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China exports jump on special public subsidies; Taiwan does even better; RBA sees 10% jobless; US jobs bounceback weaker; US Fed touts FedNow; UST 10yr yield at 0.57%; oil soft, gold falls; NZ$1 = 66 USc; TWI-5 = 69.3

China exports jump on special public subsidies; Taiwan does even better; RBA sees 10% jobless; US jobs bounceback weaker; US Fed touts FedNow; UST 10yr yield at 0.57%; oil soft, gold falls; NZ$1 = 66 USc; TWI-5 = 69.3

Here's our summary of key economic events over the weekend that affect New Zealand, with news the Chinese economy seems to be adding muscle.

China has reported its foreign exchange reserves have moved higher again in US dollars, to US$3.15 tln in July. It's its fourth consecutive monthly rise and a bigger rise than was expected.

And China has reported a strong trade surplus in July. Imports were down -1.2% year-on-year while exports were up +7.2% on the same basis. The resulting surplus of +US62.3 bln for the month was far better than the +US$42 bln expected. Their July result involves a stunning +$32.5 bln surplus with the USA. After all the time and energy the America First president invested in this issue, his citizens just keep on buying Chinese goods at an increasing rate, despite the tariffs. China ran a -US$0.5 bln trade deficit with New Zealand in the month, and that was slightly less than in June.

China has confirmed it will use old-playbook techniques of preferential export tax rebates and special credit lines to keep their exports flowing. None of these policies will advance their entry into the TPP they say they want.

The Chinese currency has appreciated +2% since the start of July with +0.6% of that coming in the past week. Iron ore prices are back above US$100/tonne on Chinese demand, near an 18 month high and apart from that brief spike 18 months ago, it is at a six year high.

Taiwan has reported a similar trade trend for July with exports rising (+0.4%) and imports falling (-6.8%) so it has a fatter trade surplus of +US$5.4 bln and on a per capita basis, five times more than China itself.

In Australia, the tension between public health and economic health is playing out in a brutal manner in Victoria (and inflamed by the Murdoch press). Those on the economic side seem to be fiercely uncomfortable that public health priorities should have precedence. It is unclear whether Melbourne has the discipline to 'stay at home' to beat the pandemic there. The odd thing is that the rest of Australia wants the health risk gone and wants Victoria to defeat COVID-19, but Victorian business interests are resisting their participation. And you know if the situation was reversed, they would have a completely different view.

Joblessness could rise to more than 10% if the virus pushes other states outside Victoria into Stage 3 and 4 lockdowns, the Reserve Bank of Australia has forecast in their latest Monetary Policy Statement. And they warn it will take a long time to recover, pushing them into an extended recession.

In the US joblessness is a growing issue too and renters there are in substantial trouble. With the end of the federal moratorium on evictions that expired on July 31 and the end of the US$600/week boost to unemployment benefits, a recent official survey showed just over a third of all renters had "little or no confidence" they can make their August rent payment. In July 27% missed a rent or mortgage payment, so the issue is getting much worse quite quickly.

The US non-farm payrolls gained +1.76 mln new jobs in July in a further improvemnet after the -22 mln jobs lost in March and April. +301,000 of the July gain was from Government jobs which was an unexpected boost. But their participation rate remained at a low 61.4%. These July improvements represent a slowing of the rebound, undermined somewhat by the rising pandemic second wave.

Canada also reported its July jobs data and those rose +0.42 mln. Their participation rate is an improving 64.3%.

We should also note that the US Fed has announced what has been touted as an alternative to Facebook's Libra crypto plan. The goal - instant payments. For Kiwis it may seem a quaint notion given we have had virtually instant bank settlement for much more than two decades here. But for Americans, used to dealing with thousands of banks and still largely transacting with cheques, their transfer system is a real anachronism. Now the Federal Reserve has announced the final rollout of FedNow, and instant interbank settlement system for the US, and one that will clear away all those money transfer delays, if not the fees. They are now in the 21st century on payments.

