Days to the General Election: 19
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Dairy prices fall sharply; storms affect both China and the US; China car sales rise sharply; another huge Aussie trade surplus; RBA warns on jobs; UST 10yr yield at 0.51%; oil up and gold hits new record high; NZ$1 = 66.1 USc; TWI-5 = 69.3

Dairy prices fall sharply; storms affect both China and the US; China car sales rise sharply; another huge Aussie trade surplus; RBA warns on jobs; UST 10yr yield at 0.51%; oil up and gold hits new record high; NZ$1 = 66.1 USc; TWI-5 = 69.3

Here's our summary of key economic events overnight that affect New Zealand, with news bond markets are flashing warning signs.

First today, the overnight dairy auction has brought sharply lower prices on rising volumes offered. The key WMP price was down -7.5% in USD terms, down -6.3% in NZ dollar terms. Cheese (-5.3%), butter (-2.8%) and SMP (-4.6%) all got much lower auction prices as well. Overall, that is a weighted average fall of -5.1% in US dollar terms and -4.6% down in New Zealand dollar terms. This event brought an unexpectedly large price correction and prices are now down -5.6% year-on-year after a few months of recording year-on-year gains. It will bring analysts to relook at their rising 2020/21 season farmgate milk price forecasts, even if they don't change them just yet.

US factory orders rose more in June than expected, but this is now being seen as an outdated trend.

More current, US retail sales rose marginally last week from the week before but are still a large -7.1% lower than for the same week a year ago.

Eastern China is battened down for a seasonal typhoon. The Eastern US is similarly bracing for a major hurricane. In both zones, these major storms break a long quiet period of such storm events. However, that doesn't make them any less of a risk to the economies they affect.

The storms aren't keeping buyers away at Chinese car dealers. Sales rose +15% in July from a year earlier to 2.1 mln units.

Australia has recorded another huge monthly trade surplus. In July it posted an AU$8.2 bln surplus for the month, taking the 12 month total to AU$78 bln. This surplus has been expanding for a long time now. In the equivalent year to June 2019 it had a surplus of AU$49 bln, and that was vastly higher than the AU$7 bln surplus in the year prior to that.

China may be grumpy with the Aussies, but it just keeps on buying. And paying ever higher prices. Iron ore prices are now up +80% in the past nine months (although they are still a long way below the levels that existed in the 2010 to 2014 period).

Yesterday, the RBA announced the results of its monthly monetary policy review and while it made no interest rate changes, it did emphasise that it will be intervening more vigorously in secondary markets to keep bond yields low. And it raised its forecasts of unemployment levels coming to Australia. They are now expected to hit 10%.

And regulator APRA says Australian banks have now deferred AU$274 bln in loan repayments for customers, allowing another $40 billion to pause their repayments in June as an emergency relief. That is similar to May, and is expected to rise substantially in August even if not so much in July.

In global equity markets were little-changed overnight, and Wall Street is marking time as well so far today. Yesterday. Tokyo, Hong Kong, and the ASX200 all rose about +2% and the NZX50 almost +1%. But there are risk-off signals today and these gains are unlikely to be sustained when markets open in our time zone.

In Australia, there have now been 18,729 COVID-19 cases reported, another +411 overnight, and still very much concentrated in Victoria but also small and growing pockets in both Sydney's suburbs. Queensland seems to have a lid on it there. Their death count is up to 232 (+11). Their recovery rate is now under 58%. There are now 7707 active cases in Australia (+228) and almost all are community transfer.

The latest global compilation of COVID-19 data is here. The global tally is 18,359,000 and that is up +211,000 since this time yesterday. Global deaths reported now exceed 696,000 (+6,000).

A quarter of all reported cases globally are in the US, which is up +56,000 from this time yesterday to 4,888,000. US deaths are now just over 159,600 and a death rate of 482/mln (+3/mln). And the net number of people actively infected in the US rose overnight to 2,273,000.

The UST 10yr yield has fallen -5 bps today on the sharp risk aversion tone on Wall Street and is now just on 0.51% and a new record low. Their 2-10 curve is flatter at +41 bps. And their 1-5 curve is flatter too at +8 bps, while their 3m-10yr curve is also flatter at +43 bps. The Aussie Govt 10yr yield is down -6 bps at 0.81%. The China Govt 10yr is holding at 2.97%. And the NZ Govt 10 yr yield is also unchanged at its new lower level of just under 0.76%.

The gold price is sharply higher today, up +US$44 to US$2018/oz and a new record high. 

