of 2019, as expected.

And officials have now signed the Phase One trade deal between China and the US.

In Canada, December existing home sales slipped below expectations but they were more than +20% higher than the same month in 2018. They have a low listing problem too. Prices are up +4.7% however although Vancouver is now a laggard. In their rental markets, the pressure is on tenants and demand far exceeds availability. Canadian rents are up more than +6% in some key markets while vacancy rates hit record lows.

China is moving to isolate Hong Kong permanently, now offering big tax incentives to lure companies across the border, and promoting its "Greater Bay Area" strategy.

Japanese machine tool orders fell more than -30% in December from a year ago, underscoring the parlous state of worldwide factories. There is an investment strike in the face to lackluster demand.

In India, inflation is rising fast, up to +7.4% in December on fast rising food and oil prices. That is a five year high.

EU industrial production fell -1.5% year-on-year in November, but at least that was less than the -2.6% fall the previous month.

The German economy grew, but at only at +0.6% in 2019 and its slowest pace in years.

In Russia, Vladamir Putin has signaled he is about to change their constitution so that he can remain in power permanently.

In Australia, the RBA has revealed that it is trialing whether central bank issued cryptocurrencies can power the payments systems of the future, especially for interbank settlements.

The UST 10yr yield is now down to under 1.80% dropping -3 bps overnight. And their 2-10 curve is a little narrower at +23 bps. Their 1-5 curve is also narrower at +7 bps. And their 3m-10yr curve is down to +27 bps. The Aussie Govt 10yr is at 1.19% and down another -2 bps. The China Govt 10yr is unchanged at 3.15%. And the NZ Govt 10 yr is also unchanged at 1.52%.

Gold will start today higher, up +US$9 at US$1,552/oz.

US oil prices are lower today, now just under US$58/bbl and the Brent benchmark is now just over US$64/bbl.

The Kiwi dollar is little-changed at 66.2 USc. On the cross rates we are unchanged at 95.8 AUc. Against the euro we have slipped marginally to 59.3 euro cents. That puts our TWI-5 at 71.3. And the strengthening of the yuan is continuing apace.

Meanwhile, bitcoin has held on to yesterday's sharp gain, but is unchanged from this time yesterday at US$8,720. 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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US crude oil production hits 13 M bpd. Check out that Hubbert curve.

Do you remember the phrase "peak oil"? I know now that was more of a wish on the part of the few rather than fact.

To be fair, nobody had considered fracking when that theory was developed, imagine how high the price of oil would be without all that extra production at fairly low prices.

... that highlights the core weakness of the Malthusian theory ... no allowance is ever made for human innovation , technology , scientific breakthroughs ....

And yet , 200 years of failure has not diminished their glee in frequently reminding us how humanity is going to hell in a handbasket .... haaaaaaaa !

What would this allowance be? Technology is not magic and solutions that help boost production but are not sustainable like our fertilizer usage just allow overshoot and more pain later.

Even without fracking, there are vast quantities of oil in Russia and Canada that will be exploited as soon as the price warrants it.

Ive long suspected the US has been holding its oil till it has used everyone elses. Funny how this now coincides with the Iran conflict which would normally cause a spike in oil prices.

The PDKs of this world are terrible at 'predicting' such things. A misunderstanding (inability to grasp) of the economics of extraction means they will always be.
Peak production will obviously occur one day. But don't let the enlightened few try to tell you we are past it, just yet.

Peak will probably occur in about 10 years or so - but will be caused by falling demand rather than scarcity of oi as ev's start to take a lot of market share. Petrostates must be terrified.

Yea, I'm of the same opinion.
Oil prices have never been driven by absolute scarcity. They have been driven by production/extraction levels which although have a hard extraction limit, have only ever been limited by economic gaming and technology.

And the long term peak prices have been capped by availability of other sources. Coal to Oil is viable at prices not too much higher than current, but requires huge investment and stable higher prices to be economic - OPEC has always worked to prevent that to preserve their market share, with short price spikes being lucrative - without inducing creation of unconventional sources, and short price dips to kill off more expensive competitors.