The latest global compilation of COVID-19 data is here. The global tally is 19,706,000 and that is up 529,000 since when we looked at it on Saturday. Global deaths reported now exceed 728,000 (+12,000).

A quarter of all reported cases globally are in the US, which is up 113,000 from this time Saturday to 5,169,000. US deaths are now just over 165,300 and a death rate of 499/mln (+6/mln). And the net number of people actively infected in the US rose overnight to 2,362,600, so still far more new infections than recoveries.

In Australia, there have now been 21,084 COVID-19 cases reported, another 404 overnight, and still very much concentrated in Victoria. There were another +10 in Sydney and NSW can't seem to shake its small community transfer outbreak. Their death count is up to 295 (+12). Their recovery rate is still just over 56%. There are now 8920 active cases in Australia (+229) and most are community transfer.

The UST 10yr yield is holding firm at 0.57%. Maybe this instrument is no longer the core signal it once was? Their 2-10 curve is marginally firmer at +44 bps. And their 1-5 curve is similar at +10 bps, while their 3m-10yr curve is also similar at +48 bps. The Aussie Govt 10yr yield is unchanged at 0.85%. The China Govt 10yr is up slightly again at 3.01%. And the NZ Govt 10 yr yield is also little-changed at just on 0.77%.

The gold price will start the week at US$2,035/oz which is up +US$4/oz from where we left it on Saturday but a long was down from its record high of US$2071 reached during last week. The silver price has fallen back too.

Oil prices are marginally softer today. They are now just over US$41/bbl in the US and the international price is now just over US$44/bbl. The US rig count atrophied again, slipping a few to a new record low.

And the Kiwi dollar fell rather sharply at the end of trading last week and is now down -¾c to just under 66 USc. Against the Australian dollar we are unchanged at 92.3 AUc. Against the euro we are down slightly at 56 euro cents. That means our TWI-5 is now a softer at 69.3 and also lower than where we were at a week ago.

The bitcoin price is up +1.0% over the weekend at US$11,428. But that is just a very marginal rise for the week. 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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78 Comments

“Fatalities are down 99% and some hospitals have no coronavirus patients, sparking hope that ‘herd immunity’ may be near.
…I think it quite likely that we’re almost reaching herd immunity.” His view is supported by recent research by Oxford University, led by the epidemiologist Professor Sunetra Gupta, that suggests the UK may have achieved a sufficient level of herd immunity to prevent a second wave of Covid-19. Scientists say the “threshold” for herd immunity may have been lowered because many people may already be immune to the disease without ever having caught it.”
https://www.thetimes.co.uk/edition/news/covid-wards-empty-as-virus-death...

They better hope it's herd immunity or they're going to be in a lot of trouble if there's a second wave there.

16
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Profile is as relentless as they come. If he ever posts about about anything but trying to minimise the virus I may fall off my chair.

Governments and news agencies are a lot more relentless, discussing CV morning, midday and evenings, every day, Interest keeps a daily tally, you are just too engrossed in the CV story to see it

All the more reason why people may not really fancy having someone constantly repeat their C19 agenda on here day after day eh?

To be fair, he's equally vocal in regards to climate change denial.

Time may well prove Profile correct. If there is no vaccine, then when we will eventually get hit we will be in big trouble.And I think our health professionals know this too. The Swedish approach may turn out to be the best one.

In the time we have a hell of a lot more understanding of what we are dealing with and better prepared, instead of a cross our fingers approach.
Hind slight always has 20/20 vision.

Murdoch paper, so be cautious. “One doctor suggests...” But it seems that things are getting better. Interesting debate about Sweden in the UK Daily Telegraph.

Looks like lots of countries have hit effective herd immunity at low rates of infection (more like 20% than 60-70%).
https://twitter.com/covid19crusher?lang=en

Maybe there is something in the XZY immunity that Peak Prosperity is working through.

12
up

I have been waiting for an article on China like the one below. How Xi's policies are backfiring and taking China backwards.

https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12355007

All Dictators get too big for themselves ...and.....leads to their downfall.