Oil prices are up, but by less than +US$1/bbl today. They are now just under US$42/bbl in the US and the international price is now just over US$44.50/bbl.

But the Kiwi dollar has stayed soft against the US currency and still at 66.1 USc. Against the Australian dollar we are -½c lower at 92.4 AUc. Against the euro we are down at 56.1 euro cents. That means our TWI-5 is now a little softer at 69.3.

The bitcoin price is down -2% today at US$11,211. 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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87 Comments

22
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Gold and silver are breaking out sharply looking at charts, trust of central bank policies looks like its unwinding. No surprises there though considering their atrocious actions getting us to this point and what we know is going to be even worse going forward.

12
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So this means more people are expecting some form of collapse?

...the opportunity cost of holding gold as a hedge against big errors (like a credit bubble bursting) is best illustrated by the yields of competing assets which similarly function as a safety (liquidity) hedge. In other words, lower rates, or, more precisely, lower implied future rates, the less the opportunity cost of using gold.

The demand to do so is likewise very simple, as stated in the quote above. If you think central banks are in danger of losing control – in either direction – then metal is your friend; maybe your best friend if under deflationary circumstances you’re thinking in collateral terms. Link

Technically, both the CHF and JPY appear ready to rampage. Its not just gold and silver.

What timeframe and/ or pairs re you referring to? both the JPY and swissie are in long term ranges.. are you predicting they will go up as a 'flight to safety' trade? I don't see that personally - if anything it supports a carry trade (where people borrow jpy's and use them to fund purchases elsewhere) for anything that has any yield above bonds - which is just about anything now - excluding cash seeing governments are running the printing presses into oblivion and monetizing debt with no responsibility

10
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Yes the best performing asset class this year. It’s not surprising though, this is just history repeating itself when governments print to infinity.

13
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A ton of history showing us some serious issues are coming but nothing to see here, NZ is building roads.

A2020 - Except that this time we're running the supply at global scale; something that could only happen once. We're going to see a lot more explosions and collapsed bridges (to quote this week) as entropy bites.

Irrespective of the numbers we shuffle from computer to computer.

I hold both metals (gold / silver / mining stocks) and cryptos (just bitcoin and some eth) Cryptos are leaving my metals in the dust. ETH is up 170% or something this year - crazy

China stopping buying and selling of gold to slow the price down....
Wouldn't that encourage buying on the black market / overseas increasing the physical price and creating a greater price variation between the paper and physical prices?

Does gold need any encouragement from the black market? Gold is its darling already.

Just checked out the price at the moment in the stall between markets opening and closing times.
$2020 in 2020.

14
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Annnnd.. Another day, another new road announced by Judy Collins.

14
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Yes it's refreshing to hear some ideas and policy announcements instead of being told to wash my hands !

16
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Proposing the fast-tracking of a planned road is neither a revolutionary idea nor policy..
They intend to fast-track legislation for the consenting and construction, if required. I for one cannot wait to see how the legislation magically manifests the resources to undertake such a project when every other electorate who votes National is also receiving a similar fast-tracked roading project.

Motorway length per capita by country - we beat Georgia, Turkey - and even Singapore!
https://croakingcassandra.files.wordpress.com/2020/07/motorways.png?w=700

Yet we also have among the highest amount of roading/highway infrastructure per capita in the OECD.

https://i.stuff.co.nz/travel/destinations/nz/114778829/how-new-zealands-...

Understandable when we look at this overlay of NZ on Europe.

And the contrasting hilly and rugged nature of our land which necessitates numerous road length increasing corners.

Not uncommon to have a road over 10Km's that services one farm.

Since this new road thing has become an issue of late, I've taken notice of the state of the roads from Chch to the Sth. Not that bad from Chch to Dunedin but decreasing in condition from then on. I drove to Gore a month ago in drizzle which highlighted to distinct slick wear marks. Verging on dangerous in some areas. Instead of new roads a revamp of main roads down this way would be a good spend, as a little now will save a lot later.

Much of the formation work was done a century ago and simply tarsealed over 50 years later

Surely. But the conversation is about a simple length of major roads comparison. Our long narrow alpine land with low population density is always going to require a high per capita lengthen of roads. Unless of course the greens policy of requiring travellers between NI centres to take the train becomes law. Genter is against twin tunnelling Mt Vic. Earthquakes would never block an ancient tunnel like that and in any case, they can always walk.

I love it when the Greens start trying to think.