U.S. Shale Has A Glaring Problem - Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of U.S. shale companies are still struggling to turn a profit.

Production is all about average marginal cost vs average spot price. Not net cashflow.

Business is either making a profit or a loss - most of these fracking companies are Zombies - relying on investors to keep the cash flow ticking. Your comment production is irrelevant.

Okay. Thought experiment.
If you, Mr Frazz, was the CFO of one of these fracking companies would you stop producing when your marginal cost is below your selling price?

If I had a 5 million dollars in debt on my balance sheet - YES. Hopefully you don't own a company?

Okay. And now we know how business savvy Mr Frazz is, everyone - not very.
Pretty much the most elementary rule of business - if you can cover your variable costs, you keep operating.

In Australia, the RBA has revealed that it is trialing whether central bank issued cryptocurrencies can power the payments systems of the future, especially for interbank settlements.

Last month, a group of central bank governors from across the South Pacific region gathered in Australia to move forward the idea of a KYC utility. If you haven’t heard of KYC, or know your customer, it is a growing legal requirement that is being, and has been, imposed on banks all over the world. Spurred by anti-money laundering efforts undertaken first by the European Union, more and more governments are forcing global banks to take part.

KYC is a particularly onerous demand. Essentially a compliance function, the costs are high given the huge administrative difficulties that often amount to repetitive manual tasks in the back office. Tracking customer accounts from all over the world is easier said than done.

Making that information transmittable from one depository to the next is a nightmare.

As a result, private groups and joint ventures have been formed along with public-private partnerships, including potentially using blockchain technology. The idea is to make the chore less of one and therefore significantly less burdensome for the banking system.

And there is a fair amount of urgency to it. Not because of some worldwide crime spree which has led to an outbreak of suspected money laundering. Rather, officials all across the globe are growing worried about another perhaps related drawback far greater than criminal activity.

You probably haven’t heard anything about it, either, but the world has a correspondent banking problem on its hand.

What is correspondent banking? It is, essentially, an ad hoc network of various financial institutions who link themselves together out of necessity so as to more efficiently handle global monetary flows. You may have been led to believe that there is a SWIFT system and that’s the extent of the world’s payments infrastructure; not even close. Read more


'Capitalism is disappearing, but Socialism is not replacing it. What is now arising is a new kind of planned, centralized society which will be neither capitalist nor, in any accepted sense of the word, democratic. The rulers of this new society will be the people who effectively control the means of production: that is, business executives, technicians, bureaucrats and soldiers, lumped together by Burnham under the name of ‘managers’. These people will eliminate the old capitalist class, crush the working class, and so organize society that all power and economic privilege remain in their own hands. Private property rights will be abolished, but common ownership will not be established. The new ‘managerial’ societies will not consist of a patchwork of small, independent states, but of great super-states grouped round the main industrial centres in Europe, Asia, and America. These super-states will fight among themselves for possession of the remaining uncaptured portions of the earth, but will probably be unable to conquer one another completely. Internally, each society will be hierarchical, with an aristocracy of talent at the top and a mass of semi-slaves at the bottom."

Then these giant states will be mounted onto enormous wheels (lets call them mortal engines) and drive around the globe gobbling up smaller ones.

IMO you could argue that this has already been happening for quite some time.

One example

NZ has become addicted to immigration to keep wage growth stagnated, businesses growing and with work to do. If we add 50,000 additional people each year that requires more housing, furnishing those houses, food and consumables. Businesses control the government by crying fowl, business confidence surveys and lobbying.

If the government were to cut immigration to zero we would almost immediately be in a GDP per capita recession, wages would have to increase and that would reduce profits, hense why despite all the talk by NZF and Labour about taking a breather on immigration it has actually increased, because it is political suicide.

Business has the real power

I see it all around me. One example is the forestry company Pan Pac, they have an effluent pipe that goes put to sea and dumps god knows what nasties off the coast
A couple of years ago it was reported in our paper that it leaked onto the beach, our Regional council appeared to fail to take action, allowed ages to fix it. Last year our Regional council and Stuart Nash our Labour Mp, lobbied govt OIO to allow PanPac to buy an extra 20,000 hectares in the hills around Napier for forestry. To me that's a council and Mp far too close to business.
Councils today have almost no boundaries they can almost get there fingers in anywhere. If that was a private dwelling dumping sewage into the sea from a leaking septic tank the council would have been all over them, life would have been hell and a court date would be set.

