Here's our summary of key economic events overnight that affect New Zealand, with news of a building and major grain shortfall in China.
But first up, there was another dairy auction which came in marginally weaker and embedding in the prior event's large -5.1% fall. This time it was a -1.7% easing in USD terms, marginally less in NZD terms. The result however was as expected and as signalled by the futures market. WMP prices fell -2.2%, SMP prices rose +1.1%, and cheese and butter prices also fell. Volumes sold were normal for this time in the season. It is unlikely that this result will change any payout forecast but by embedding the prior drop, it won't help of course.
In the US, retail sales rose again last week at the same pace as the week before and a positive sign. But they are still -2.8% lower than the same period in 2019.
New housing starts recovered in July from June, as expected, and substantially above the year-ago level. Building permits also rose in the same way indicating a bounceback making up for the earlier 'lost' months.
But Boeing has announced more layoffs, additional to the earlier very deep cuts. That will mean many Boeing subcontractors will also need to shrink.
In China, a new major storm is approaching, adding to their flooding emergency. Hong Kong is currently being lashed. Typhoon Higos is said to be a 'once in a century' storm system, and the focus is back on the Three Gorges Dam which has been under relentless pressure from heavy rains. This storm is heading straight for its headwaters.
China is focusing on its food security. An official study shows it is likely to face a grain supply gap of about 130 million tonnes by the end of 2025 and its local supply of three staple grains - wheat, rice and corn - is expected to fall well short of demand. They are clearly worried about the strategic risks. They will generate international trade demand at a level that will clearly distort global food prices.
China has said it will initiate an anti-dumping investigation into Australian wines. China is the top market for Australian wine exports. The move is widely seen as a punishment of Australia for its close links with the USA and comes after similar earlier moves with barley and tourism. So it is a ratcheting up of pressure. China only moves on items it can easily source from elsewhere, so it is one-sided pain.
Overnight, European equity markets fell an average of -0.5%. Today, Wall Street is marginally ahead, up about +0.3% in early afternoon trade and if it holds, a new record high. Yesterday, Shanghai rose modestly, up +0.4%. Hong Kong was flat, but Tokyo fell -0.2%. The ASX200 was up +0.8% and the NZX50 Capital Index had a much better day again, up a strong +1.5% at the close.
The latest global compilation of COVID-19 data is here. The global tally is 21,956,000 and that is up +207,000 since when we last checked this time yesterday. Global deaths reported now exceed 776,000.
A quarter of all reported cases globally are in the US, which is up +48,000 since yesterday to 5,628,000. US deaths are now just over 174,000 and a death rate of 526/mln (+3/mln). And the net number of people actively infected in the US fell overnight to 2,472,000, so more recoveries than new infections.
In Australia, there have now been 23,773 COVID-19 cases reported, another 214 since yesterday, and a slowing rise, but still very much concentrated in Victoria. Australia's death count is up to 438 (+17). Their recovery rate is now back up to over 62%. There are still 8411 active cases in Australia (-194) indicating a turned tide and more recoveries than new infections.
The UST 10yr yield has slipped marginally today, down -1 bp at 0.67%. Their 2-10 curve is still at +52 bps. And their 1-5 curve is also unchanged at +15 bps, while their 3m-10yr curve is marginally flatter at +58 bps. The Aussie Govt 10yr yield is also down -1 bp at 0.87%. The China Govt 10yr is up +3 bps at 2.99%. And the NZ Govt 10 yr yield will start today at 0.67% and -2 bps softer.
The price of gold is back over US$2000, up another +US$23 today at US$2,005/oz. That is a +US$60 gain in two days. Silver hasn't risen like the yellow metal overnight.
Oil prices are little-changed today. They are still just under US$43/bbl in the US and the international price is now just over US$45/bbl.
And the Kiwi dollar risen overnight by more than +½c and is now just on 66 USc. Against the Australian dollar we are firmer too at 91.1 AUc. Against the euro we are up marginally at 55.3 euro cents. That means our TWI-5 has firmed to 68.7.
