Hong Kong tensions rise; China announces vast stimulus; Japan also launches huge new program; EU car industry on its knees; giant Aussie math mistake; UST 10yr yield at 0.66%; oil down and gold up; NZ$1 = 60.9 USc; TWI-5 = 66.9

Hong Kong tensions rise; China announces vast stimulus; Japan also launches huge new program; EU car industry on its knees; giant Aussie math mistake; UST 10yr yield at 0.66%; oil down and gold up; NZ$1 = 60.9 USc; TWI-5 = 66.9
Ohope Beach, Western Bay of Plenty

Here's our summary of key economic events overnight that affect New Zealand, with news trade tensions have spawned up-risk and have now morphed to full-blown 'national security" tensions.

Today's focus is shifting to Hong Kong where Beijing is cracking down with a new security law. That will likely draw an American response by revoking the territory's "special status" under US law, a move that would have far-reaching trade and investment implications. A rapid de-camp to Singapore is the most likely result, one that might effectively weaken China's "Greater Bay Area" initiative.

The Hong Kong stock market closed -5.6% lower yesterday on the news. Shanghai took an almost -2% tumble too. Interestingly, the Singapore market got no bounce, also down by -2.1% yesterday. Messy separations help nobody, it seems.

And China is no longer saying its efforts to unify Taiwan will be 'peaceful'.

However, it looks like China is backing away from "iron ore inspections" that the Australian's were taking as a signal of China's displeasure with them. The sigh of Aussie relief masks the rising restrictions on Aussie agricultural exports to China.

And, as expected, China isn't setting a GDP growth target this year.

But it is rolling out more huge stimulus support. An extra NZ$650 bln will be delivered to local governments with specific instructions that the funds be spent on bolstering employment, upholding basic living standards and supporting private companies, through reductions in rental costs and subsidies for consumption. It will cut taxes and fees by NZ$800 bln. Local governments will raise vast amounts of new debt. They have already raised NZ$325 bln of pandemic related bonds. Now they are being told to raise another NZ$1.2 tln in special-purpose bonds, a level almost double what they raised last year which itself seemed eye-watering back then.

In Japan, they have just rolled out a new NZ$1 tln plan to bolster struggling businesses. Commercial banks are set to receive a credit guarantee of up to 100% on zero-interest, no-security loans to small and medium-sized businesses hit by the pandemic, and backed by their central bank who will lend the banks the necessary funds.

In Europe, their car industry is facing mounting job losses. The French Government warned Renault could disappear if it didn't get help soon. And Nissan was considering 20,000 cuts, with many in Europe.

It's coming up to the long Memorial Day weekend in the US, so markets will close until Wednesday our time.

In Australia, there has been an arithmetic error of humourously large proportions - AU$60 bln. A "significant error" in the JobKeeper application form meant that instead of supporting 6.5 mln workers and costing AU$130 bln over six months, it was now expected to support 3.5 mln people and cost AU$70 bln.

The latest compilation of Covid-19 data is here. The global tally is now 5,168,700 and up +121,000 from this time yesterday, which is rising at a faster pace than recently. "Opening up" isn't helping.

Now, just under 31% of all cases globally are in the US, which is up +28,000 since this time yesterday to 1,590,200. This is an unchanged rate of increase. US deaths are now exceed 95,000. Global deaths now exceed 336,000. Canada infection levels are just about to pass China's.

In Australia, there are now 7095 cases (+14 since yesterday), 101 deaths (+1) and a recovery rate of just on 91% (unchanged). 39 people are in hospital there (-2) with 7 in ICU (-2). There are now 515 active cases in Australia (+6).

There was one new case yesterday (inside an existing isolated group) taking the total to 1504 Covid-19 cases identified as either confirmed (1154) or probable (350). Twenty-one people have died giving a death rate of 1.4%. There is still only one person left in hospital with the disease, and they have now been moved to the ICU. Our recovery rate is still just under 97%, with only 28 people known to be still fighting the infection (-2).

