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US inflation up except for petrol; US Q3 GDP looks very weak, Japan machine tool orders stay weak; Aussie consumer sentiment waivers; UST 10yr yield at 0.67%; oil unchanged, gold recovers; NZ$1 = 65.9 USc; TWI-5 = 69.1

US inflation up except for petrol; US Q3 GDP looks very weak, Japan machine tool orders stay weak; Aussie consumer sentiment waivers; UST 10yr yield at 0.67%; oil unchanged, gold recovers; NZ$1 = 65.9 USc; TWI-5 = 69.1

Here's our summary of key economic events over night that affect New Zealand, with news of 'an air of panic' among Australian consumers.

But first in the US, mortgage applications rose strongly last week, and their mortgage interest rates fell sharply to a new record low to now under 3% (plus points).

American CPI inflation rose in July, but only to 1%. That is the net of food prices that are up more than +4%, medical care that is up almost +6%, rent which is up +2.3%. Offsetting these was petrol that was down -20% pa.

US Federal Government reported a -US$63 deficit in July which was less than expected (the tax filing deadline change helped), but takes the annual deficit to more than -US$2.9 tln and easily a new record high. That is -15% of US GDP.

We are now in the middle of the Q3 for 2020 and the latest indication is that US GDP will fall at the annual rate of -20.5% in this quarter. That compares with -35% annual rate in the second quarter and a -5% annual rate in the first quarter. (Given the new lockdown here, it's not going to be flash in New Zealand either.

In Japan, their machine tool orders levels are not recovering, still down more than -30% year-on-year.

In Australia, wage growth in the June quarter was the slowest since records were kept.

And the pandemic spread in Victoria has had an obvious crushing of consumer sentiment there. But it has also affected NSW sentiment badly too. Australian consumers are clearly fearful of the COVID threat and uncertain about how it will play out. And that will have some bearing on their decisions near term. But there also looks to be an air of panic in the Westpac-MI consumer sentiment survey that Westpac says is out of proportion with what still look to be manageable virus-related risks outside Victoria. "That could disappear quickly if feared outbreaks in other states do not materialise and the situation in Victoria eases." But Aussie consumer sentiment will be hostage to virus outcomes for some time yet.

Wall Street has started today with a big gain as a risk-on sentiment returns. The S&P500 is up +1.6% so far today. Overnight however, European markets were higher but more restrained, mostly up less than +1% but London gained +2.0%. Yesterday, Shanghai ended its session down another -0.6% but Hong Kong was up +1.4% and Tokyo was up +0.4%. The ASX200 was flat (+0.1). The NZX50 fell -1.3% in the first trading session after the renewed lockdown status.

The latest global compilation of COVID-19 data is here. The global tally is 20,424,000 and that is up +272,000 since this time yesterday. Global deaths reported now exceed 745,000 (+7,000).

A quarter of all reported cases globally are in the US, which is up +60,300 from this time yesterday to 5,331,000. US deaths are now just over 168,400 and a death rate of 509/mln (+5/mln). And the net number of people actively infected in the US rose overnight to 2,382,000, so now fewer new infections than recoveries.

In Australia, there have now been 22,127 COVID-19 cases reported, another 414 overnight, and still very much concentrated in Victoria. But there were another +18 in Sydney and NSW can't seem to shake its small community transfer outbreak. Australia's death count is up to 352 (+21). Their recovery rate is now just under 58%. There are now 9001 active cases in Australia (+6) indicating a rising recovery rate but still more infections than recoveries.

The UST 10yr yield is firm at 0.67% and holding on to yesterday's rise. Their 2-10 curve is slightly steeper at +50 bps. And their 1-5 curve is up marginally as well at +15 bps, while their 3m-10yr curve is little-changed at just under +58 bps. The Aussie Govt 10yr yield is up marginally at 0.92%. The China Govt 10yr is holding at 2.99%. And the NZ Govt 10 yr yield is -4 bps lower at 0.74%.