At the implementation of MMP in Germany, the Greens were elected and formed a Govt with the Social Democrate Party. The Greens held a party conference to decide which direction they should go.
One extream wanted to ban cars in favour of horse and carts and at other end they wanted to do a bit more recycling.
It erupted into an actual fist fight.

In the face of primary industry becoming a key moderation on the effects of recession Shaw has fallen silent on the greens plan to cut the NZ dairy herd in half. Hypocrite.

Great story Kezza. One of my faves from NZ greens was Fitzsimons in all seriousness proposing sea cargoes be carried by sailing ships. I actually rather liked her as a genuine and passionate environmentalist and suspect she'd be dismayed at the way team Trotsky have captured the greens agenda.

Capitian, there be storm clouds on the horizon, the wevels are in the mug beans and the men have scurvy. Da'be munity afoot once we reach landfall.

Apparently the French have just announced they will build a sailing cargo ship. here

And I still can't understand why no one in the media is asking National about the completion of the 10 one-way bridges on state highway 1 in Northland, from the John Key era. Why make billion$$ promises when you couldn't deliver on a relatively low Million dollar promise from 6 years ago?

That was when Winston got elected up there from memory.
Honest question.
Did he get them built?

11
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JKB. Don't be so impatient, the princess has declared from her exalted throne that we peasants will eventually get some policy - when her cabinet gets around to it after the election. Meantime we needn't worry our silly little heads, mummy is just too busy for trivia like this because she's really busy with lots and lots of really important stuff. An acknowledgement of the gross ineptitude that has defined her cabinet, laziness or cynical political manipulation of our democratic election process - take your pick. All are delivered with an increasingly dismissive arrogance.

26
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Crusher also claiming the govt "are attacking landlords" in an article in the NZ Herald. No investment class in the country has been coddled more than property investors. If it wasn't so outrageous it would be laughable.

36
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In one 'investment' circles I associate I read someone moaning about the COL, their attack on landlords and their hatred of small business. Luckily I had on hand the amount of money said person had claimed in wage subsidies through his 'struggling business' and a picture of his most recent vehicle acquisition.

Needless to say the post was rapidly deleted.

It's pathetic how hypocritical so many of these people are.

Many people lie to the themselves.

16
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I don't think they lie to themselves. This is more from a sense of entitlement and perhaps they are somehow better, smarter, bluer blood etc than others (and therefore more entitled). Pretty normal human psychology really, but especially rampant under a 'free market'.

According to Robert Sapolsky and quite a sizeable body of research, the human brain has evolved to "lie" to itself (or more accurately convince itself of a certainty or belief that probably isn't true). Because we are a social species and forever evolving greater abilities to read each others facial expressions and micro-gestures, we have also developed features to evade this in the evolutionary arms race. Hence self delusion.

Would have been selected for in the mists of time as we competed for mating opportunities and resources but as our societies have grown in size and complexity, so did our capacity for self and crowd delusion.

Heh. Sapolsky's A Primate's Memoir' is one of my faves. Right up there with Jasper Fforde's 'Shades of Grey' (and I'm a few pages into FForde's 'Constant Rabbit' atm)...

Yeah, that's a great book (the latter two I have not read but I shall pop them on the list! Have you read Sapolsky's Behave: The Biology of Humans at Our Best and Worst? It's a very sciency, but I suspect that won't put you off ;-) It verily blew my mind. I watch his lectures on youtube when i'm doing chores and bitterly regret that I could not have been his student! He's so great!
I'm just reading "The Ark Before Noah" Irving Finkel, which is all about Akkadian/Sumerian.

Yes, have 'Behave'.. Sciency, eyes glazed over a bit, book fell from stilled hands....but well worth going back to. Both the FForde books are dystopias, full of bad puns, very Swiftian. FForde's Big Idea behind 'Grey' was that social status, in the well-future aftermath of the Something That Happened, is solely determined by perception of Colour. Purple on top of the heap, Grey lowest caste.

That fits. Easy to see it every day in our world today.

I vaguely remember a quip along the lines of "all animals are equal, but some are more equal than others."
It seems entitlement may also be rampant among socialists, also.

Entitlement isn't political, it comes in all shades.

So one greedy prick apparently exemplifies NZ landlords.

Dont forget tunnels...more tunnels.. might be good for our heads as well.

And needing to increase in depth day by day.

Yes -some here love Rabbit holes..

