Here's our summary of key economic events overnight that affect New Zealand, with news the uncontrolled surge of the pandemic into the US heartland is a frightening prospect.
But first, in its annual stress tests, the US Fed said a long economic recession could saddle the country's largest and globally important banks with up to US$700 bln in losses from bad loans. It has told them to restrict dividends and temporarily end share buybacks so that they conserve funding for the coming increases in financial stresses. The price of bank shares fell.
Also falling is the Fed's balance sheet, which shrank for a second straight week as foreign central banks cut their use of currency swaps rather sharply, and American banks reduced their use of Fed repurchase agreements. The reductions seem odd when their economy clearly needs additional support, but maybe it is a way to get the fiscal authorities to act and do their part.
The latest consumer sentiment index rose in June from May but at a generally underwhelming rate and far below expectations. The best gains were in the northeast where the pandemic is under better control. But the rest of the country is clearly increasingly anxious.
And data for personal income in the US is concerning too. It jumped in April on the income support that Congress rushed through. But that support hasn't been followed up and new efforts are mired in partisan gridlock and resisted by Republicans. That has resulted in a very sharp -5% fall in real disposable income in May while at the same time personal spending rose more than +8%. Obviously it can't continue on like this very much longer and there is an economic reckoning coming soon. Past lifestyles can't maintained by such a huge mismatch for very long.
And that coming earthquake in consumer demand is getting the attention of equity markets today. The S&P500 is currently down -2.4% near the end of the weekly session and falling. That is a -US$600 bln fall in market cap in just one day, taking the value reduction since the start of 2020 to -US$1.8 tln. Overnight European markets slipped about -0.5%. Yesterday Tokyo was up more than +1.1% (but that meant zero weekly change), Hong Kong was down almost -1% (and also little weekly change), the ASX200 ended the day up +1.5% (and a -0.6% weekly slip) while the NZX50 was flat on the day (and a -1.2% fall for the week).
In China, their annual Dragon Boat Festival is supposed to signal a rebound of domestic tourism. In 2019 almost 96 mln people used the three day public holiday to visit events. But this year things have gotten off to a very slow start with barely 17 mln people turning out on the first day, about half the level Beijing was hoping for.
Part of the restrained enthusiasm may be because of severe flooding in southern China. Social media is awash about the risks to the Three Gorges Dam and apparent buckling of the structure. But authorities are quick to point out that the satellite photographic evidence isn't meaningful.
And one of the ways wealthy Chinese move their money out of the country is being threatened with the annexation of Hong Kong into the Beijing security orbit.
In Australia, their central bank has pleaded with bank bosses to keep lending. Government assistance winds down after September 30 and the RBA expects that will drive a new surge in unemployment.
And Aussie regulator ASIC has lost its badly prosecuted "wagu and shiraz" responsible lending case in the Aussie courts after completely misunderstanding what responsible lending is all about. It's a black eye for cavalier regulators.
The latest compilation of COVID-19 data is here. The global tally is now 9,682,400 which is up +188,000 since yesterday and a rising pace. Global deaths reported now exceed 491,000.
A quarter of all reported cases globally are in the US, which is up a very sharp +57,200 since this time yesterday to 2,446,700. This is now growing faster again than the global rate of infection. US deaths now exceed 125,000. The number of active cases in the US is now up to 1,658,400, up +38,300 in a day. It is an uncontrolled surge that has global implications and the financial ones may be the least of our worries unless they get on top of it.
In Australia, there have been 7595 cases, another +37 since yesterday. Their death count is still at 104 but their recovery rate has slipped to just under 92%. There are now 533 active cases in Australia (up +21).
The UST 10yr yield is lower at 0.64% and a -4 bps pullback as market fears build. Their 2-10 curve is flatter at just under +47 bps. Their 1-5 curve is also flatter at +13 bps, while their 3m-10yr curve is down to +52 bps. The Aussie Govt 10yr yield is also down by -3 bps at 0.86%. The China Govt 10yr is unchanged at 2.92% because of the public holiday there. But the NZ Govt 10 yr yield is down -2 bps at 0.94%.