The price of gold fell sharply in London yesterday (down -US$92 to US$1940/oz). After that it went lower in New York by another -US$30 to US$1910/oz. In Asian markets yesterday it went lower yet again, down to US$1890 and a further -US$20 fall. Now today in New York, it is back up +US$43 at US$1933/oz. Net of all that, this is a drop of -5% in two days, even if it is just a net +US$23 rise from this time yesterday. This sort of volatility for gold is unusual. Silver has fallen almost -20% in the same time, volatility on steroids.

Oil prices are little-changed today, even if marginally firmer. They are now just over US$42.50/bbl in the US and the international price is now just under US$45.50/bbl.

And the Kiwi dollar rose overnight after an interim fall and is back at 65.9 USc which is where it was this time yesterday. Against the Australian dollar we are soft at 91.9 AUc. Against the euro we are down slightly at 55.9 euro cents. That means our TWI-5 is now marginally softer at just on 69.1.

The bitcoin price is virtually unchanged from this time yesterday at US$11,540. 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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90 Comments

Nice to see PM’s recover their shine.

Personally not into PM; however the falls surprise me - there must be some feeling a lot more confident about the immediate future.

Possibly people in need of liquidity?

PM’s are manipulated by institutions shorting the market - the fact that the pullback occurred overnight says it all.

@TraderSam, next leg down will be more severe. Gold to US1000.

Or up towards $3000 and USD/NZD and any other fiat currency down the drain lets wait and see but judging by current OCR etc cash is trash hence everyone piling into anything that has some sort of longterm value.

Ive rechecked the chicken entrails, and they dispute your findings :)

guwop - what’s your rationale for $1000? Not so long ago you were saying $800 - or were they typos for $10000 & $8000.?

Its a carefully thought out rationale based on the gotnone theory. :)

Deflation.

https://www.resilience.org/stories/2020-08-12/a-new-future-for-conservat...

"Given capitalism’s systemic imperative to incessant growth, this shift requires the liberating prospect of transcending capitalism"

One suspects capitalism is doing a very good job of transcending itself. Does anyone know if Buffet is still out of the share game? One presumes his proxy is held in digital form, inside a computer or two?

PDK, you don't help your cause at all by posting links to wokester crap like that. And written by a pretend greenie with a carbon footprint many times larger than ours.

That's 'shoot the messenger'. I've just approved of the immigration-fellow's article, not because I agree with the messenger, but because I think we need the conversation. So much of our discussion is stymied by our need to peer-identify. and a lot of denial is ditto

Capitalism doesn't have much to do with what is going on any more. It was transcended by state-sponsored corporatism years ago.

"This sort of volatility for gold is unusual."
For sure...but we do have volatile times. The last 2 days hammering just took it back to the level it was at a couple of weeks ago. And was happy then.

The professionals are back in. No doubt short selling again having been caught out by Joe Bloggs propenstity for the yellow stuff and having to buy back forcing the price up.

The Russian anti virus announcement seems to cause a exodus but those who know that we are one way journey to an economic event, with or without CV jumped in and took their buying opportunity.

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Australian consumers are clearly fearful of the COVID threat..

They are more fearful of an economic lockdown than the virus itself. Most normal Australians aren't fearful of the virus very much at all. Wouldn't that be fair to say?

Panic is what we should fear and our government seems absurdly unaware of this. Rushing into a lockdown simply panics people. Look at Taiwan. They are getting the odd case and currently have a number of cases. Are they panicking and locking down? No they are not and neither should we.

you might get to testy your theory Zachary if Will Robinson has been at MAGS recently - my sons football team played MAGS 2 weeks ago and he was coughing in the car the other day - lol

What time frame would you prefer?

The panic is definitely in Wellington, at level 2. But it seems most people are thinking lock down is inevitable at this point.

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Well a panicky feeling about catching the virus could be good if it led to people taking proper care with, self quarantine, mask wearing and hand washing. This should help them avoid normal flu as well. Lockdown is the dumb solution, certainly not the only solution to this. The intelligent solution would activate measures to manage the virus on an ongoing basis.

yes agree with you on we should 'manage' not 'avoid' by locking down.

serious flu cases are down up to 95% throughout the western world this year. Quite remarkable.