Before this gets too much worse I live in hope that our political parties that they can see past their minisqual differences and see that it is not about them, it is about all of NZ and they cut out the BS election point gathering and work together.
Alas there is little to hope that it will happen.

Total agree Kezza. Me too, but while fairly realistic, I try not to let pessimism undermine my hope.

Sensible positive moderates such as you and Kezza are always swept aside by the counter reaction to mass movements. Ours is a fawning princess Dianna fantasy cult whose odd mix of fellow travellers include marxist long march though the institutions fanatics and a dinosaur party for those with special needs. Differentiation is the only way to achieve relevance and thus inevitable. Boadicea Collins is late to the contest but is signalling that your hopes of consensus will need to be shelved.

It is actually Collins that needs to take the first step. A shame she can't, it would a great legacy.

You are buying into immaculate conception Jacinda holding the moral high ground by proposing Collins is the one who needs to make the overtures. The exalted ones fawning media are proposing there is a great political shift underway in NZ where we are now supposedly naively buying into her amorphous dreams of a kinder and fairer world. But the QE drugs will shortly wear off and the dawning of reality will stir polarising urges in the masses.

There is no way that either of them will back down.

I don't expect the QE to back off while Jacinda has more 'poor' people to save.

If they were actually in it for the greater good of NZ, Labour and National would get together decide on a path, utilising the best person for the job to deliver.
All that I can see at present is bickering over who can build the most roads.
I don't know if this is a 'left' or 'right' view and frankly I don't care, it is bloody logic.

I'm going to build a road!
I'm going to build two and they will be longer than yours!
I'll build three then...
That's about the state of NZ politics at present.

Yes, it's all rather infantile. Meanwhile our comparative prosperity continues to decline and rather than engage in serious long term planning and the accompanying change that is so necessary we pick the soft option of low quality mass migration to hide behind.

Dystopian infrastructure projects:

1. Light rail from the deserted CBD to the deserted airport.

2. Nationals 'bridges to nowhere'.

Yesterday, the RBA announced the results of its monthly monetary policy review and while it made no interest rate changes, it did emphasise that it will be intervening more vigorously in secondary markets to keep bond yields low.

It is irrefutable that the most effective means of bringing risk-free yields down is...the fact that the ECB and central banks always fail. QE doesn't lower yields, the *ineffectiveness* of QE does, however.

Interest rate fallacy.

https://alhambrapartners.com/2020/08/03/acc
Link

Who sets the bond yields Audaxes? I thought it would have been the RBNZ? And what would this intervention look like?

Buyers of sovereign bonds and other HQLAs - Large US banks are just one cohort.

Our local banks are doing the same - Line 3 - Assets $M section

Isn't RBA (and BOJ?) explicitly targeting long term sovereign bond yields?

Take it away Dick Fisher:

MR. FISHER. In summary, I want to mention that, as I said earlier, most of these variations that have been suggested are very un-Bagehot-like. And what I mean by that is, twisting [or QE] entails purchasing assets that investors are fleeing toward, not assets that they are fleeing from. Link

Australia’s central bank kept its interest rate and yield target unchanged, while announcing it will end a three-month hiatus in bond buying, as Victoria state’s tighter and longer lockdown adds to headwinds. Link

The market held rates near 25 bps in the cash and 3 year Aussie government bond sector for three months, despite significant bond issuance volumes.

The only thing you need to know about bank reserves (base money): they go up, it's bad

NZ's monetary base growth can be witnessed here (Liabilities section)

The COVID doubling:
Feb 2020 - 14,571
Mar 2020 - 29,815

Doesn't a central bank issue/sell bonds at a set interest rate? I understand these are considered the safest as sovereign currency issuers can never go broke. Just looked it up - time value of money and how much a buyer is prepared to pay for a set face value and interest rate. Cheers.

Normally, the function of a state's fiscal agent - Treasury. And, yes the coupon interest rate is often fixed for most term bond issues, but the market price fluctuates thereafter,to adjust for changing yield demands.

This is very basic stuff - I suggest you learn to understand the functions of various market agents before you blindly contest the workings of these markets.

Not contesting them Audaxes. Asking questions does not imply disagreement. But some markets function on a very complex basis, and as I don't and won't be dealing in or with bonds at any time in the future, I see little need to develop a big understanding.

From a Government's perspective though that yield would only matter at the time a bond was issued/sold (if the interest was fixed, how often are variable interest bonds issued?) There after it surely would only be the traders and potential investors who would care?