The gold price is marginally firmer, up +US$6 to US$1,768/oz.
Oil prices have softened marginally. It is now just over US$38/bbl in the US and the Brent price is just over US$41/bbl. The rig count has stayed low, but declined in the past week by just a handful.
The Kiwi dollar is softer in a minor move down, now under 64.3 USc. On the cross rates we are slightly firmer at 93.6 AUc and against the euro we have slipped slightly to 57.2 euro cents. That means our TWI-5 has held at 69.2.
The bitcoin price has stayed down, and is lower today at US$9,161. Over the past month this crypto has fallen -4.7%. 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 ».
Our currency charts are here.
76 Comments
If you have educated population who have other options other than the millary, you can not wage war arround the world to control the oil price, sell your arms and bully the world.
They weren't created by Trump, it has been an on going dumbing down of the population for decades.
Well well, seems the novel virus wasn't so novel... who would have thought ?? Been around for over 12 months
Scientists find coronavirus in Spainish wastewater collected in March 2019
https://www.google.com/amp/s/amp.sbs.com.au/v1/news/article/coronavirus…
No I think he’s just an idiot. I love it how he blames everyone else.
At the start of the pandemic it looked like there was a choice between economy or lives. A lot of the right wing politicians chose the economy (I’m sure our national party would have too). But it turned out that the best thing for the economy was actually to save the lives.
Milton Friedman really hated car safety and thought it was a socialist waste of money. It turned out that safety became a major point of distinction for cars. It's strange how the US has taken on dumb right wing ideas when during WWII they put a lot of resources into rescuing downed pilots. They realised that training took a lot of time and money which made the pilots valuable and worth rescuing at any cost. The same goes for the population. If workers die you lose their productivity and their consumption, surely that is worth putting some money into healthcare, isolation and quarantine.
I was going to write a negative comment about Le May but after reading the Wikipedia article on him I like him now. They probably should have taken has advice during the Vietnam war, instead they left North Vietnamese fighter bases unmolested in case they hurt someone.. He was also instrumental in introducing Judo to the West. Great comment from him during WW2, "the US had finally stopped swatting at flies and gone after the manure pile".
Interesting story in the seventies a middle aged heavy weight anti Vietnam protestor revealed he had called his son Curtis after Le May. He explained to his astonished audience that it was because he owed his life to the SOB, without the box formation tactic and the high level of training, he probably wouldn’t be amongst them. Get hold of the biography if you can, title “Iron Eagle” very unique identity, a soldier’s soldier. He was tough, very tough and unapologetically so.
Also willing to lead his men into battle. He is a little bit misunderstood as he was actually trying to save lives and finish the wars quickly while also protecting his men. It all makes sense when you consider this.
Instead they did Project 100,000.
Wait a minute. Milton Friedman didn't hate car safety. He hated car safety being dictated by government decree. He said that if people wanted to buy the more expensive but safer car, they would, but they should have the choice at their own risk, and not be forced to by a government regulation. The free market would decide if for example seat belts were a necessity. I'm not saying I agree with him, but to mischaracterise Friedman as sitting somewhere saying "I hate car safety man, it really bugs me" is poor.
Rather than writing a thesis I decided to compress the concept to cut back the length of my post. Friedman got very anti anything he didn't like and he didn't care about the people that would suffer by the implementation of his ideas. In saying that he wasn't all wrong and wasn't all correct.
There is an angle in that too. In so much if that third term National government had been as strongly positioned as they thought they were, the arrival on the scene of a virtual slip of a lass as Leader of the Opposition would hardly have knocked them off their perch so easily. But having said that, Bill English still led National to return the greatest number of votes by any one party by a good margin. Ironically, in my view at least, if he and Joyce had persevered, they would be giving National a much better chance in September than National look to have now.
Yes and on present numbers being bandied about, that crystallises the make up of our next government. Part of the electorate is compelled to vote for the Greens willy nilly. That is what carried them through last time despite a sincere effort at self destruction by the now departed co-leader and designer jacket exponent. NZF are done and dusted. Nothing now to stop the Greens charging out of left field with all the frustrated energy of a shaken bottle of organic ginger beer.
