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US durable goods orders weak; US Fed eyes fading economy; China expanding without profits; Hong Kong trade shrinks; Australia tackles Google; UST 10yr yield at 0.61%; oil stable and gold at new record high; NZ$1 = 66.8 USc; TWI-5 = 70.2

US durable goods orders weak; US Fed eyes fading economy; China expanding without profits; Hong Kong trade shrinks; Australia tackles Google; UST 10yr yield at 0.61%; oil stable and gold at new record high; NZ$1 = 66.8 USc; TWI-5 = 70.2

Here's our summary of key economic events ovnight that affect New Zealand, with news gold hits a new record high as the greenback weakens fast.

But first, the bounceback in durable goods orders in June from May in the US pretty much confirmed what was expected, but it only happened because of large military orders. Overall they were still -10.8% lower than the same month a year ago, and without those defence orders would have been down -12% on the same basis. Non-defence capital goods orders were down -23% year-on-year and in any other circumstance, that is a huge pullback in private sector investment.

The Dallas Fed survey for July is headlined "Texas manufacturing recovery continues" but that is a brave and wishful headline when 26% of their firms are reporting an improvement in business conditions, 45% are reporting no change, and 29% are reporting a deterioration.

The US Fed is meeting this week and decisions will be announced on Thursday (NZT). They face growing doubts about the prospect for a sustained economic rebound in the US due to the pandemic response and officials are saying their economy faces a deeper downturn and more difficult recovery if the country doesn’t take more effective action to slow the spread of infection.

An expected gloomy assessment is one reason the US greenback is weakening (it's at a 2 year low against the euro) and the gold price (in US dollars) is taking off.

The Fed probably feels it is shouldering all the burden of the economic response to the pandemic. Meanwhile the White House and Senate have agreed a US$1 tln extension to the 'temporary' benefits expiring in the next few days. But it is doubtful the House of Representatives will go along with their plan, mainly because it is one that will benefit the 'rich' at the expense of [recently] 'working Americans'.

In China, while activity is rising, profitability isn't, although the rate of its contraction is slowing. Industrial profits of its large enterprises were lower year on year in June by almost -13%. In critical industries like electricity production, they were down -9% and manufacturing by almost -10%. Profits of SOEs fell almost -30% while their turnover fell "only' -6%. None of this declining profitability is helpful of course and the only saving grace is that similar enterprises in other countries are suffering the same, or worse, declines. If there are some industries that are in better shape than a year ago, they are in the computer, plastics, steel, and food manufacturing sectors. Almost everything else is in a decline, some quite steep.

Hong Kong has reported a larger trade deficit in June than May with exports shrinking year-on-year and imports shrinking faster. They are getting rising export demand from Taiwan (+22%) and China (+9%), but substantial declines elsewhere. On the import side, they are buying very much less from the USA (-33%), Japan (-10%), and Korea (‑9%), but much more from Vietnam (+43%), Malaysia (+16%) and Taiwan (+15%).

In Australia, their competition watchdog has launched Federal Court proceedings against Google, alleging Google misled consumers to obtain their consent to expand the scope of personal information that Google could collect and combine about consumers’ internet activity, for use by Google, including for targeted advertising.

In NSW, they are shoring up new home buying demand with targeted reductions in transfer duties (Stamp Duty). From 1 August 2020 the changes will see the stamp duty exemption limit increased from AU$650,000 to AU$800,000 for the purchase of a newly built home. The stamp duty concession will also increase to cover newly built homes from over AU$800,000 up to AU$1 mln in value. The home building industry is cock-a-hoop over this announcement. There are no changes to stamp duties payable for existing homes when they sell.

Australia will report its July CPI rate tomorrow and it is widely picked to show deflation, both quarter-on-quarter and year-on-year.

Wall Street is up to start the week, with the S&P500 up +0.5% in early afternoon trade. Overnight, European markets started their week generally lower by about -0.3%. Yesterday, Shanghai was up a modest +0.3%, while Hong Kong fell -0.4% and Tokyo by -0.2%. The ASX200 was up +0.3% at the close and the NZX50 Capital Index was down -0.4%.