The UST 10yr yield is down about -2 bps today to 0.66%. Their 2-10 curve is marginally flatter at +48 bps. Their 1-5 curve is unchanged at +17 bps, and their 3m-10yr curve is also flatter +56 bps. The Aussie Govt 10yr yield is down -4 bps to 0.88%. The China Govt 10yr is down -7 bps to 2.61%. But the NZ Govt 10 yr yield is only down -1 bp from this time yesterday at 0.62%.

The gold price is back up today, up +US$13 to US$1,735/oz.

Oil prices are soft today, but only marginally. The US crude price is now just over US$33/bbl. The international oil price is just over US$35/bbl. The US rig count reached another all-time low of just 318. The international rig count is now falling sharply too and is now below 1000.

The Kiwi dollar is a little softer slipping slightly to 60.9 USc but that is a gain for the week of +160 bps. On the cross rates we are holding at 93.2 AUc. Against the euro we are also holding at 55.9 euro cents. That means our TWI-5 is still at 66.9 but up +140 bps over the whole week.

Bitcoin is a little firmer after yesterday's drop back, up +1.8% to US$9,192. 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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73 Comments

21
up

Hong Kong is rapidly becoming the new front the CCP are pursuing to crush all forms of political discussion.

From the SCMP "... but the resolution has specified that relevant Beijing authorities overseeing national security can set up organisations in Hong Kong if necessary, implying mainland agents would have enforcement powers within the city."

Make no mistake, this is the enactment of a police state. Hong Kong is set to become the new Xinjiang.

New Xinjiang? Including bulldozing ancient graveyards and converting mosques into pork restaurants? Probably the average Hong Kong inhabitant is fairly safe so long as they parrot the right words because they speak the right language and look just like most Chinese; it may be just a few more book-sellers quietly disappearring.

When it started in Xinjiang do you think the first step was to set up a concentration camp and a butchers at the mosque ? No. It was readying the apparatus. This is what's happening in HK.

27
up

Now days any news update starts with China bullying with economy or muscle power.

China did believe that war and violence is inivetable and important to maintain power. Nothing much has changed in History only more cover up and more polished to suit today's time.

The war drums are beating. The US needs it as usual and China wants to look strong when it is weak.
With the US devided at present and weakened they are not in a good spot for war with China so I doubt that there will be shots fired but that may change.
Dangerous times.

You will remember this from last year

https://en.m.wikipedia.org/wiki/Hong_Kong_Human_Rights_and_Democracy_Act

2019 (HKHRDA)[1] (S. 1838; Pub.L. 116–76) is a United States federal law that requires the U.S. government to impose sanctions against China and Hong Kong officials responsible for human rights abuses in Hong Kong, and requires the United States Department of State and other agencies to conduct an annual review to determine whether changes in Hong Kong's political status (its relationship with mainland China) justify changing the unique, favorable trade relations between the U.S. and Hong Kong.[2][3][4][5] The passage of the bill was supported by pro-democracy activists in Hong Kong,[2] and in 2019 received near-unanimous support in Congress.[6]

Send Simon over to Hong Kong. He will sort them out. His first level of attack will be too the females being when did you change your hair colour. I suppose its better than pulling hair like Wong Key.

19
up

Gee, we have to cut ties to the CCP run China asap. Personally, I would rather remain neutral as long as the USA is as much of a political a..hole as it is right now, but at least somewhere there, is the ability for the voter to change things, although the constitution and their set up keeps them, in many ways, firmly stuck in the 18th century.

13
up

Their have been many dictator world over but their ideology and policies have been slammed and banned except in China, which is followed and promoted even now. To understand their ideology and policies one has to watch below :

https://m.youtube.com/watch?v=WxaWmqgmJxs

In fact the entire series is interesting covering many dictators of their time.

The BBC have also run quick an interesting podcast series on China's political pressure on other countries around the world, worth listing to them.
How countries across the world are responding to the rise of China.

BBC The Documentary; Chinese Dreams: Australia. https://www.bbc.co.uk/programmes/w3ct0t0m

Chinese Dreams: Canada. https://www.bbc.co.uk/programmes/w3ct0t0p

Chinese Dreams: Indonesia. https://www.bbc.co.uk/programmes/w3ct0t0n

Chinese Dreams: Kenya. https://www.bbc.co.uk/programmes/w3ct03my

Chinese Dreams: India. https://www.bbc.co.uk/programmes/w3ct03mz

What response should NZ have?