Zachary,
Sadly, I don't think "The man's a genius" is at all ironic. You really mean it. The revelations in Bolton's book might be more easily dismissed if he were some socialist lefty, but he's a Republican insider. Trump really is incredibly ignorant(the UK's a nuclear power?) to add to his innumerable personal faults; racism, misogyny, extreme narcissism, pathological liar etc. But I remember you expressing admiration for the Alt-Right some years ago, so I am not surprised by your remarks.
When I visited one of the dams that is a part of the three gorges dam project about 6 years ago they were very careful not to show the face of the dam. The ship we were on didn't sale by, and at the top of the dam they had built a hill to obscure the view. No one was allowed on the dam and they had a soldier guarding access to the road across the top.
There have been dam problems since day 1, so don't believe the message put out by the ministry of propaganda.
"Also falling is the Fed's balance sheet, which shrank for a second straight week"
And as noted the last time this happened the markets corrected 7% (H/T CH Smith 20/6)
"Here's the Fed'a balance sheet in February 2020:
5th Feb $4.166 Trillion
12th Feb $4.182 Trillion
19th Feb $4.171 Trillion
Notice anything about the Fed's supply of free-money? It dried up. But all the market didn't notice because they were so sure that the Fed's supply of money was infinite.
A funny thing happened on February 19. The market topped out and crashed the following week. Now look at this month's supply of Fed money:
3rd June $7.165 Trillion
10th June $7.168 Trillion
17th June $7.094 Trillion
Umm, notice any similarity?"
A graphic snapshot of actual Fed loans and their reversal.
For clarity, Fed USD swaps are not included in the data since the Fed is simultaneously borrowing foreign currency. I need to make some adjustment if it turns out TIC data actually does confirm foreign subsidiaries of US domiciled banks are in fact successfully bidding for this funding from the foreign central banks in receipt of Fed swapped borrowed dollars.
And data for personal income in the US is concerning too. It jumped in April on the income support that Congress rushed through. But that support hasn't been followed up and new efforts are mired in partisan gridlock and resisted by Republicans.
We are in the window of gigantic positives, if only because they show up in the shadow of even larger negatives and possibly more durable negative factors.
Link
Epochal shock - MFAT officials;
https://www.stuff.co.nz/national/politics/300043502/new-zealands-uncert…
Unleash the productive forces, and swap India in for China.
HC's stuff opinion, misses the bit about how the next pandemic is dealt with. And how empirical data can now be used in policy setting now.
ABC: The story of a airline family, debt & spending.
https://youtu.be/YfdQo8M-BwQ
ABC: How long the recession & the years getting employment back - innovation & growth.
https://youtu.be/q78vPKcq9AU
I had to click on every link in the article to find it Rosenstein! For everyone's edification and to save time for lazy readers the link is to the satellite images of the Three Gorges Dam which is a Facebook page called "China - The New Evil Empire". I agree it is a bit dubious. What next, a link to YouTube comments?
It's tough to see what's coming in the globalised world.
I need to buy some cattle, this is the latest out of the States, this is not just the USA all major supply chains, Brazil etc, have been disrupted.
Do I buy or do i keep sitting on my hands?
Dairy
http://www.thedairysite.com/news/55511/cellbased-milk-startup-gaining-t…
I got out of orcharding because it was always a gamble. Every season there was an issue to deal with, different weather conditions allowed for different pest and diseases to flourish. Guessing the coming seasons required fruit size, labour issues, hail, frost, wind low wages, large overseas companies haveing too much control on the market. The only good win years, which were few, was when another country was wiped out by something unforeseeable.
I was a 5th generation Kiwi orcahdist. My grandfather got a MBE for his services to the industry. He worked on coining on the Haweks Bay 'fruit bowl' term, gained the aproval of the Royal family for the 'Royal' in Royal Gala. He was a staunch opponent of allowing overseas ownership the fruit and land to keep it in Kiwi control. Yes, I was in pip fruit.
