US activity regains half of 2020 losses; good US farm output getting low prices; Taiwan makes gains, India monsoon set good farm season; UST 10yr yield at 0.64%; oil firm and gold falls; NZ$1 = 65.4 USc; TWI-5 = 68.5

US activity regains half of 2020 losses; good US farm output getting low prices; Taiwan makes gains, India monsoon set good farm season; UST 10yr yield at 0.64%; oil firm and gold falls; NZ$1 = 65.4 USc; TWI-5 = 68.5

Here's our summary of key economic events overnight that affect New Zealand, with news good farm outputs bring mixed fortunes.

But first in the US, the Chicago Fed's national activity index retreated in July and came in lower than analysts were expecting. However it is still indicating some bounce from the disastrous March and April results. Less than half of the plunge in activity has been recovered so far.

The Kansas City Fed reports that US farmers are doing it tough. Despite 2020 producing bumper crops of both corn and soybeans, prices are low and declining. Some crops like wheat only work with irrigation and these crops are costing more to produce than market prices. Subsidies are keeping the system together. Markets aren't working as they get distorted by Washington actions that seem to undermine them. Worse, the Chinese are buying huge quantities at these very low prices. Farm incomes are at their worst since 2016 and virtually collapsed in the last nine months. American meat markets are weak as well.

Taiwan reported that their retail sales rose +2.5% in July and their industrial production was up +2.6%. The industrial production gain was weaker than for both June 2020 and for July 2019. Their retail sales rise was their best of 2020 but still far lower than the July 2019 result.

In India, this year's monsoon rains have been good and brought a boost to their agriculture sector. Crop yields are expected to rise and help keep a lid on urban food cost pressures.

Back in New York, the S&P500 is up +0.6% today in late trade. They follow Europe where the gains were very much higher overnight, averaging about +2.3% in an eye-catching burst. Yesterday, Shanghai rose a modest +0.2%, Hong Kong an impressive +1.7%, and Tokyo a modest +0.3%. The ASX200 also closed up +0.3% and the NZX50 Capital Index rose +0.7%.

The latest global compilation of COVID-19 data is here. The global tally is 23,508,000 and that is a huge daily jump, up +727,000 since when we last checked this time yesterday. Global deaths reported now exceed 810,000 (+15,000 in a day).

Just under a quarter of all reported cases globally are in the US, which is up +36,000 since yesterday to 5,892,000 and a relentless rise. US deaths are now just over 180,800 and a death rate of 546/mln (+1/mln). The net number of people actively infected in the US rose +16,000 overnight to 2,540,000, so more new infections than recoveries. They are not getting on top of it yet.

In Australia, there have now been 24,916 COVID-19 cases reported, another 104 overnight, and still very much concentrated in Victoria. Australia's death count is up to 517 (+15). Their recovery rate is up to just under 79%. There are 5801 active cases in Australia (-281) indicating a turned tide and more recoveries than new infections.

The UST 10yr yield is little-changed at 0.65%. Their 2-10 curve is little-changed at just under +50 bps. And their 1-5 curve is also little-changed at +15 bps, while their 3m-10yr curve is unchanged as well at +57 bps. The Aussie Govt 10yr yield is still at 0.88%. The China Govt 10yr is unchanged at 3.02%. And the NZ Govt 10 yr yield will start today at a soft 0.58% and down -4 bps in a day.

The price of gold has fallen again overnight, down -US$14 to US$1,929/oz.

Oil prices have stayed soft but have lifted marginally overnight. They are now just over US$42.50/bbl in the US while the international price has lifted by almost +US$1 to just over US$45/bbl.

And the Kiwi dollar is unchanged again today at 65.4 USc. Against the Australian dollar we are basically unchanged too, at 91.2 AUc. Against the euro the story is similar at 55.4 euro cents. That means our TWI-5 is still at 68.5 and still in a stable range.

The bitcoin price is up +1.0% from this time yesterday at US$11,764. The bitcoin rate is charted in the exchange rate set below.

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56 Comments

Theory - Business Finance Guarantee Scheme - Designed by RBNZ to encourage banks to take risks and continue lending to business. Keep the economy going.
Reality - discussions with my bank manager. Loans have to meet their existing criteria. More paper work than usual. Not interested in refinancing 20% of debt at a lower margin for them. Only advantage is interest rate of 2.5% which the bank modelling suggests we will reach anyway. Five year repayment period.
So who will get to use the $6b available?

The same cohort that gets to use all the 'free' money - those that can use it to enrich themselves; those 'suffering' in Queenstown being a classic example. ( And good for them! 'Government' money is there to be taken advantage of. Allowing markets to sort it out for themselves is a no-no)

Credit Card interest rates still over 20%. Who is borrowing in that space?

People who are too undisciplined to pay their credit card balances down to zero. That's what you get when you live your life on minimum payment theory

ANZ Business Loans = 8%
ANZ Babk overdraft = 10%

Property backed loans and overdrafts running at much lower interest rates.

Those rates are straight from interest.co.nz borrowing schedule
Aren't property backed loans classified as "mortgages" which are listed as a different schedule

I dont know why Kiwis use ANZ - fees galore on their accounts also

Don't you just love government schemes? Aaagh, the extra paperwork just when you really don't need it. The time wasted. The not knowing. The horror. The horror.