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We're not fools, we all know how this goes. 3 days at level 3 does not mean a return to level 1 after. It means worst case scenario level 4 for 4 weeks, level 3 for 4 weeks, or if by some miracle they fail to find a decent number of other cases, level 3 for another 2 weeks then back to level 1.

I just wish the govt. would actually be up front about this - even if they don't know what level we'll be in or for how long, just say 'level 3 and we'll meet to reassess the risk and timelines in three days' time' which is a more honest message than 'level 3 for 3 days'.

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Honest answers isn't something that this Gov't dose well. It's more of 'we will save you from yourselves'.
The mainstream press dosen't call them out either.

Have any opposition, such as National, called for a Swedish approach? I haven't heard a peep.

14
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It is not a my team v your team statement and I dont understand why it gets turned arround towards that.
I don't even have a 'team', they are in swings and round abouts with me. I vote for the better team at the time or a team that can exert some control over them for the better. Blindly following isn't logical at all.

The point is that NZ is catching on that this Gov't is telling us porkies. In my view that style of leadership is what sunk Helen Clark and JK.

Not saying its us VS them. I'm pondering as to why no opposition has supported this idea.

Edit: Wasn't specifically responding to your comment, just this thread in general :)

The jury is still out on if the Swedish system is working or not, plus it is about vote gathering at present and the largest vote pools get to decide. The older people and the lower social economic groups are not going to understand taking a risk that could put them in harms way. In an election year and with the current demographics, that call would sink you straightaway.

Political parties are weather-vanes for popular (or fringe for minor parties) opinion. Few in our population would support herd immunity push, and it's an impossible sell to electorate due to inevitable social media-led wailing about individual deaths being elevated vastly above the concern about overall economic impacts, (that requires a lot more sophisticated considerations of the balance than can be delivered in a sentence). Only party that might touch it is Act, but more likely a vote loser than a winner for them.

Sorry disagree with some of what you've said, that people are catching on govt telling porkies.

There is a very large cohort of Jacinda worshippers for whom she can do no wrong and they will NOT hear otherwise. Jacinda has divided the country not United them. Her followers are cult-like. I personally know some of them. They're mostly soccer moms with nothing better to do between 9 and 3. They display her placards in their lounges, take their children to her indoctrination rallies and literally cry real tears in her beatific presence. I am not making this up. They cannot and will not see past her ideology and swallow it hook, line and sinker and don't question anything. It's extremely disturbing. They tune in to the nightly Facebook updates with Jacinda in her jim jams as she straightens events of the day for us out on FB. Her fans will NOT hear anything about Jacinda subverting the democratic process passing bills.

Jacinda is a puppet with Helen behind the scenes. I liked what another poster said a few days ago, that it has literally now become an issue of doing whatever is possible to keep Greens getting the balance of power. We need Winnie first as a handbrake since Labour winning is a foregone conclusion. Extremely disturbing.

100% agree but see a few cracks appearing.
I hear the St Jacinda comments as well, they glase over 'I think Jacinda is doing a great job' and want you to agree. If your Jacinda gushing approval is not forth comeing they argue their case. It's not worth mentioning how she was forced into LD by Kiwi medical staff pointing out that we were not prepared, they won't listen anyway.
Her PR spin team is second to none.

To be honest, if your criticism of the government is that they followed expert medical advice...well...err...what?

Voted for WP/NZF for the first time last time precisely in the hope that would keep the Greens at bay, out of cabinet, and basically it was well worth it. Trouble is NZF do not look viable this time and the Greens are now even more pent up and ready to charge full on, out of left field. After the blatant greedy tax grab of the Clark/Cullen govt, swore would never vote Labour again. Ironically, paradoxically may now have to do just that, for the same strategy, but then what’s to stop Labour inviting Greens in even if they don’t have to?

That's exactly what they did say - cabinet is meeting on Friday to reassess the risks and decide where to go from there.

Those of you out there with contacts; please tell the politicians, support for lockdown means no vote for them. That should sort them out.