10
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Aye and none of them have ever been as big as Mother Nature.

Quote from the Herald regarding China article: "But the world isn't cowering in the face of such 'wolf warrior' diplomacy as expected. They're biting back. Australia. Britain. Canada. India. Japan. Vietnam. All have stood firm in the face of extraordinary Chinese threats and intimidation. And, for Chairman Xi, that's humiliating."

Piglet says send over a jar of manuka hunny to cheer him up.

Watch out for the weed spray in the honey. This will be the next biggest shakeup in our honey industry. It could be disastrous.
Good on those countries standing tall against China. They might be trading positively at the moment but global business will go negative for them, then we will be dealing with artifial intelligence aspects to upset the globe. Who will be standing at the end - my bet is on the USA.

Wait to they find 1080 in manuka honey. A weed killer is one thing, a pesticide that also has cancer causing properties is next level on steroids.

If 1080 is found in honey then the 1080 nut bars will be responsible. No other way.

A poison that is easerly transported in water and taken up by plants and distributed throughout its structure has little to no chance of turning up in honey? That is some seriously deluded logic.
A study on 1080 added to the ground around plants in gradual form shows a 100% mortality in aphids.
https://www.scoop.co.nz/stories/SC1105/S00067/1080-poison-science-and-fa...
To assume that 1080 is not already making it's way into honey is inconceivable.

peer reviewed science is my go to. Try it.

The 100% mortality in aphids from 1080 is a peer reviewed study.
NZ peer reviewed 1080 science... = agree with 1080 or we will destroy your career.

If China decided to teach NZ a lesson, finding 1080 in our exports would be one of the easiest ways to do it.
That would sink the Greens and Labour for decades.

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"hide your strength, bide your time" policy - it was working very well and the puzzle is why China should abandon it for an aggressive assertive policy. It worked well because western nations have trouble thinking beyond the next election (next month for NZ). Now China is no different from western countries with the self-aggrandisement of the person in power becoming more important than the long term welfare of the country and its people.

Yes it is a puzzle.
One theory is that the economic glory days ended and more authoritarianism was needed to control the masses without the opiate of rapid growth.
Another theory could be Xi getting a bad case of dictator's syndrome and thinking he / China is more powerful than it actually is.

My guess is the dictator syndrome - it is known that he reads lots of history and especially about the collapse of communist countries - it was the toughest dictators who lasted longest and the moderates were swept away.
Not sure Xi over-estimates China - that country is very strong. OK USA is wealthier and has a better military but it is control of the media that matters - China could declare war and attempt invasion of California and Taiwan overnight but even Trump could not declare war against China without two years preparation of the people - as per Roosevelt getting USA into WW2.

Globally, the tension between public health and Covid 19 health is playing out in a brutal manner.
“According to one estimate, a three-month lockdown across different parts of the world and a gradual return to normal over 10 months could result in an additional 6.3 million cases of tuberculosis and 1.4 million deaths from it.
A six-month disruption of antiretroviral therapy may lead to more than 500,000 additional deaths from illnesses related to H.I.V., according to the W.H.O. Another model by the W.H.O. predicted that in the worst-case scenario, deaths from malaria could double to 770,000 per year.”
https://www.nytimes.com/2020/08/03/health/coronavirus-tuberculosis-aids-...
http://www.stoptb.org/assets/documents/news/Modeling%20Report_1%20May%20...

Here a historical perspective.
(Anyone from the 50's still about).
Niall Ferguson.

https://youtu.be/F7nS5ryOFpQ

I’m agreeing profile. There are masses of health issues going untreated, undiagnosed and underreported because of the Covid. Mortality displacement is emerging....the world bankrupting itself for xx number on months of extended life expectancy.

Yes good article - scary as hell explosion. Terminology bothers me a little; the white vapour ball is not the shock wave, but the condensing of atmospheric moisture in the vacuum immediately behind the shock wave. And this is being somewhat pedantic but the shock wave, or the compression of that atmosphere by the force of the blast can be very thin, but the extreme change of pressures from normal atmospheric, to highly compressed and travelling very fast, to quite intense vacuum before returning to normal atmospheric does most of the structural damage. Very extreme pulse.