The latest compilation of COVID-19 data is here. The global tally is 16,331,000 and that is up +213,000 since this time yesterday. Global deaths reported now exceed 650,000 (+5,000).

A quarter of all reported cases globally are in the US, which is up +56,600 from this time yesterday to 4,398,200. Louisiana and Tennessee have now joined the states were major spread is occurring. US deaths are now just over 150,000 and a death rate of 453/mln (+1/mln). The number of active infections in the US is up +27,400 to 2,146,800.

In Australia, there have now been 14,935 cases reported, another +532 since this time yesterday, and still concentrated in Victoria but also small pockets in Sydney's suburbs. Their death count is up to 161 (+6). Their recovery rate has slipped back further to 62%. There are now 5463 active cases in Australia (+385) and almost all are community transfer.

The UST 10yr yield is firm at just over 0.61%. Their 2-10 curve is unchanged at +44 bps. Their 1-5 curve is also little-changed at +14 bps, and their 3m-10yr curve is marginally firmer at just under +51 bps. The Aussie Govt 10yr yield is up +2 bps at 0.90%. The China Govt 10yr is little-changed at 2.91%. The NZ Govt 10 yr yield is also stable at about 0.83%.

The gold price has pushed on up to a new all-time high of US$1,940/oz and a +US$39/oz gain for the day. That is also very near to its all-time high in New Zealand currency as well.

Oil prices are marginally firmer today. They are just above just on US$41.50/bbl in the US and the international price is just under US$43.50/bbl.

And the Kiwi dollar will also start today marginally firmer at 66.8 USc. Against the Australian dollar we are now also firmish at 93.7 AUc. Against the euro we little-changed at 56.9 euro cents. That means our TWI-5 has at 70.2 and still in the general range we have been in all year.

The bitcoin price has risen sharply again, up +9.4% since this time yesterday to US$10,850. 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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72 Comments

Anyone wanting to see how undervalued silver (in particular) is relative to the sharemarket should cast their eye over the graphical data.

https://goldsilver.com/blog/the-secret-to-understanding-golds-true-value/

I recall going into the warehouse of an Auckland refiner a few years back and looking at all the coils of fencing wire they had in stock. "I didn't know you made that too. " I said. "It's not fencing wire," the salesman said "It's coils of silver" was the answer. More of it than they could sell. The place probably looks just the same today.

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And in yet a further shock announcement, Judith Collins has promised to build another new road.
Bigger. Faster. Better.

Aren't we just so lucky.

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And then Jacinda shot back that Labour would do it.
That is usually how it has been going lately.

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Radical, transformational government that doesn't do anything until the opposition becomes a credible threat.

Polling of 25% is credible?

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I think you just made GV's point

Please clarify. Is the credibility of the subject or the pollster being ridiculed here

There is still the delivery aspect that this 'transformational' Govt needs to tick off.

How about delivering an open economy? Out of all the things they could have delivered - surely this one is the most important to everyone?

I think its more correct to say that they re-announced this road.

Though i think its clear to everyone else that National is on the road to nowhere...

No new ideas.

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Gold and Silver still have a lot of upside in this environment thats for sure.

And a lot more downside than they did a month ago? Mathematics, and all....
(NB: 70% of silver is a byproduct of other mining. In other words, it's 'waste' material. https://www.mining.com/byproduct-of-metal-price-meltdown-is-a-higher-sil... )

Mathematically yes, logically no.

You don't see a contradiction in that statement?

Logically with the massive upheaval it is not going down in value for quite a time.

Logically, it has very limited value.
Gold, especially paper gold, is something to buy if you reckon the price is going up, and sell if you think the reverse. That's it.
How you come to make that call is up to you eg: Counter value of the US$; possible Government regulations etc. but "store of value" - nope.

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5000 years of value logic.
This current FIAT currency system at the end of it's lifespan historically.

In the current NZ situation of Labour non delivery of makes PM's even more relevant.

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Sure. But what else do you put your money into right now? Property and shares are basically at all time highs already. Cash? We might have negative interest rates soon. As long as interest rates fall, and money becomes more worthless by the day, gold with its natural scarcity has been a proven store of value for 5000 years.