The bitcoin price is staying elevated, but is -3.0% lower than this time yesterday at US$12,029. 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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73 Comments
What is going to happen to change this trend? If we thought virus control/vaccination is The Answer then recent events in Auckland should be a wake-up call.
It's going to get a lot more challenging.
Around 83,500 home loans have now used the mortgage deferral scheme. It has been extended and will now run until March 31, Finance Minister Grant Robertson confirmed on Monday.
But Reserve Bank data shows there were 10,905 mortgages in arrears at the end of August which were not covered by the home loan deferral scheme, and the actual number may be even higher.
House prices plateau -> economy slows -> CPI drops below band -> interest rates go down -> house prices go up -> CPI recovers to within band -> house prices plateau -> economy slows etc.
However now, there is only ~1% further that interest rates can go down. What happens then? Perhaps we'll need to start producing services & goods that people want to buy?
We're a cork on the economic ocean and the storm is about to reach landfall https://www.nytimes.com/2020/08/17/upshot/pandemic-recession-cities-fis…
Looks like delinquency rates aren't just a US phenomenon: https://i.stuff.co.nz/business/money/122480540/staggering-number-of-hou…
Which probably explains why banks are taking so long to process loans applications, they are seeing a spike of people with existing mortgages that cannot pay. Add in those on the (extend and pretend) mortgage holidays and we might have a problem...
Hey, if you know the government will bail you out, why pay your mortgage anyway? Are we at that tipping point yet?
Defaults doubled as a percentage between Q1 and Q2, but is worse than the percentage suggests as the payment obligations dropped in the same period of time.
You have to wait for things to start breaking before larger interventions occur but the banks will be trying to spread the problems out over time.
Covid deaths in Oz now have a median age of 85 - higher than average life expectancy. Similar to Sweden's median of 86 years. Sad but not the catastrophe stated by TVNZ news.
"The overall proportion of cases under investigation in each state and territory is relatively low, indicating that public health actions, including case identification and contact tracing, is occurring in a timely manner."
https://www.health.gov.au/sites/default/files/documents/2020/08/coronav…
https://www.health.gov.au/resources/publications/coronavirus-covid-19-a…
The argument of lock downs causing more deaths is looking at things from a longer term perspective. There is a strong correlation between poverty & life expectancy. Presumably if we spend the next 5 years with boarder closed & going in and out of lock downs there will be severe economic fall out & a lot more poverty in the country. This will lower life expectancy.
profile,
I have been following your posts on Covid 19 with interest. You clearly believe that we and indeed much of the world have grossly over-reacted to this virus and should have followed the Swedish approach. You appear to have no doubts on this and have provided evidence to back this up.
What you seem not to be prepared to accept is that you could be wrong. You must know that a study just published in the Journal of the Royal Society of Medicine does not support the Swedish model. There is also some evidence to suggest that even economically, Sweden is not outperforming other countries. Its unemployment rate has risen and its GDP is falling. It has had to delay many elective surgeries such as organ transplants.
It will be years before we can look back and say with any certainty which countries handled this best, but right now I think the evidence points to the Swedish approach being sub-optimal. However, unlike you, i am not certain and am prepared to accept that I amy be proved wrong.
We aren't talking about isolated singular countries. We are talking about a part of a massively interconnected network (some would say we live on a single finite planet).
I don't think we will ever be able to say for certain that one country did better than another. It will be a case of did "we" (The entire human race) handle it well.
Personally I think we have indeed sacrificed future generations for the sake of a few. But, hey the monstrous reduction in consumption may have just bought those future generations are bit more time to sort stuff out.
Lock down versus no lock down. Both economies crash and need bail out (your future generations concern) - lock down has deaths per million of 5 versus no lock down 1,000.
Easy winner in my books.
As for future generations, I would rather have science led, logical and compassionate citizens as opposed to "it is what it is" drop kicks.