Have you been reading the local, local New Zealand newspapers?

https://www.nzmessengers.co.nz/2020/05/10/美国关于新冠肺炎疫情的涉华谎言与事实真相/

Good to know Chinese New Zealanders get a steady dose of CCP propaganda while living here.

12
up

Hard to imagine any neutrality if Muller is elected to PM. He is an extremely enthusiastic Trump fan. He even went on holiday to the States and went to Trump rally's and has a MAGA and a USA cap in his office.

https://www.google.com/imgres?imgurl=https://preview.redd.it/g9xibh951vz...

Yikes!!

16
up

For a red neck like me that's a positive

GN, What would neutrality look like.
How do you do neutrality with a totalitarian regime? (assuming you think CCP is totalitarian).
Have you got a top 3?

16
up

Top 3 of what Henry Tull? We oft refer to Switzerland as neutral and they were. But they were also neutral to atrocity and morality, which is the darker side to neutrality. NZ is already extremely enmeshed with China and attempting to untangle ourselves from that would probably be perceived very negatively by the CCP. Neutrality would be extremely difficult to achieve.

AndrewJ, I don't love the labels but if forced i'd call myself an atheist/rationalist/humanist type. However, I would still much rather a Christian Trump supporter than a CCP brown noser (ie Bridges). I wouldn't have a problem with a more culturally Asian world, but not if that is based on a communist dictatorship.

I would start:
1. Reform political party funding, lobbyists and ex polly next jobbing.
2. National interest test for all pollies, including down to local, plus govt funded entities (like universities).
3. Reform of media and social media platforms/use.

I'm going to be a grumpy old man.

I've been calling to remain neutral but slowly seeing that this will not be possible. If China is to have their wings clipped a global unity needs to be shown.
The US is no angle in forcing their brand on the world but there has to one clear boss and the US is the leaser of the two evils.

There does not have to be any sort of a "boss", I wish we could toss that kind of antiquated thinking

Agree but the US and China don't like that game. Both of them want to rule the world and neither want to share.

That 'antiquated thinking' is wired into our monkey brains. Remedial reading: Flashpoints: George Friedman. He notes that the Balkans still have not gotten over the Battle of Kosovo ..... in June 1389.....

At least USA doesn't have president for life.

They are all too old - Trump 72. Biden 77, Pelosi 80 and Falkenstein 89. Why dont they walk away and enjoy their retirement. They certainly don't need the money and globally, we dont need the stress

Did you read Matthew Hooton's opinion piece on China last week? It is behind a paywall, but Reddit commentary contains a scan of the print copy of the article

https://www.reddit.com/r/newzealand/comments/gmi0ex/i_found_this_disgust...

Matthew Hooton was at Parliament on Friday, has now disappeared from Twitter, and rumour has it he is going to be chief of staff for Muller. I wouldn't assume that Muller's MAGA cap says anything much about which super power he is most likely to be aligned with.

13
up

If Hooton is involved, Muller has to be quashed.

It's that simple. Hooton is of the dinosaur age - as are practising Catholics, in my opinion. We are now impacting the planet in god-like proportion, and are this responsible in like proportion. Still believing in some mythical fixer-all is dangerous territory; puts most of the US an the Aust PM in the 'wrong' grouping., given what we have to address.

And did I not hear on TV tonight Muller saying he would open the borders with Australia and CHINA, pronto...

He also has Hillary Clinton memorabilia in his office as well. Your point is what, he favours the democratic US over a communist China?

He probably adores both sectors. Muller is only keeping the seat warm for Luxton. What he has said to date hasn't impressed me. Its a bit of the same old. With him saying they are going to win the election is completely over the top. There real objective must be is to retain the existing numbers which Simon was never going to do. In fact, he was about to send the party into oblivion.

Waiting for Luxon? You would be better of waiting for Godot or a cancelled flight!