Don't know the Kain brothers story, unless it was the deregulation of the market. That was a joke where Gibbs was set loose to deregulate the market and sell off for cents on the dollar paid back to the grower that built it. Now it is owned by Turners and Growers, which is 75% owned by a German company. Prick of a company that is controlling the market forcing the Kiwi growers out while masquerading as a Kiwi company in the super markets.
TURNERS AND GROWERS IS NOT KIWI OWNED. Buy from local growers and keep your country working and owning their own land.
We have grown oats for winter feed since I was a boy. Oats are away and bolting being, wet and warm helps. Trying to plan next springs planting, probably some buckwheat, lupines, rape, vetch, persian clover, rye corn.
Problem is the world has turned, is it going to go upside down for a bit?
From a California dairyman
'Enter 2020 – the most bizarre year in any of our collective memories, not just in the dairy industry, but in life. Everything we thought about the world six months ago has been turned upside down. In the last 60 days we have seen cash cheese prices go from a low of $1 per pound to $2.81 per pound and then begin to fall. There have been price swings for the other classes of milk as well, but not near as great as what has happened to cheese prices. As these volatile prices work their way through the FMMO formulas, and as the impact of these prices filter through the competitive environment that is the California dairy industry, there will be those who will see much higher milk prices than others in the near term. '
Treasures nappies, the only NZ made nappies, will be a thing of the past. The 40year old business cannot compete with low cost imports. A question for NZ is, when it comes to environmental and climate change issues, are we hypocrites who talk the talk, by saying we will do this, do that, but don't walk the talk by allowing imported products that don't have the same environmental/GHG provenance that we impose on our own producers? This applies for many products including food.
https://www.stuff.co.nz/life-style/parenting/121963349/treasures-nappie…
haha -they sure were bulky, waymad, and you could also use a wool outer. Still have some on hand - for emergency use with the g'kids who had the modern day version of reusable. But have to say the reusable ones now are so much easier to use. I understand daycares - well some of them - will only accept disposable nappies for babies.
"Any fool can make money when interest rates are falling," my money market manager told me years ago. And he was right! Lend it out today (use debt), and even if you're wrong, the cost of refinancing tomorrow is going to save you. But when it turns around, or just stops, making money or even saving your shirt, is not as easy; and we must be about at that stage. So who is going to want to lend term money out at the moment? It will take nerves of steel or 'someone else's money' to lend at 2.99% for 5 years and hope refinancing costs stay low for the whole run. Credit issuance is going to get even tighter.
The market is telling you that the risks of renewed illiquidity (which could result in another possible LIBOR spike) remain significant right at this moment....And even then, not a whiff of inflation. These curves are the epitome of deflation risk, not inflation risk....the level of jobless claims continues to be enormous; historically high...Near or above 1.5 million. If these three weeks had taken place at some other time it would be treated as an epic economic collapse.
https://alhambrapartners.com/2020/06/25/wait-a-minute-whats-this-invers…
'The $2,400 in stimulus that a couple received in April made a great down-payment for a car in May. If it was used as a down-payment, the loan itself multiplied the consumer-spending effect. Instead of spending $2,400 on other stuff, the couple might have spent $24,000 on the car, with rest of the money being borrowed. But it’s the $24,000 that counts as consumer spending in May, and the $2,400 that counted as income in April.'
https://wolfstreet.com/2020/06/26/federal-money-from-the-sky-consumer-i…
Humans are poor investors, and even worst traders!!!
Stay away from online platform.
https://www.marketwatch.com/story/day-trading-tales-remind-us-that-huma…
The story of Alexander E. Kearns is tragic. The lesson is to never give up. It may not be as bad as you think.
Well well, seems the novel virus wasn't so novel... who would have thought ?? Been around for over 12 months
Scientists find coronavirus in Spainish wastewater collected in March 2019
https://www.google.com/amp/s/amp.sbs.com.au/v1/news/article/coronavirus…
Far more likely to be a bad test thats not selective enough reacting to another virus, or contamination in the lab than covid-19 having been in the human population and circulating in Europe since march 2019 and not being noticed for 9 months. Or do they have Chinese bats at the local zoo.
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