I would advocate an entire Global L10 lockdown. No-one does anything for 8 weeks anywhere on the planet. But it is clearly impractical. So I think we can all agree that total global elimination is not an option. Ergo we must live with it in some form going forwards. People will die. They die every day from a wide variety of causes. But do we stop the world for any of them?
Locking down everyone for the sake of a few may seem noble, but it must be balanced with other things.
I am a firm believer in personal choice and responsibility.
- If you are elderly or have health concerns, you probably shouldn't get a bus to go to the shopping mall then eat in the foodcourt.
- If you are young and healthy you probably have no issues getting on a commuter train and heading to work.
- If you are sick - stay the F&^% at home! Although realistically this requires Govt to legislate working from home where possible and/or increased sick leave entitlements.
- If there is a proven vaccine - get it.
- If it is treatable - get it treated.
- Wash your hands.
I mean to be fair, this stuff really is just common sense. If everyone did the above anyway, then we would probably see vastly reduced issues from all sorts of transmissable illnesses, not just Covid.
linklater01, I couldn't agree more. There are so many variables and unknowns that I find the certainty of some peoples claims, to be quite disturbing and depressing.
In times of great upheaval and uncertainty, the human brain seeks to reassure itself by clinging to something that helps dispel anxiety and provide certainty. Time and time again, humanity chooses beliefs, values and narratives over hard facts and objective evidence. These two forces in the human mind between quick, impulse, emotion, subjective and tribe influenced thinking vs detached, rational, slow, methodical data driven thinking have always existed. Different parts of our brains that evolved at different times and that are interwoven.
Being patient and waiting for more evidence, to accept that you cannot know yet, is hard. So many give in the emotional need for certainty.
Hi Linklater. I had a look at that paper the other day. I was a covid bedwetter in Jan/Feb but changed my mind once the Diamond Princess data came in. This has been reinforced since with the median age of death and 99.4% recovery rate. The J. Medicine article bases "success" on the antibody rate being 60% of population. This is not borne out by their single figure death rates and other reseach supports this view stating a 15% antibody rate is adequate for herd immunity. Sweden did a lot wrong and didn't protect their resthomes but at end of day you are not going to escape this virus no matter how much of the kids money your spend.
profile | 14th Aug 20, 8:36am
From your link “results from a recent sero surveillance study showed that only 15 per cent of the country’s population has developed antibodies.”
Other research stated herd immunity could be reached at 15% – which is backed up by Swedish daily deaths falling to single figures.
“Our inferences result in herd immunity thresholds around 10-20%, considerably lower than the minimum coverage needed to interrupt transmission by random vaccination, which for R_0 higher than 2.5 is estimated above 60%.”
https://www.medrxiv.org/content/10.1101/2020.07.23.20160762v1
This was predicted by Levitt back in May.
"If Sweden stops at about 5,000 or 6,000 deaths, we will know that they’ve reached herd immunity, and we didn’t need to do any kind of lockdown. My own feeling is that it will probably stop because of herd immunity. COVID is serious, it’s at least a serious flu. But it’s not going to destroy humanity as people thought. "
https://www.stanforddaily.com/2020/05/04/qa-nobel-laureate-says-covid-19...
The S&P 500 hit a new intraday high ovrnight ( 3,395.06). Tech and consumer spending related stocks to the fore. I don't mind saying that the Great Depression saw a similar pattern in the markets before the whole thing caved in. Not saying that this will happen again, but there needs to be some kind of weird externaility to all the market manipulation. It's not wrong to say that the real economy is currently dead.
Yes madness. All about capital gains which seems to be the boomer fixation. Fantasy PE ratios fueled by borrowed money, or retained earnings avoiding tax, are both funding share buybacks. Add in fantasy housing in NZ and now looking like you dont have to pay your loan, it's all lost the plot.
The money printing model and banking worldwide looks broken, infecting everything that funding touches. Perhaps this is why Buffet has exited his bank positions and is now buying gold.