Well off topic, but this was covered up during the war. I’ve seen the crater, incredible.

Google RAF Fauld explosion.

Had to be a Hezbollah screwup. They have been caught in Germany, Cyprus and London with clandestine depots storing caches of tonnes of .... Ammonium Nitrate. And no way that a few million dollars worth of easily sold fertiliser would have remained in a warehouse in Beirut for 7 years if powerful people didn't want it to stay there.

Young lady reported on over the weekend who had caught COVID and was supposedly recovered, is still struggling to get over it, battling fatigue. Interesting as she indicated that she was very active, going to the gym 5 - 6 per weeks undertaking a variety of activities. Likely what we would describe as young, healthy and very fit before COVID - not so now she has my sympathy but is a very good example of why you don't want to catch it!

A case study of one. Don't ever confuse fit with healthy. Fit is only one component of healthy, and it can be detrimental if excessive and not backed up by a good diet.

Something I've known since a child, a sugar spike can half the T-Cells active and vitamin C can double them. There is a bit now written about T-Cells and Covid-19 if you look. That is the first line of defense and something vaccines won't help with.

Here's a question Scarfie, why don't you put you money where your mouth is and go out and catch COVID and then come back and report to us how well your theory works? Personally I just don't want to catch it - period!

Murray I don't know that you get it. You simply don't catch it if you are healthy. That is what the Aussie MD on the cruise ship found. He had ten discordant cases as he called them. Ten people in close confines with someone that was infected, those people never tested positive and in his own case never showed antibodies. There is backup to this now, healthcare workers.

Besides, I flew to Zambia via and back late Feb and back March. Fair chance I was exposed. After that I picked up a hitchhiker outside a hospital that I believe had it. He was in for pneumonia. More recently I think someone in my sports team has been down with it, certainly a flu that put him in bed for a week. Obesity a factor there.

I do get it Scarfie. i have read your posts and the article about the cruise ship doc, but my impression is that they don't really understand why they don't catch it. Did that cruise ship doctor manage his fitness well, watch everything he ate, avoid all the negatives? I doubt it. The research is just not there yet. But with so many virus's across the world there has always been groups who don't catch them, and the mechanisms are not well understood. You may be right, it may be fitness and healthy living, but tell that to the girl who was interviewed. It may be criticised as a sample of one, but my impression during the interview that i saw was that she thought she was living healthily but still caught it, and months after she 'recovered' she is still feeling the effects. It is IMO, better to eliminate it, because the impacts are just too bad.

If you have favoral cellular receptors for viral entry and are exposed to a decent viral load (with no pre-existing immunity) it's highly likely you'll catch it.

I don't buy the 'infection is a consequence of lifestyle' belief. It can certainly play a part in the severity of infection but there's too many complex interactions to make reductionist claims like this. It's not bad advice to try and be healthy but it's not necessarily a panacea either.

Indeed a case study of one. Chronic fatigue can develop after a whole range of infections.

Or working in an office job for too long...

I sometimes find that ‘Chronic fatigue’ can also set in reading when reading the spruiker comments on the property articles on this site.

You might want to do a bit more research. Preliminary data shows some of the new vaccines are stimulating T-cell recruitment.

https://www.stuff.co.nz/national/health/122198383/christchurch-professor...

I'll make the prediction that there will never be an effective vaccine, you are effectively trying to vaccinate against bad lifestyle choices.

That was in the Herald, wasn’t it. Enough said. That paper’s decline is tragic. Tabloid trash nowadays. Their ‘premium’ stuff is laughable, and usually free somewhere else.

On many days I'll pick it up in a cafe, skim through it, and put it down again - within 2-3 minutes. It's overall quality is appalling.
A good article is very much the exception.

As with the Torygraph, dump the page source and RTWT....no subscription needed.

Of course Gold falls. The US Treasury yields are indicating prolonged Deflation. Gold is indicating Inflation. They can't both be right.