It is purely insurance for me. I buy and forget. As fascinating as the current stuff is it also can go the other way at the same pace.

I dont know what the future holds, but PMs in my hands ensures my past efforts dont amount to zero. It can't be printed and isnt subject to ZIRP.

Fiat currency is backed by nothing other than confidence - it’s easy money because it’s easy to inflate, gold & silver is hard money because it’s hard to inflate.

doesnt mean its not a key revenue stream for those mining companies targeting other raw metals

US gold miners (GDX) had another decent jump overnight.

Go you guys in gold and silver.
Personally not into it; however it has been a long-recognised strategy that gold in particular was in demand during periods of high volatility and risk - think World War 2 etc.
We are currently facing similar situation with a high degree of volatility not only with Covid but increasing USA-China tensions so gold and silver makes sense.

Sure am. Not silver yet (sadly), but will buy into silver ETFs next week on Hatch. Only thing is the whole market is manipulated. I meant to buy gold years ago at around $600 - stupidly I didn't. But got back in around 1690.

The market manipulation is floundering due to the price difference between paper PM's and physical price. Hence the investors asking for delivery of physical when they buy at the paper price so they can sell at the physical price. Easy money and basically impossible for the manipulation to continue financially.

Gold is a zero sum hedge against recession or other volatility, holds with inflation and that's about it, almost guaranteed to lose over next few years if you buy in now. Money in almost every other investment (eg bonds) will at least produce a return over the long term.

Buy low sell high is the game.
The last time we even had close ti this much upheaval, silver went to $50USD. That is our next resistance as we are in a a hell of a lot deeper hole than last time.

Silver rising a dollar a day, has everyone entering the fray to stay.

What will happen to that bond bubble if interest rates go up?

One dead and two hospitalised in Tauranga from Listeria. A number of cheese brands involved in the recall - all packed in a Synlait owned factory - Talbot Forest Cheese and other products which contain some of these recalled cheeses. Open Country Dairy sent a notice to its suppliers that it also was recalling some of it cheese made available to suppliers which also had links to the Talbot factory. It is good to see the recalls - even if it is a month or more after some appeared on the shelves.
Interesting that as this is not a Fonterra issue but Synlait, the media have been somewhat restrained in their reporting of it.

Check the MPI website for a list of specific cheese products from Talbot Forest Cheese, Gibbston Valley Cheese, The Cuisine Canteen, Imperial Foods and Pams Finest brands of cheeses. https://www.rnz.co.nz/news/national/422068/new-list-of-potentially-liste...

Another foreign owned company puts low standards before safety. Synlait is going to have even more trouble with the government changing the rules to help Fonterra a bit more the other day. We should help our local companies at the expense of foreign owned entities as much as our trading partners do, and will let us get away with.

A2 own a chunk of Synlait...surprising the media are not all over this?

Greenbacks went out of circulation in 1865..

Many of them don't even have green backs nowadays. Go figure.

Nojima to Let Workers Stay Until Age 80 on Labor Supply: Nikkei

I guess outstanding residential mortgages have yet to be retired.

The falling US $ is going to start really knocking the price I get for beef, I see in Australia they have taken $60 off the value of a lamb, dairy must be in the same boat. This is potentially very ugly for exporters. I am going to have to be careful and lower my expectations.

Yes, once FCG starts falling off the end of old FX hedges, it gets real rather fast for WMP etc prices in $NZD.....

I was thinking the same thing Andrew. USD falling may just derail the govt plan to have ag the 'saviour of the economy' post covid. NZ govt basically 'assists' ag by throwing a lolly scramble at them -basically all to do with planting trees and fencing off waterways. If you have already done this there's nothing for you. Canada meanwhile takes a different approach AgriInvest is one of the Business Risk Management programs under the Canadian Agricultural Partnership (CAP) five-year, $3 billion investment by federal, provincial and territorial governments to strengthen the agriculture and agri-food sector.
AgriInvest is a self-managed producer-government savings account designed to help you manage small income declines and make investments to manage risk and improve market income.

https://www.agr.gc.ca/eng/agricultural-programs-and-services/agriinvest/...

they never should have killed the old grain co-ops those pools returned a lot of money to farmers and kept them better informed.