Are we approaching an "Emperor's New Clothes" moment?
I think many of us are in agreement on this.
Everything is financialised, everything is globalised, there's no real return to be had anywhere so capital flows into assets regardless, pushing up their 'price' regardless of value.
But what stops it? There have already been so many moments that looked like tipping points, and the party just keeps going. As long as we have zero interest rates and central banks helping to roll over the ever-increasing debt, who can say this doesn't keep going?
Once you reach the lowest level of rates the banks can survive on then the only other input available for house price appreciation is wage growth - but we would require inflation for that. So in theory, then, in a closed market, house price should only be able to rise at CPI or less.
It does feel like a new normal, to me.
I've been bearish on the housing market for a long time (as a potential FHB for whom it'd be a massive financial risk). But it does feel now more like interest rate rises, the biggest risk to property buyers, will simply not be allowed to happen. The powers-that-be are simply too scared of the consequences. So whatever else needs to be sacrificed in future - the currency, for example - will be. I think it's profoundly stupid, and destructive to our still-somewhat-cohesive society, and negates the prospect of real future growth, but there it is; all will be sacrificed on the altar of price protection, and I'm adjusting my outlook accordingly.
Agreed. It’s absurd. However I do believe that no matter what a government/reserve bank does they ultimately can’t maintain complete control of a free market by maintaining low interest rates. despite how dangerously insular people seem to think and act in this country, a low or even negative interest rate will not be the golden ticket to property price stability. Worldwide turmoil is upon us and jobs will be lost, and those lost jobs will have a lot to do with international economies that we have no control over. Things are gonna get real interesting.
If it does keep up like this, will anyone even remember COVID?
The OECD’s leading indicator is bit more on the upswing in being similar to the second half of 2009, but it’s latest estimate is for the month of July. That far along into the reopening rebound isn’t consistent with a modest “V” let alone the recovery trajectory many people are being led to believe is being engineered by all the same people who fed you their models in the first place.
I'm confused why there seems to be concern about the 3 gorges dam. Dams are designed to be full. When it rains when they are full, water spills. Most spillways would be designed to handle more than enough water. If not, I'd imagine that many dams have an overtopping section. All without causing any extra loads on the dam.
Kezza - with approx 400 Million people living alongside or close to the Yangtze a Dam fail would be catastrophic and already the sluices have been opened as spillways could not cope resulting in flooding downstream, no loss of life but significant damage to infrastructure and Agriculture. With approx 800Kms of water in the Dams catchment area the risks are high should the rainfall exceed the ability to lower levels as happened when the water level rose 70 Metres in a short time span. A CGI animation on Google showed the extensive damage of a Dam failure all the way to Shanghai and an initial water wave 250 metres high. I cannot imagine the effects and the impact on ordinary Chinese and just hope the Dam is able to withstand the predicted rainfall and its operators can safely control water levels.
In addition to the concerns around construction quality raised by other posters, one of the key intentions of the 3GD was flood control. Historically the Yangtze river basin was subject to heavy seasonal flooding, making it a precarious place to build cities or farm crops. The 3GD is able absorb huge quantities of water, making everything downstream of it a safe place to farm and so forth.
The issue is that right now the 3GD water levels are above their maximum flood control levels and getting close to the dams expected tolerance, meaning for the last month or two they have been spilling the maximum amount possible to keep levels from rising further - resulting in widespread flooding downstream causing significant damage to crops and property.
China is focusing on its food security. An official study shows it is likely to face a grain supply gap of about 130 million tonnes by the end of 2025 and its local supply of three staple grains - wheat, rice and corn - is expected to fall well short of demand. They are clearly worried about the strategic risks.
It always used to surprise me how short sighted the commenters over at the NBR used to be: "What does it matter who owns the land, we can still legislate over it".
Food security is set to be a major issue over the coming decades even more than now and we do not have the clout to legislate over foreign state-private companies in ways that pique powerful foreign states.