I have to agree, he wont last long either as he has excess baggage, forgive the pun, plus an irresistible talent of disturbing employees to the point of them feeling dejected in a working environment. Sound familiar with the past, Simon.

I agree he is more pro-USA, but following the comments on this site so far, because he has a MAGA hat then who cares about anything else.

I don't rate both parties for their incompetence in handling the economy in the last decade, but I think the latest attacks on Muller by Labour are a little bit 'I think they do protest too much,' so maybe he is a threat to them.

There is ample evidence the Muller is very pro-America. Not simply the MAGA cap. Furthermore, in an age of highly curated political posturing, if Muller had the cap there by accident he is either stupid or naive. In which case, he won't last long. If on the other hand, he is aware of the anti-China sentiment in NZ and the cap is a nod to that voter base, then perhaps he is just playing the game that politicians play.

However, I didn't infer any value judgement either way so i'm not sure why you have reacted so defensively.

Interesting.

Yeah but MAGA also stands for Make Ardern Go Away.

Investors are already fleeing from Hong Kong:
https://hongkongfp.com/2020/05/22/investors-flee-hong-kong-stocks-batter...

This isn't going to be pretty. I hope Taiwan is paying close attention.

Attention to what? Taiwan already knows what China is like.

Every defensible inch of that island is defended and booby trapped. Taiwan has been preparing for mainland aggression for decades, and HK was a useful reminder of the true nature of the mainlander fascists. Taiwan would be China’s Afghanistan

That 2.99% mortgage rate by BNZ for 5 years on your calculator; I just don' see it on their website?
https://www.bnz.co.nz/personal-banking/home-loans/compare-bnz-home-loan-...
maybe they are just slow to update!

Numbers & managing the celebrity science.

https://covid19.who.int/region/wpro/country/nz
1,150.
We have 350 extra cases, this equals to 30% more cases than the WHO accepts we have.
In our case WHO is substantially understating cases we have dealing with.

Worldwide WHO is saying 4.99 million cases. Using NZ experience this could be 1.5 million cases too few, understated (30%). Who knows?

Here is how the NRL got back to startup.
Interesting thinking, border lock and self isolation, No to bubbles.
How to handle scientific advisors, stopping the celebrity science, stopping celebrity scientists as media stars. Seems a great move.

https://www.smh.com.au/sport/nrl/q-and-a-v-landys-on-murdoch-politis-gre...

The difference is that we (unlike many countries and the WHO) report suspected cases as part of our total case load i.e. people who have tested negative but have displayed symptoms and have been exposed. The nose and throat swabs are only around 70% accurate.

China goes the other way and doesn't count people who have tested positive but don't show any symptoms.

16
up

Because CCP is scared. They believe they must be seen as strong and powerful, mainly to folks living in Mainland China. Typical authoritarianism way to response to a crisis, and no surprise at all.

10
up

It has to be remembered that the birth of the new China, the CCP in other words, was 1949. So today those aged 71, even 81,and younger do not know anything different. Thus the whole country is indoctrinated and conditioned to the will and ideology of a totalitarian regime. Near to a billion people are probably in those circumstances and disciplines. Damn big thick shelled egg to get a grip on let alone crack. We have Mr X a regular, but somewhat strange, contributor on this forum who hammers those points home at any given opportunity. Let’s see what he says this time.

The state tried to crush the family and community, replaced by idolizing the state. Fear ruled, and people disappeared for reasons no one deared question.
Deng xiaopeng took China though an incredible transaction, it seems you have a hard core, old nomenclature who have benefited from the love of money while maintaining control.
I don't know how this ends for the CCP, but they won't give up power easy and the past history tells us it could be violent, hence the anti west propaganda campaign in minland China.

My feeling is China has many internal issues to deal with. This alone will keep CCP busy in the near future. USA is no different. I think sitting back watching is best strategy. All we have is primary produce to prop us up. We need buyers.

NZChinise comment that the CCP will be aggressive to show force while they are weak to save face, makes it clear to me that China is going to go hard core.