It's just not the same
https://www.thecanadianencyclopedia.ca/en/article/alberta-wheat-pool

Just sell to them in NZ$, not US$. I hear UK might be coming in to the buying beef market off the old colonies again in the near future.

There is talk of some China buyers wanting to pay in Renminbi.

I think gold will go a lot higher, especially now a lot of retail and new investors are jumping in on paper gold. Happy to say I saw this coming, in terms of high probability, low risk a year to 18 months ago, and backed up the truck on it during that period. I was thinking of the end of a 10 year run in equities and a coming recession. Did not foresee the pandemic but it was going to be something as a catalyst. Still picked up some cheap stocks in March-early April. I think there’s likely to be another good opportunity for good, cheap stocks.

ANZ online banking appears to be down this morning.

Hello

After having Ray fukfase Smith at Goldcorp steal my gold bullion that was in supposidly safe keeping back in 1988 I will forever know the value of paper gold... exactly 2 fifths of sweet fanny adams

As for return on money in this digital age there is DeFi.... that's Decentralized Finance markets. You can get 5, 6,9,10 or much more % depending on your setup. In the future everything a bank or broker does will be decentralized with no one person, company or country running it, but it being run by the people for the people...

Bricks and mortar still good - especially with a tile roof in a small block of units, but i wouldn't go investing in aeroplanes or retail stores unless i had a very good reason.

I will hold my rentals, and look at buying some new digital tech - most likely to be found in the cryptocurrency community.

President of Property

Yeah Defi has been amazing for those that got in early. Be careful though, did you hear about YFI? Went up 10,000% in one week despite the creator saying it was worthless. I think it hit $3,000 a coin and now plummeting. A whole crypto cycle in just one week!

Yeah Defi has been amazing for those that got in early. Be careful though, did you hear about YFI? Went up 10,000% in one week despite the creator saying it was worthless. I think it hit $3,000 a coin and now plummeting. A whole crypto cycle in just one week!

The DeFi space is full of Johnny-come-latelys at the moment because of this (promoting coins as the next big thing). The gains have been spectacular. Keep a level head and I think it's worthwhile.

As for return on money in this digital age there is DeFi.... that's Decentralized Finance markets. You can get 5, 6,9,10 or much more % depending on your setup. In the future everything a bank or broker does will be decentralized with no one person, company or country running it, but it being run by the people for the people...

I use BlockFi. Pretty straightforward, but read before dipping your feet. Also, the rates on stablecoins are quite low obviously (lower the risk, lower the reward) but look at the currency instability right now. Signing up for BlockFi was pretty straightforward going through a KYC process using passport and facial recognition. Not sure you can onboard with fiat currency.

https://hongkongfp.com/2020/07/27/hundreds-of-chinese-fishing-vessels-de...

Chinese fishing fleet continuing the message of Xi's love in the Galapagos.

Kind of a dumb question - but if China's activity is up but their profitability is down, then what does that do for probability of war? Solves a lot of 'problems' at the same time.. need for circulation of currency, consolidation of 'democratic' and 'communist' dynamic.. it's old school but expansionism is always one solution to deflationary concerns..

Cripes, war with whom?

I guess I'm just thinking probability..

Yep. Taiwan makes sense.

Patriotism + proximity + profitability + positionality. Taiwan sits high on a probability matrix right now imho. I'm not mongering I'm just pondering.. fishing fleet into Ecuador waters as a feint and SE sea as another. What would US do? Sealanes be damned..

Crypto now inheritable in China. How to stop wealth flight to US is to keep it in house.. requires silicon wafers.. IDK.. what if we've all been looking in the wrong places?

Maybe I'm just putting 2 & 3 together and getting 23.. happens sometimes.

Although it's not just me being unusually jolly today. Seems like I am not alone in wondering these things: https://www.theamericanconservative.com/articles/should-the-united-state...

And China has been in Taiwan's airspace rather a lot over the last week: https://rappler.com/world/asia-pacific/chinese-fighters-breach-taiwan-de...

What would US do?