Deflation/inflation as measured by CPI or deflation/inflation measured by money supply?

Could be we will have a few years or deflation followed by eventual inflation. Last time the inflation showed up in investments and the stock and housing market but it took awhile after the GFC and the FED has been trying to stoke inflation for years by the time it showed up.

Inflation isn't allowed to show up remember.

Mandated to be kept in the 1-3% band at all costs.

But that is only 'consumer' inflation. Could it be that we're already experiencing high inflation by looking at the price of gold?

There's consumer inflation as measured by CPI, then there is inflation of fiat currency as measured by money supply and the value of said fiat currency against hard money like gold/silver. Given the rise in the price of gold - does that mean we're experiencing high general deflation - or high general inflation?

We are surely experiencing massive wage deflation? Which would be a much bigger force than the tiny minority of the world's population that trade gold. I mean, I know we have plenty of gold bugs on here who saw the writing on the wall (even before Covid-19) and started stock piling they are still a tiny number of people compared to the numbers effected by CPI and especially wages. After the GFC wages took a long time to recover and even then, were so far behind property and other investments that it heightened social problems. It will be interesting to see where the distortions show up this time. I still think there are stronger deflationary forces for now. Especially with a likely credit crunch.

"We are surely experiencing massive wage deflation?" - are we?

I'm becoming less and less of a fan of CPI as a measurement of inflation and a driving factor of central bank policy. Its causing all sorts of strange distortions that I think will become more apparent over time. We may have consumption deflation, but when you look at real inflation (i.e. fiat vs hard money) we could well have very high inflation. You could argue we've had very high inflation for a few decades now but we keep driving interest rates lower when that would actually be the opposite of what we should have been doing.

We already have massive inflation.
What will the interest on a 1$ Million term deposit will buy today compared with 10 years ago. $47,000 verse $14,900.

The UST 10yr yield is holding firm at 0.57%. Maybe this instrument is no longer the core signal it once was?

Bond yields equate to a “flight to safety” because of very clear liquidity risks.

The evidence for liquidity problems begins in repo. Starting with collateral, primary dealers “hoard” US Treasury securities. Not only does that tell us something about broad liquidity perceptions, it also proposes a liquidity-specific bid embedded within the UST yields themselves.

While dealers hoard the most “pristine” form of collateral, there’s weird things going on with the repo rate (the cash side). It tends to rise and remain above unsecured rates like federal funds (breakdown in hierarchy).

We also note the clear relationship to swap spreads.

Interest rate swaps tell us market perceptions of both risk (fixed leg) as well as funding costs or liquidity (floating). When the swap spread, that is, the quoted price of the fixed leg when compared to the same maturity US Treasury yield, compresses even to the point of being negative, it suggests a substantial degree of imbalance on one or both of those sides – perceived credit risks as well as funding difficulties.

Next, we take these indications of interbank monetary trouble (along with the rising dollar) and interpret them in the constituent pieces of bond yields. Yes, Fisherian deconstruction (if you want to convince a bunch of Economists and central bankers, you have to first translate your ideas into their language).

The QE explanation of falling bond yields is that they have to be related to term premiums alone. The TIC suggestion of a structural defect, in light of the liquidity evidence, suggests the other two components: inflation expectations and the likely future path of short-term interest rates.

Inflation expectations correlate with our liquidity evidence:

As does the expected condition and trajectory of future money rates (eurodollar futures; contract prices rise when the market reduces its expectations of future money rates, shown inverted here):

Therefore, bond yields are telling us something about the monetary system as it is which isn’t consistent with the accepted mainstream version (QE and bank reserves, therefore term premiums). Falling interest rates are instead Milton Friedman’s interest rate fallacy, tight money. Link

So global credit crunch then?

Stories on repo started circulating last year, and some saw it as the beginning of a credit crisis.
I wonder if this is part of John Key's concern on the economy.

And Trump wants his likeness on Mt Rushmore!

Malignant egomaniac requires institutional confinement.