It's not what you know, it's who you know

I was involved in supplying the pipe for the 2km outfall extension, as well as the emergency repair. The repair (replacement) involved sleeving 400m of 315 OD HDPE pipe inside the existing 426 OD Steel outfall and divers connecting to the new 630 OD extension 300m off shore. Wasn't a simple fix of course. We also supplied the pipe late last year for the overland section of the outfall that crosses Whirinaki Road, connecting on to the 315 pipe at the shore. The complete outfall pipeline is now made from HDPE and discharges 2.4km out to sea.

The nasties are treated pulp.

So that treated pulk they pump out to sea would be the same stuff that is in our treated posts, which if we dispose on farm or burn we get a honking great fine from the regional council. But Panpac can pump the arsenic and other heavy metals straight out to sea for a free pass.

... and this is the sort of stuff that spins my nipples ...

We've got Taxcinda & her motley crew lecturing us on climate change ... we're trying to save the whole planet ... brainwashing and scaring the kids .... we're signing ourselves up to idiotic protocols ...

... but , we can't even clean up our own backyard ... 100 % pure hypocrisy ...

Likewise, Queenstown the jewel in the crown of tourism.A mountain lake for heavens sake. Water not fit to drink. How nuts is that!?

.. and , I hear this morning of an albatross , choked on a 500 ml plastic water bottle ... starved to death , and painfully ... its nuts , bonkers ... the stuff we could make a meaningful difference with takes a backseat to the impossibility of stopping a naturally occurring climate change ...

Climate change is nothing but a global tax by bureaucrats who use it as they see fit with no accountability. Greta Thunberg isn’t real she’s just a front person. The polar bears are doing just fine.

You know GBH this is something of problem for our little country with the big opinion. We are too ready to criticise and say what to do, in other backyards while blithely ignoring our own. This is the supposed and popular refrain of punching above our weight. More often than not, it is just yapping.

Yes, Gummy I agree are a hypocrite. What are you worried about, man does not cause any change to the environment according to you?

. . those are your silly words , not mine ..

Gummy's always promoted us cleaning up our act ..

I have found that climate change means anything and everything.

Definition. Climate change is any change in the weather, the change can be any period of time, the change can be for any reason.

From what I have found this far IPCC will NOT confirm how much, if any is man made.

Question: what definitions do others use or understand?

It’s actually Hydrogen Peroxide and Sodium Hydroxide that’s used in the pulping process. The water is then treated and discharged.

We have near zero unemployment ~4% is structural. It is quite sensible to be bringing in high quality immigrants to make up for lack of available labour at such levels.


Its chicken and egg scenario in alot of cases, you need more people to service more people, if the people didnt come you wouldnt need the more people to serve them.

On top of that cheap labour is the easy out rather than becoming more productive and more efficient.

2 sides to the argument and reality is probably somewhere in the middle

Yes I largely agree. Also somewhat foretold by some science fiction authors, George Orwell being one of the first. A stealthy move by these groups in NZ is the call for us to ditch the Queen as our Head of State. However without another means for our Government to be accountable to the people, such a move would significantly undermine our democracy. To avoid the situation AJ describes we need to resist and stop any moves to undermine democracy. This includes extending electoral terms, creating another parliamentary house, removing the queen as Head of State without a clear and simple means for the public to remove a Government which has stepped outside it's mandate, inside an electoral term. Note that Helen Clark already made a move to undermine our democracy when she abolished the Privy Council, which results in our Judiciary less politically independent.

IMO capitalism is in retreat to socialism, this will be the dark horse that fascism rides in on. It’s all part of the agenda by the political and financial elite for social control.The rich stealing from the poor. Imagine when your home and driverless caI r is powered by 5G and you haven’t paid your taxes or a traffic infringement etc, your car will become inoperable or your electricity would be cut off. Scary stuff!