Judith went on record straight away to say she too supports this lockdown.

She had no choice but to support it.

Whilst the Nats are out there attempting to rile up their supporters with conspiracy theorist carry-on. It's sad to see they obviously don't hold high opinions of their followers' intelligence, that they consider conspiracy theorist tactics will work on them.

The lower social economic and aging population groups will be the decider of this.

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How's sentiment and the economy in the US going at the moment?

Given they were one of the most 'relaxed' and resisted lock-downs as unnecessary I presume their economy is thriving from avoiding all this 'unnecessary panic' you speak of.

Sweden would be a better country to compare with. The economic fallout in the US has been because of lockdowns resulting in job losses, welfare payments etc.

From what I see, the US hasn't done much different (not on purpose, theyvare just useless) to Sweden but the stats are not mirroring.
Your view? I haven't taken much notice of the Swedish stats.

The pandemic is not over yet. Makes comparisons very difficult.

NZ question is:
1. Describe the health event as quarantine is relaxed and NZ population mixes with international population.
2. Descrbe same in economic and social terms.

20 million infected is a drop in the ocean of billions.

Who thought lockdown was a part of the gold standard contact tracing and testing system?

The first lockdown in March was sold as also "putting systems right". April, May, June & July was the time to repair, prepare, scale up and deploy.

There is a part here of failed Civil administration that gets turned back to the population issue and the voters fault "you gotta stay put". - because the gold standard systems are "not there".

Sweden's economy contracted 8.6% in the 2nd quarter - for comparison Germany's contracted by 10.1%. Not vastly different. However, Germany's death rate per 1m population was 111, whereas Sweden's was over 5 times that (571/1m)

There seems to be a few out there that want to keep the economy going over the older populations health concerns and the ones that want the redisubrution of wealth transfer to occurr forthwith.

https://www.bloomberg.com/news/articles/2020-08-05/sweden-s-economy-post...

Personally, i think the jury is out and no fair comparison can be made for a very long time because of the multitude of long term effects and unintended consequences that have yet to materialise.

My personal view is that going hard and going early is only the correct response to the initial virus outbreak to buy time. After testing and treatment capacity has been increased and once there is more information about transmission etc, then you need to adjust strategy according to the new information.

I don't think Sweden made the right call for phase 1 of the pandemic, I think Taiwan (followed probably by NZ did) but we will need much more data and time to make a definitive call on that.

I think a more Swedish-like approach would be better now. However, without the Swedish failure to protect the vulnerable. The government needs to shield the vulnerable and then everyone else needs to make their own decisions based on solid advise from respectable sources. If they don't, that is also their responsibility. I'm not sure the social and economic effects of another lockdown can be easily overcome or that there will be a sustainable "buy in" for numerous subsequent lockdowns for an indefinite period of time.

And the interesting element here in NZ is aged care have gone into lockdown themselves, nothing to do with MoH, however its reported in press as part of covid 19 response, as
aged care L4, voluntary.

https://www.rnz.co.nz/

Think about it.
Aged care can be in L2, L3 (depending on location), or L4 if they volunteer.
How do DHBs fit in?
Clear as mud.

P.S. why did MoH blow up the Canterbury DHB executive last week, 4 top operators gone, because MoH appointee Levy wanted more saving, basis the capital charges imposed by Wellington.

https://i.stuff.co.nz/national/health/122351123/exodus-at-troubled-cante...

And
https://i.stuff.co.nz/national/health/122402106/canterbury-dhb-chair-tel...

Sources have alleged this was not enough for the Ministry of Health or for Crown monitor Lester Levy, who reportedly wanted double that.

Protecting the vulnerable is far more complex than just levels of lockdown in isolated areas. If people need to shield they need ways to get medicine, PPE, food, treatments etc and some people would need help with that.

so make a quarter of the population live in permanent lockdown so the other 3/4 can have their freedom?