Government cares if it's locked into high value coupon debt issues when market yields collapse. Discounted cash flow analysis shows that such a scenario makes it expensive to retire such debt issues trading well above par prior to redemption. Have a quick look at the formula embedded in this PDF document and try a few different yield examples.

if the interest was fixed, how often are variable interest bonds issued?

To my knowledge NZ Treasury has no outstanding floating rate debt. But the US has - view the bottom FRNs notification entry here.

Both are interesting. thanks.

Those mortgage deferral numbers in Aussie are alarming...when do people start reducing their exposure (via deposits) to Aussie banks?

I finally had some luck on the stock markets. Pan American Silver Co is up over 5% today, yippee!

Yes and GDX on NYSE up another 2% overnight. Might be another good day for those with mining stocks on the ASX.

10
up

In case you were wondering TVNZ have confirmed they are unbiased. Very similar behaviour to RE agents feeling the need to put the word honest in their advertising.
"1 NEWS remains committed to delivering thorough, unbiased coverage across the political spectrum."
https://www.tvnz.co.nz/one-news/new-zealand/tvnz-announces-its-your-vote...

This is such hogwash. Each night at 6pm I start watching One news and when twisted/political reporting (and fake news) comes on I switch over to HGTV or turn it off. Last night I only managed 5 minutes.

I saw this first when One news started bashing Jacinda during lockdown. At least Jacinda kept her cool.

Then when Todd Muller appeared it seemed like every night Jessica Mutch-McKay was on the National wagon with fake news about this and that, attacking the government (no one from Labour was interviewed, and every night someone from National was interviewed). Then when Todd disappeared Jessica did too (for a bit). She should die her hair blue instead of red to suit her politics.

They don't even bother with the most basic research. For instance, a couple of months ago when many US meatpacking plants were shut because of Covid, they ran an article about how NZ beef farmers were cashing in due to a shortage of US beef. Meantime, out in the real world, NZ beef schedules were well below the 5 year average as the works struggled to cope with demand for space due to drought.

They also ran the same story as OneRoof - floods of returning Kiwis keeping property prices high! You only need to look at arrival vs departure data from NZ customs to see we are losing population.

'when One news started bashing Jacinda during lockdown'. Was only one night though, TVNZ quickly got the word from Heather Simpson that they were to resume normal Cindy walks on water transmission. `

I'm, oddly, missing Xing's contributions. He's the Tigger to Emperor Xi's Pooh: bouncy, confident, seemingly unaware of Thistles. I know it's Austerity Time at Interest, but perhaps a check-up is needed to assure us all that he (one assumes the gender...) hasn't been Disappeared, Muted or otherwise De-Bounced?

Also where is Zach these days?

Yes, I also feel a sense of loss over our favourite troll having been instructed by Beijing to go into sleeper mode. He or she provides a nostalgic connection to my cold war youth which was backgrounded with similar turgidly improbable propaganda.

The irony is, of course, that he tends to Innoculate rather than Infect, which probably wasn't his intention., I say 'his' but upon mature reflection, can a bot have a gender, and if so which of the 72+ on offer would zhe choose?

Wow , Gold over$2,000 an ounce !

China is the biggest gold producer in the world , but they never sell a single ounce , a small % is sold for domestic use in jewelry

China is also the BIGGEST buyer of Gold bullion from other producers around the world

The question is , why is China stockpiling gold so aggressively ?

And why do they not publish their bullion holdings in tonnes , when everyone else does ?

China may already have more gold bullion than the US has , in which case it could make a case for the Yuan to be a reserve currency like the Euro , Yen or $

They aren't stacking it to play tidliwinks with, that's for sure.
In an artical above the Chinise banks have stopped the buying and selling of PM's. Guessing that it will create more demand and esulate the physical price.
In turn the COMEX would have to deliver on more and more contracts and we would see if their actually holdings are equalvant to their contracts... The safe money would be in betting against that.

Which, hopefully, will lead to more "Gold Rush" and 'Aussie Gold Hunters' episodes on Discovery, and bolster Caterpillar and Volvo share prices.....

The gold bugs could inadvertently be playing into China's hands?

That would be a great excude for Jacinda not buying PM's when the majority of centeral banks were buying.

Heading back to the gold standard? Although to do that the gold price would have to skyrocket to account for the global money supply.

There's nothing else that the people can trust. A couple of big hitters calling for $15k gold at the current money printing amount, well eaiserly double that before it sinks. $30k gold, silver over $1.5k.

Days to the General Election: 19
See Party Policies here. Party Lists here.