18
up

I have a background in economics with a faded degree hanging on the wall

Prior to the 1987 Black Friday "market crash" I had invested in companies that paid dividends. My training limited my interest to companies that had a track record in manufacturing and/or doing something. One day I went to my local bank to deposit a dividend cheque for $15. The young female teller who processed my transaction smiled and excitedly launched into a monologue of how she had been buying shares in companies like Equiticorp, Judge Corpn, Brierley, Ariadne, and making $3000 per week in paper gains. She was rich. I slunk out of the bank feeling stupid that I couldn't bring myself to invest in "blue sky" businesses that simply bought other business, expanding their balance sheets, proclaiming massive profits on the revaluation of the assets they had acquired. Needless to say those companies no longer exist, being consigned to the annals of history. Here one day, gone the next.

Businesses such as airlines, airports, travel, tourism, cruise lines, hospitality, all have the same transitory "blue sky" characteristics

Looking through the constituents of the NZX50 list of companies I find
6 Property REIT's (property)
7 Health Care residential (property)
7 Power companys (protected sacred cows)
5 Packaged Foods (milk and fish)
3 Banks (mortgage lending on property)

46% of the top publicly listed NZ companies are dependent on property
The message is clear:.The only avenue for investing in NZ is property

Who will invest in tourism and hospitality again?

The riskiest thing at the moment would be to borrow to invest in property at current rates of interest

Iconoclast, what do you think about printing money.
Printing money, not borrowing money.
In the face of collapsed demand, collapsed demand and frozen CAPEX spend/ budgets?
9 to 12 months.

19
up

I hope that's not a trick question

My view

Post 1987 I came to the conclusion that long term investing in markets didn't work, so, deciding I had to learn about short term I packed up and went to Australia where the action was and the markets were fully informed, much wider, much deeper. Stayed for 30 years. Became involved with a data-vendor who was an active market participant with close inside contacts with brokers and institutions and dealing rooms. This gave me access the inner workings that was not available to the average person. This was 1987 through 2000 when brokers went digital offering online trading systems for free. Brokers suddenly became screen-jockeys without the in-depth knowledge that had been available to us. The old-timers have all gone. Place your order and get off the phone. Then algorithmic trading became the fashion making markets trickier. Then, after the GFC along came high-frequency-trading when the markets became captive of the big institutional-cowboys who no longer regarded the market as an investment-advisory medium but an arena to place huge bets to the upside one day and squeeze everyone to the down-side the next day. I got out in 2015. My fastest trade ever was 2 seconds.

When the GFC happened Bernanke commenced TARP and QE. It was supposed to be a market stabilising program to put a support floor under the market and last for no longer than 6 months, by which time sanity would have returned and QE could be withdrawn as no longer being needed. All of the QE was shovelled into the hands of the merchant banks with the requirement they prop up the stock market. Which they did.

History now tells you that they haven't withdrawm QE. The 6 months safety net is still in place. It's still on the Federal Reserve's balance sheet. They can't get rid of it. Last year the outstanding balance was $4 trillion. Today it is $7 trillion. It's baked in to the economy. If they can't withdraw it after 12 years they never will. It is permanent. Until they can inflate it away.

In the year 2000 it was stated that there was $2 trillion in hot-cash sloshing around the globe every night looking for a quick buck. Don't know how much it is today but it will be a lot more than what it was then. But, the 1997 Asian crisis, followed by the Dot-com bust, followed by the September 11 crisis followed by the 2008 GFC crisis were all financial crises treated with financial solutions. QE first appeared in 2008

Today the Covid-19 is not a financially instigated crisis, while the consequences are society-destroying that are financially measurable. Government debt is necessarily the solution. Whether the Government uses QE to do that I don't know. But we do know that government for the last 100 years have baked into the system a requirement to produce annual inflation at 3% per anum. Will that get larger? I don't know. But what we do know is that the gap between rich and poor will become much much larger. Society will struggle

Great post

Ditto

China is on the rise and US is on the decline...surely only a matter of time before China challenges the US to become the next world power (not sure I like that idea...but history would suggest it could be inevitable).

https://www.bloomberg.com/news/articles/2020-05-21/ray-dalio-plots-china...