“the parlous state of worldwide factories,” now that is a significant feature that seems to have slipped in under the radar.

It's the old story - you can put off painting the house for a few years, and it stays relatively unchanged. But the decay has started, and it accelerates. At some fast-approaching point, it becomes one of those derelicts you see scattered across our now-corporate farmland.

Factories are just such, and we've been coasting infrastructurally in the First World for decades - as the hollowed-out US inner-cities attest. The new manufacturing in Third World countries, is averagely more ramshackle - whether that proves more resilient/versatile is an interesting question.

But we seem to be retreating behind borders as resource scarcity hits, and behind a lot of borders there is no longer the manufacturing capacity - even if they have access to the resources. Interesting times

Yes it is an old story, and some of them, for instance Union Carbide 1984, have been unbelievable horror stories too. Cheap location, cheap labour, lax regulations, too many industrialists/manufacturers ideal scenario.

Question - could Hong Kong become a province of the Republic of China (Taiwan)?

No. China's hegemonic ambition, and personal reputations of Xi + politburo members would never allow it.

The response I expected. But further isolation of Hong Kong added to the threat to its democracy might see the people there consider such a move? China's control of the HK Government means that politically an overt move would be highly dangerous, but covert overtures either way could make the situation somewhat interesting.

Interesting prospect but unlikely, I think. China has a long and painful memory of what they would call western interference, exploitation even. Boxer revolution, the Yangtze incident, the Germans in Tsingtao shoehorning in the Japanese. Getting Hong Kong & Macau back had to be a long and patient exercise and the process is far from complete. Far better for China if Hong Kong’s financial status internationally diminishes rather than lose face. And yes that might mean cutting off the nose sure enough. Hong Kong will be gradually absorbed into the swamp, subversively and unrelentingly.

Will NZ follow? How deep in are we already?

You know, Spike Milligan predicted all of this with the arrival of Ah Ping in Puckoon, near to Sligo!

China also has a long and painful history of chinese influence with major conflicts at changing of dynasties frequently killing 10's of millions. The mandarins have always screwed the peasant classes over as is natural in all non-democratic forms of government.
If you want to force China to change then offer all Chinese women under the age of 30 citizenship in western countries - given that women are already in short supply that would put a tonne of pressure on China's leadership to make China a more attractive place to live.

I like that solution! But the Chinese would see it as western interference! perhaps RoC could do that?

The usual nonsense up-thread. Let's stick to fact and logic.

Peak Oil was about the highest-quality stuff - light sweet crude, sometimes called Bernt Crude. Brent is indeed a good example of what happens to every finite resource, when extracted as if there were no tomorrow

Peak conventional oil was indeed back in 2005-6. Since then, we have been descending the EROEI ratings. Fracking was an interesting cross-over, in that no fracking has 'turned a buck', perhaps indicative of the societal limits when basing a growth requiring economy on ever-lesser-energy-return stock sources.

The US has to find a planB, before fracking, with it's fast-depleting wells and it's few 'sweet spots' starts for tail off. As all extraction of every finite resource always must. They cannot let China get the oil under Iran (3rd biggest pool of the stuff remaining). It's the last piece in the 'great Game'.

As for economists being able to predict or value the energy without which our 'economy' does absolutely nothing, I'm told the global debt is somewhere around 250 trillion (presumably USD). Had anyone hazarded a guess as to how much future energy that represents? Plus which they will be happily adding to the debt even as it gets repaid. That debt represents the spreading disjuncture between economic growth and planetary draw-down/underwrite - an ever greater pile of irredeemable proxy.

I posit that there is not the fossil energy left on the planet, to do that repaying. Post Fossil Fuels we will end up with renewables, but they don't have the EROEI margin to support the margin we built modern society on. We are in the long-predicted Red Queen state now, running harder and harder to stay on the same spot - but the rolling footpath is accelerating backwards.

There were fools who chopped down the last trees on Easter Island too.

"Peak Oil was about the highest-quality stuff - light sweet crude, sometimes called Bernt Crude."
Nope. If you want to make that argument - It was about extraction of light, sweet crude at then current technology levels. aka dig a hole into a reservoir and pump the goodies out.