Perfectly possible to block exports of food should that become a national security issue, just as Australia blocked exports of masks and other PPE in March when China ordered their agents in Australia to send everything they could get their hands on back to the mothership.
Lets hope the CCP read & believe this, Taiwans Geography makes a land attack tough. Yes China can throw big numbers of Soldiers and equipment but having surrounded itself with powerful enemies especially Russia as CCP is claiming Vladivostock and half of Tajikistan belong to China, Vladimir will having a different opinion and could cut off oil supplies and Iran's blocked would leave China with internal supplies only. I doubt China will choose to invade Taiwan or engage in war, the CCP may be Belicose but they are not stupid.
Friends in central Vietnam tell me there currently is a massive influx of illegal chinese immigrants moving into the country (via the Laos and Cambodia borders) trying to buy land. Police are trying to round them up but in many cases are too scared to act due violent responses (or possibly disinterested due to the corrupt nature of the system). They don't know if this is a tool being utilised by the CCP to flood Vietnam and surrounding countries with Chinese people, or whether these people are just desperate to get out of China due to food shortages or COVID-19 or the current political climate in China.
Very good articial.
One 'O' ring caused the distuction of the shuttle launch and several people's lives. We are told that the COL has everything under control but the longer this goes on the more we see substandard 'O' rings fracturing and that being explained away as non events that were bound to happen. Is the fault of the manufacture of the 'O' ring that failed in the shuttle launch, or NASA's fault as the management team?
'Being a nation capable of getting the O-Rings right matters during a crisis. It also matters in normal times when the failures are harder to see and are instead missed opportunities. Kiwis should expect better of themselves and of their Government.'
https://www.newsroom.co.nz/of-o-rings-and-quarantines
I'm now O-Ringed out.
Problem with newsroom's article is it's by man-of-a-million words, wordsmith Eric Crampton
Darren Digby Webb was officially appointed 17 June 2020 as the MIQ systems guru
"Webb will undertake an audit of all the existing systems and written protocols to ensure they were being fully implemented. Webb, Assistant Chief of NZDF has been involved in Government repatriation planning efforts since the beginning of April,
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12340788
After appearing for a month in front of the cameras Webb has not been seen since. He has disappeared
Supply chain problems with Chinese manufacturing emerging. 200 day lead times on new orders, and currently 2 month delays on existing orders for small parts for bikes, etc, costs starting to rise, plus the added cost of air freight. Expect price inflation to follow
12 years ago we hit the GFC and money was printed. Since then we have house and a lot of other things double in price. This time the issues are much larger and by far more money being printed. Can they keep it together and keep kicking these issues down the road or dose the system implode? The big question we need to ask ourselves is, do we have a management team in place that can handle this?
A2 Milk boosts net profit by 34%.
I applaud the success of those who have ridden this gravy train to the top. As a dairy farmer the only benefit I can think of in supplying Fonterra is the minimal tax issues I have had over recent years.
A2 has been a great example of fleet of foot being more important than bigger for the sake of bigger.
Up here in Northland we came out of a prolonged drought the only way we know how. Three major storms and associated floods in a month.
If falling milk prices, predictions of negative interest rates, fears of China retaliation via economic measures and new Covid outbreaks cant shake our exchange rate what the hell can?
Something to ponder to all the pro-sweden crew out there..
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
The govt is significantly underestimating the impact of the latest lockdown, as per this article:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
A tiny calculation, based on the Granny H article.
20% of biz is at 100% = 20% of total output.
10% of biz is at 0% output = 0% of total output
32% (the 42% in the article includes the 10% so subtracted) of biz is at 50% = 16% of total output
The balance of 38% of biz is not referenced in the H article so is assumed to be at 75% = 28.5% of total output.
Total output is 20+0+16+28.5=64.5% of potential.
That's way under the cheery handwave figure of 80% proffered by our Glorious PM.
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