OK, of all the terrible things he's done, what are the top 3 on your list? - any order.

Pulling out of the Paris Climate Agreement, loosening all environmental protections, constant lying. The list goes on.

Thanks.
1. Pulling out of Paris is a good thing. Paris doesn't reduce emissions, it just shifts them between countries. US emissions have reduced since and much cash saved. How do you think Paris good?

2. What/Where environmental sites you refer? Reducing energy costs is massive benefit to everyone, more so poor and low income. Poverty is a high order problem.

Lying? What are the 3 biggest lies you think?

Ref. For 1 & 2.
https://www.amazon.com/False-Alarm-Climate-Change-Trillions/dp/1541647467

https://www.amazon.com/Apocalypse-Never-Environmental-Alarmism-Hurts/dp/...

Really, I do not think credible commentators can accept ANY "facts" from China at face value?
For instance, who are they exporting more stuff to?
Certainly not Japan, their number one market, whose GDP and imports are cratering and have been since March.
Double edge book keeping: ie exports are someone's imports. How can USA be sporting more when their consumer is getting smashed with 32 m unemployed?

Agree. Don't believe anything coming out of that country.
Exports up 7.2% on same time last year? Yeah right!

"Don't trust China, China is asshoe"

"virtually instant bank settlement for much more than two decades here. "

Our banking is behind the times. When i send a payment through internet banking, the recipient receives the funds at best a couple of hour later, often overnight, and if it's on Friday night then it takes 3 days!

For years now the UK has has FASTER payment system that provides instant transfers.

That, and NZ banks have way too many clerks in the middle. Try to send funds from checking to your forex account for example. You have to write them to do it for you more often than not. Australian banks/brokers are not much better. European brokers are fully digital, no human beings except for customer support (still).

Is China wanting to overtake the US hegemony in world affair as its primary objective?

Maybe it just wants the Yuan to be a "reserve currency " like the US$ , EURO and Yen ?

China is stockpiling gold in the hundreds of tons per annum since 2015 when the stopped formally announcing the extent of their gold reserves .

China had 2000 tons in 2015
America had c. 8000 tons

China is the biggest miner of gold , but never brings it to market , it keeps almost all of it .

Why in a world of fiat currency would you want a massive gold stockpile ?

Sounds a lot, but 8000 tonnes is 'only' half a trillion US dollars at current prices. To back a currency it would need to be valued much higher than that.

$15,000 gold needed to cover the present money according to some heavy hitters in this field.

Well here's some good news: BBC Coronavirus: New Zealand marks 100 days without community spread.
"New Zealand has gone 100 days without recording a locally transmitted Covid-19 case, a milestone that has both been welcomed and brought warnings against complacency."
https://www.bbc.com/news/world-asia-53715084

Reaching for the Precious.
Obsession, the NZ example.
Food for thought & a message for the PM and her department.

https://youtu.be/a4DQ12216l8
What next for New Zealand.

Precious, precious, precious! My Precious! O my Precious! - Gollum, when did he become a government consultant?

Further to tourism problem, remember the Education bit. - remember no government money has been stimulus, its all being as Repair & Replacement of money lost.

Polytechnics and universities are warning an expected leap in domestic enrolments next year will not make up for the loss of foreign students due to the pandemic.

https://www.rnz.co.nz/news/national/423159/nz-student-increase-won-t-mak...

# what happens next.

Very soon ROC will be a distant memory!

"a recent official survey showed just over a third of all renters had "little or no confidence" they can make their August rent payment. In July 27% missed a rent or mortgage payment, so the issue is getting much worse quite quickly."

That is a staggeringly high number and surely a terrible precursor for an economic collapse. If people don't have money to pay rent, then they most definitely don't have money to buy anything non-essential and also struggle to pay for other necessities

That is on top of the already debt driven bubble economy before CV19 that had already given the 2 to 10 year dip below 0 indicating a recession.

They will also have no money to invest. And if they are invested they will most likely have to liquidate those assets.

Days to the General Election: 24
See Party Policies here. Party Lists here.