For all intents and purposes, tight oil is light and sweet. So, you cannot say that peak light, sweet production has yet occurred. And, when it does occur, it won't be due to some finite limit of resource - it will be due to the economics of fossil fuel extraction.
The fact that tight oil producers "aren't turning a buck" is orthogonal to the argument so long as they are still producing.

So when you continually lose the argument try to reframe and redefine the question? That other great perpetually wrong Malthusian prophet (or should that be comic) Paul Ehrlich has been playing that game for 50 years.

Al Gore learnt well , from Ehrlich ... how to peddle ideological claptrap , how to select only certain " facts " to create a story , and to ditch or bury the ones which refute it ... how to build fame and fortune off others gullibility ....

Cough Cough ..hack true (sorry smoke from Ozi)


Ah, so now we have ourselves Emperor Xi and soon-to-be Tsar Putin. Welcome to the New Middle Ages....all we need is a new Sultan and the trifecta is complete.


Michael Reddell has sprung back after the hols with a typically acerbic take on NZ's woeful labour productivity. chief suspect? Quelle surprise: uncontrolled and sub-standard (in terms of average skill level) immigration. Which has the net effect of turning the economy inwards (houses, infrastructure, yet mo' Hospo etc) none of which translates to innovation or more bucks per input.

More likely because all productivity improvements are funnelled into non-productive govt imposed regulatory activities and functions. The overheads imposed by walking-on-eggshells employment law, environmental, health and safety, cultural/special interest group pandering and pathological risk avoidance destroy any and all gains in productivity.

Yes indeed, the rise and rise of the bureaucracy! Vive! Brown Cardigan Brigade. “Omnes Auctoritate Nihil Responsabilitas”

I read somewhere the following quote:

"Bureaucracy is like cancer, it grows on itself"

Have a read to of Northcote Parkinson in that work creates itself relative to time available. To which you could add people available.

Volcanic winter coming?

What is clear is that the volcanic activity is increasing thanks to Solar Minimum. We now have another eruption going on in Mexico the residents call “El Popo.” This is the most active volcano in Mexico. It is not expected to be extremely dangerous. The real issue is the threat of a VEI 6-7 which could seriously alter the climate for a year or two resulting in a Volcanic Winter.

The other risk is 5 to 6 small eruptions under VEI 6 but are VEI3 or greater. The accumulative impact could be similar insofar it causes crop failures and thus a significant impact on agricultural prices. This is also concerning given the rise in earthquake activity in the Caribbean.

Recently, the Viking Rök stone, which is an ancient five-ton granite slab erected in southern Sweden sometime during the 9th century AD, has recently been translated after stumping scientists for more than 100 years. It turns out that it is referring to climate change when crops failed during the 6th century AD. We know that during the 6th century, there was a major climate catastrophic event which resulted in 50% of the population of Scandinavia starved to death. This event during the 6th century was a major volcanic event that devastated the human population globally.

So one assumes that doomsters would welcome such events as they serve to slow or stop warming (assuming that, and not twisted misanthropy and grabbing of taxes is the actual goal). Perhaps we could mitigate warming entirely by setting off large hydrogen bombs under desert and tundra expanses to mimic volcanoes and fill the stratosphere with oodles of cooling dust - one big very clean hydrogen bomb like the Tsar Bomba is nearly equivalent to the eruption of Mt Pinatubo - which cooled earth by 0.5°C for 1-2 years.

China not let Taiwan and HK merge /be one nation. Would be complete loss of face.
On other note, China is planing to populate Africa with 300 million Chenise. Which mean complete control of about 70% of African resources.

I was told recently that there are now more Chinese in NZ than Maori - not sure how true it is. Wouldn’t surprise me. Must verify.


Might stop some of the corruption, crime and killing but would also likely see the wild life pillaged, as well as the resources stripped.

What??? Chinese stopping corruption???
Or did I read that wrong :-(

Yes you did, fraid to say. MissyChung was referring to the Chenise.

China was always going to get its way with Hong Kong

We burn you burn