Many countries in the world are in a Covid-19 "casedemic" where heightened testing produces a growing number of positives (including from those who are asymptomatic or who have recovered) while the death rate has plummeted to low levels. Ref: https://www.youtube.com/watch?v=FU3OibcindQ

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Isn't it good that the US infections rate is dropping
It's just a coincidence then that this happens only after Trump administration takes over control of the data management and itself reports the numbers to the CDC

Decreased infection numbers down by 15,000 to 20,000 in few days, we can throw the current US stats in the bin.

Deaths climbing tho - more than 1,500 in the past day.

That must be a harder number to fudge. Or there were duplications on the original infection stats (15,000 cases per day is hard duplication numbervto swallow).

Easiest number in the world to fudge. Non Covid illness means a dollar. Covid illness $1.50. Oodles of Covid, obviously.
Two stats to check. People in ICU versus number of ICU beds in that area. Average age of death of alleged Covid victims.

A lot of countries numbers should be taken with a huge pinch of salt but I think unless we see healthcare facilities being overwhelmed or mass graves being dug (which is harder to hide) then I think we can at least trust that the infection level is manageable. A manageable pandemic is really the best you can expect give the highly contagious nature of the virus.

Ahh well not to worry, looks like they're already preparing to get rid of Trump so they can properly manage the virus. Herald article: US election: Military officials in extraordinary Trump letter.

Quote: "We do not live in ordinary times. The president of the United States is actively subverting our electoral system, threatening to remain in office in defiance of our Constitution. In a few months' time, you may have to choose between defying a lawless president or betraying your Constitutional oath. We write to assist you in thinking clearly about that choice.

"If Donald Trump refuses to leave office at the expiration of his constitutional term, the United States military must remove him by force, and you must give that order." https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12356143

Gasp. Gotta keep the warfare state going, eh?

These people read 1984 and liked it, especially the Everwar part. Trump obviously isn't their cup of tea. I mean, fancy standing down a perfectly good airstrike on Iran? In mid-flight, too! How is that going to start a war, I ask you?

On the other hand, if they abandon their constitution and allow a president to stay in power by his own dictate, what have they left of their country's foundations? What's your recommended course of action? (And are you talking welfare for companies as currently practiced, or more Medicaid and stimulus for the working folk?)

Pragmatically, it's interesting to note that our recent social narrative (which was false at it's core, excusing itself on multiple fronts) was spearheaded by the US. And that the result of forcing a collection of falsehoods ever-harder against some immutable truths, has been the biggest falsehood-issuer floating to the top of it.

It fits, in a macabre way

Many countries around the world are showing a similar drop away in cases after the initial spike - there are highly susceptible people who's lifestyles see them at high likelihood of exposure, but once they have been infected the population R0 and rate of infections starts to fall away into a much lower level. Much of US is into that 'zone' now. There has been no second wave in New York. Lots here: https://twitter.com/covid19crusher?lang=en

If we see second waves in places that have had major outbreaks it will be because immunity hasn't lasted and I wouldn't be expecting to see that kind of thing any time soon. It's just still too early to know how long the immune response will last though. Hopefully it endures long enough to outlast the pandemic.

The winter flu season is coming to the Northern Hemisphere. That will be the true indication of what is up and what is down. Untill then, it's all a guess.

True, but without a vaccine the best we can hope for is a manageable pandemic, where we don't have overwhelmed healthcare facilities which would cause the fatality rates to rocket not just for Covid, but for all treatments. We want to avoid the clash of flu season with a Covid peak if possible. Much will depend on how much immunity there is in populations and how long the immunity lasts.

RCD
Agree with you re US data management and possible under reporting. It goes with Trumps rhetoric that too much testing produces more cases of Covid.
I also understand from the outset - when New York was peaking - that US were only counting those Covid deaths in hospital. If one died at home - or on the streets - it wasn't counted.
. . . . and Trump questions data coming out of China.

One of the more entertaining aspects of COVID is the number of conspiracy theorists, and what theories they buy into (or are selling). Fascinating psychology!

Depressing psychology more like.

For every articial we read there is another saying the opposite. The more we search one view, the more we get fed on that subject.