Nothing - the US didn't attack Russia over Crimea with NATO on Russia's doorstep.

I really doubt Russia is the mood to permit a war which involves China, since it recently reaffirmed it's bilateral commitment to the latter.

Australia should also note the consequences of unnecessary stupidity are potentially catastrophic.

Agree. See link to recent American Conservative article. We're in interesting times...

Australia is playing proxy bluff without thinking thru the consequences..

Maybe I'm just putting 2 & 3 together and getting 23.. happens sometimes. LOL ¯\_(ツ)_/¯¯\_(ツ)_/¯

Crypto is now entering an Alice in Wonderland Phase it seems. BTC about to hit 11.5k

If you look at the history, this bitcoin cycle is very predictable. See BITCOIN HALVING CHARTS: HISTORICAL PRICE ACTION ANALYSIS at https://masterthecrypto.com/bitcoin-halving/

Climate Policy debunked.

49 minute mark NZ gets a mention.
Net zero carbon 2050, to cost 16% of GDP.
- that's 10 elections away.....

https://youtu.be/VxWYglbtqnQ
False Alarm: How Climate Change Panic Costs Us Trillions, Hurts the Poor, and Fails to Fix the Planet.

https://ecan.govt.nz/your-region/your-environment/climate-change/climate...
- download the link.
- Ecan, Niwa have consolidated 6 picked climate models, - could not afford to group all 40.
- Not economic modelling.
- local climate scientists assure you there is not much to worry about.

Published in 2020, NIWA's report (below) looks at how aspects of our climate such as temperature, precipitation (rain, snow, drought potential), wind and sea levels might change between now and 2100. It is based on global climate model simulations from the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment, scaled down for New Zealand, with a focus on Canterbury.

This is a technical report (not for the faint-hearted!) but it is the most detailed information we have. Each chapter has a helpful summary, and key projections are set out below.

View NIWA report: Climate change projections for the Canterbury Region (PDF File, 16.5MB).
Hint, there is more to it that the web page summary.

And here is a worked example of policy problems.
Cost benefits analysis are to be encouraged.
P.S. the cost of energy has real meaning.

Stakeholders in the electricity industry say its probably not worth the investment to build a large hydro storage scheme in order to service the odd time the country has a lack of electricity.

https://www.rnz.co.nz/news/national/422165/industry-figures-say-lake-ons...

The government's claim the hydro project would reduce electricity costs don't stack up, Young said.

"If we are going to spend $4 billion on our electricity system, then someone is going to pay for it. If it's not going to come from higher electricity prices then it will come from the taxpayer."

So Bitcoin is on the move. Psychologically these are times where you have to be tough if you're a HODLer. Yes, you may have bought accumulated at $3000 even if you didn't go 'all in'.Definitely not for the faint hearted. The only thing that you should remember is that chances are you're miles ahead of those who are not in the space so you've had the time to mentally prepare.

U.S. banks can now legally be custodians of BTC. This is a big move and according to Caitlin Long (leading innovator in the financial space) we're likely to see banks take over exchanges in the near future. This is good for many reasons but the banks need to understand that rehypothecation will need careful planning.

Imagine "but the banks need to understand that rehypothecation will need careful planning." but with btc. Before you know it , there are 210 million BTC instead of 21 million.

Bitcoin is immutable which is why it's so valuable. It undergoes quantitative hardening roughly every 4 years. They would have to create a new working copy (hard fork) of the blockchain to do that which is nonsense stuff. Here's a good comparison of bitcoin vs fiat vs gold that you might find useful https://www.dugcampbell.com/wp-content/uploads/2014/12/Traits-of-Money.png

Rehypothecation based on lending against btc as collateral

The Bitcoin standard. Checks out.

I will put my head on a block here and suggest that the KIWI$ could go back to 88 cents to the US$ as it was a short 48 months ago

That'll be a boon for consumers in the short term if it happens. But long term could see NZ sink to 2nd or 3rd world status as it guts our export industries.

I don't quite get the excitement over the NZD appreciation. NZDUSD back to where we were before the covid panic kicked off, just like any stock index you care to name.

Days to the General Election: 26
See Party Policies here. Party Lists here.