War with China is likely but they will be surprised how it works. Command and control has worked fine to drag China from being an agrarian backwater to a manufacturing powerhouse but it will fail badly at the next needed steps. The US has become very lazy but the latent capacity there is vast. China is as good as it is going to become. You can't terrorize people into innovation.

what a beautiful Saturday!

congratulation to the successful opening of the 13th national people's congress in China.

so many exciting policies and decisions are made.

6.6% increase in military spending
massive stimulus to local government
tax relief to so many SMEs
massive professional training programs for 35million people
passing the draft law to make HongKONG a much safer place

NZ for sure will benefit hugely from these awesome decisions.

go NZ
go China.

10
up

Just like Hong Kong and Taiwan will too!?

15
up

See! Told you.Right on cue.

More news of CCP failure to adhere to the 1997 handover deal.

https://edition.cnn.com/2020/05/22/asia/hong-kong-china-national-securit...

And
Australia, Canada and the United Kingdom have issued a joint statement underlining the importance of law guaranteeing civil liberties for Hong Kong's residents in response to China's moves to impose its own national security laws on the territory.

12
up

Are the people of Hong Kong getting to vote on this? No? *Insert expletive* off

Top of the list:

"6.6% increase in military spending"

More CCP passive aggressive threatening rhetoric. The constant threats are getting boring now.

10
up

History unfortunately tells us in times of domestic unrest and/or the aftermath of a great crisis, a great distraction is to start a war. For instance, Oliver Cromwell vs Ireland 1649, Ayatollah Khomeini vs Iraq 1980 and let’s not overlook Chairman Mao vs Tibet 1950.

10
up

Hopefully NZ benefits exceed those of Tibet.

A graveyard is a much safer place than a children's playground.

That massive 35million to receive training seems big until you divide it into the number of Chinese. Change massive to trivial for an appropriate adjective. However I wish the hard working people of China a prosperous future.

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-imperialism, expose it, oppose it and work together with the Chinese people to overthrow it.

- Deng Xiaoping, leader of PRC 78-92

https://www.japantimes.co.jp/opinion/2011/12/14/commentary/china-should-...

The CCP's end game is global domination. If we are not careful we will all be slaves.

That looks like a legitimate Alabama website ... I’m sure barflies in Alabama get together and proclaim the superiority of China....!!!

You need to be less obvious comrade.

Less so than JPM?

It's all working out so well! "Worst week ever for UK economy"

After inflation plunged to a near-four year low in a fresh sign of the disaster gripping the economy, Government bond yields fell into unprecedented territory below zero - meaning that investors were so desperate to park their cash in a safe haven that they were willing to pay the Treasury to take it.

https://www.telegraph.co.uk/business/2020/05/22/worst-week-ever-uk-econo...

Central Banks Are Buying $2.4 Billion In Assets Every Hour As Their Balance Sheets Eclipse $20 Trillion

https://www.zerohedge.com/markets/central-banks-are-buying-24-billion-as...

Powell said Sunday something specific about a digital money printer – and the media went nuts with it, filing story after story. Yet, the strong dollar remains – as do other “safe haven” signals like bond yields and deflation expectations in TIPS.

Proving the point yet again: it’s not what you see on the Fed’s balance sheet that actually matters, it’s what you don’t see which really does. And while we can easily see the fruits of Jay Powell’s puppet show in the massively expanded balance of bank reserves, we can’t directly make out the more important monetary substance except by way of all these market signals.

If you know how to properly interpret and evaluate them. DOLLAR UP = BAD. The dollar’s still up. Link

Eric Crampton has a go at defining actions to assist what he characterises as a massive technological shock to the Real Business Cycle.

Spoiler alert: few of them are what's currently being bruited about....RTWT (it's short...)

COVID-19 cases are going through another huge increase phase worldwide, it seems. Check the John Hopkins site here: https://coronavirus.jhu.edu/map.html

Switch to "Daily cases" in the bottom right corner for the whole world. We have had 2 days of greater number of cases than ever recorded. Phase II of the virus looks like it's just ramping up and with economies talking of reopening, phase II is likely to be more damaging than the phase I.