That's always much more acute if you take your information from a biased news source (ie most of them). I lose count of the times I see a piece of research reported in the media, then go to the publication and find that the media have completely distorted the findings.

As for economics... it's not a science so it can do one.

Our Kiwi mainstream media is getting worse day by day. The shows after the 6.00 news are the worst of the worst! What are they about news or comedy, from what I see they completely fail at both².

The UST 10yr yield is firm at 0.67% and holding on to yesterday's rise

Anything above 3.0%, looking to touch 5.00% by year end.would be considered firm.

And here we go again. Lots more QE (and other “money printing”) in 2020, therefore the foregone mainstream conclusion that inflation is right here in front of us. It has to be, right? No fighting the flood myth.

Well, once again, the bond market says, no, it’s not happening. Nothing. Zip. So, obviously, the bond market must be wrong. Again. That’s what was reported in yesterday’s Wall Street Journal (thanks M. Simmons).

For years, the 10-year U.S. Treasury note has been every investor’s touchstone. Now some people are saying they can’t trust its signals the way they once did.

The yield on the benchmark U.S. government security, long a key economic barometer for financial markets around the world, barely budged in response to Friday’s better-than-expected jobs report.

The stock market, by contrast, is closing in on record highs (the NASDAQ already well past its prior records). Always a place to take Federal Reserve officials at their word, the Journal, and to pump up the signal from the pumped stock market: bonds wrong, stocks so right.

Right? Link

https://ourfiniteworld.com/2020/08/10/we-need-to-change-our-covid-19-str...

"We are also discovering that efforts to contain what is essentially a hidden illness are very damaging to the world economy. Shutdowns in particular lead to many unemployed people and riots. Social distancing requirements can make investments unprofitable. Cutting off air flights leads to a huge loss of tourism and leaves farmers with the problem of how to get their fruit and vegetable crops picked without migrant workers. If COVID-19 is very widespread, contact tracing simply becomes an exercise in frustration.

...At some point, we need to start lowering expectations regarding what can be done. The economy can protect a few members, but not everyone."

Good article.

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More men are dying with Covid than women in Oz. The average life expectancy for Oz men is 80 years.
For deaths with Covid the median age of deaths has crept up to 84 years! 70% have died in resthomes.
Sad but no the catastrophe portrayed in the MSM - protect the rest homes, practice good personal hygiene and get on with it.

https://www.health.gov.au/sites/default/files/documents/2020/08/coronavi...

Older folk can't be bothered with all that PPE palaver.

Misandrist virus!! Men have a wuflu risk profile equal to a woman something like 5 years older.

Nasdaq up 2.5% last night and tech stocks booming like nothing seen before. NZ thinks it's got the elixir with house prices. Well take a look at Apple. An ROI of up to 14,000% in approx 20 years.

What a world we live in.

I find it perplexing that Apple’s stock is @ ATH which would indicate iPhone sales etc are booming yet 2 3rds of US households can’t pay their rent.... hmmm.

Most of the world's population can't afford an iPhone. Apple has been closing stores.

I story form the past....Ive seen first hand some years ago....on my way to a baseball game in San Diego, we had to park several blocks away and walk to the event..you have to walk past vast tent cities where the homeless were camped out on the footpath, the place reeking of urine and squalor...however, I noted the amount of homeless sitting there tapping away on their smartphones...so maybe thats why Apple does so well..the phone is the last thing they choose to be without...apparently they will go hungry before losing their smartphone? It has to be their biggest monthly bill? It was an eye opener.

"We are now in the middle of the Q3 for 2020 and the latest indication is that US GDP will fall at the annual rate of -20.5% in this quarter."

Er... I might be reading this wrong, but doesn't the link predict annualised growth for Q3 of 20.5%, not shrinkage? Thus making up some of the Q2 losses but still down.

Indeed this needs to be clarified as that is how I read it too. Doesn't fit the narrative?

Atlanta Fed is forecasting US Q3 GDP at +20%, not -20%.

Off work sick, go for a holiday, take a couple of days.

Hooking folk out of community into quarantine, doesn't sound too good!

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