The official excuses follow thereafter:
From Fed researchers:

“Current data show that the recent drop in core PCE inflation is mainly attributable to large declines in consumer demand for goods and services stemming from Covid-19,” said Adam Hale Shapiro, a research adviser at the Federal Reserve Bank of San Francisco. That has “more than offset any upward inflation pressures due to supply constraints in some sectors,” he wrote in an economic letter published on the bank’s website Monday.Link

“Current data show that the recent drop in core PCE inflation is mainly attributable to large declines in consumer demand for goods and services"

You have to wonder how many consumers he interviewed face-to-face (or by phone) to arrive at that - otherwise it's simply guesswork - it could be a number of things - ie substitution for one - retail discounting another - online shopping another

What extra paperwork...takes about 5 mins online?

Said to me. The extra paperwork required by the bank approvals team versus applying for funding through normal loan products. Not an online process. I think some of the extra paperwork was around ensuring the loan met the RBNZ criteria.

Wilco, SBS bank is withdrawing from rural lending. An exisiting client approached a rural bank about becoming a client - bank reply was they weren't taking on any new clients until covid blows over.

My understanding is that several banks have adopted that attitude regarding rural lending. It started when the RBNZ decided to increase the capital ratios.They wont even offer appointments for new business and have been directed to focus on existing clients. Makes a nice change from when the best deal was always only available for new clients.

I am aware of one SBS case where their client is having to sell part of their rural business because no one would lend (citing Covid not capital ratios, but covid might just be the easier excuse).
I was cold called recently asking if I wanted to sell as there are multiple buyers in our region, looking to buy - finance no worry. The vultures are out there ready to strike at a good bargain. But they have to be 'good' businesses, not run down or capital needy ones.

Sensible SBS.

I thought the BFGS was for new lending, not designed for refinancing. The RBNZ isn't in the market to backstop businesses who want to lower their overall debt costs. It was designed to help new Business Debt.

You can refinance up to 20% of your debt at the 2.5%

USA Labour Day soon. End of the break, schools return. Winter approaches. All the criteria for CV19 getting even worse. Listened to Trump this morning on ZB. Miracle vaccine at the ready. Hope he is right.

11
up

I'm sure he's right, he knows more about everything than anyone else and he never tells fibs

Moronovirus Vaccine

True enough, you can only ever get to be a megalomaniac, if you are infallible.

Subsidies are a slippery slope for long term sustainability. Greater Europe and North America farmers are, on average, no longer sustainable operations due to reliance on subsidies. Agriculture is what feeds us. Is it time for producers to unite globally? NZ Agritech companies (supported by NZTE) and Farmers Guardian are running free virtual events for UK and NZ farmers whose aim is "this partnership hopes to connect farmers in both nations to build working relationships with a series of virtual opportunities to preserve the future of farming and power great farmers." Is this going to be the future of agriculture - global collaboration among producers - or is NZ setting itself up for an own goal? https://www.fginsight.com/nzagritech?utm_source=Adestra&utm_medium=email...

As Galbraith pointed out long ago, farming is a difficult business. If you have a good season and everyone else does too, then prices are low. If you have a bad season prices don't matter. Either way, you are in survival mode. It is only when you have a good season and everywhere else has a bad one that you make any money.

Despite being generally to the right on the political spectrum NZ farmers constantly support their own industry and it's processors remaining co-operative in nature. The reality is farming is like any other business - you win when someone else loses. As you point out Roger the only time we make money is when our farm has a good season and the rest suffer. Or others have food safety scares or political upheaval.

Wilco, I agree in general terms with what you say, however debt levels often determine how much money we make. We have to be financially sustainable to survive in NZ because we don't get direct paid subsidies. So we almost always make money and if we have the odd cashflow neutral/negative season it is how we have managed previous surpluses (assuming we have been farming long enough to accrue some), that often determines how long we can continue to farm for.

That's true, and they do a great job of it.

There was a time when they were living on subsidies and Muldoon stridently resisted doing anything about it. Many still hate Labour because of liberalisation toward a more free market in the 1980s. The new Muldoonism is perhaps our subsidising of investment property and nonviable businesses.

Farmers would never want to go back to subsidies - they are a death spiral. Liberalisation toward a more free market is, IMO something that farmers now appreciate. Their dislike of labour is more to do with modern day policies rather than what happened in the past. It was after all, Labour that gave us Fonterra.

It's something the business heads in Fonty failed totally with when for almost twenty years their whole plan was growth in volume no matter what. Scarcity is what we wanted with the added bonus of pissing of less people with less farms, opportunity lost to grandiose empire building.

Own goal - giving away our competitive advantages in pursuit of "global collaboration" is bound to end in tears for our local agriculture industry.

Like the ongoing trade in live cow exports? What are we thinking.

BBC article: Hong Kong reports 'first case' of virus reinfection. "Hong Kong scientists are reporting the case of a healthy man in his 30s who became reinfected with coronavirus four and a half months after his first bout."
https://www.bbc.com/news/health-53889823

This is BIG news.

Yes virus can and do mutate in to new virus strains, therefore can reinfect people who probably assumed they were immune to it since they'd had it before. Hence why it's so important to get the covid-19 under control.

Apparently the virus has mutated in Japan. Still lots of people getting infected, but with less serious consequences overall.

I look at it differently, this screams to me that we may never get it under control & although vaccines may be helpful. A safe, effective vaccine that provides lasting immunity is unlikely, or may take a lot longer than we hoped. '
The one good bit of info is apparently the individual who became re-infected was asymtomatic the second time, but had mild symptoms the first. This means that our body may do better at fighting the disease the virus causes the second time round. Though we just don't know for certain with a case study of 1.

The important bit is the RNA of the second infection is a different strain to the RNA of the first infection

Yes, but possibly not in the way that you mean (apologies if I am wrong in interpreting your point).

Being a different strain, seemingly acquired while the patient was in Spain, provides definitive evidence that this was a reinfection, not a failure to clear his earlier infection, thus providing the first unequivocal proof of reinfection. There have been many anecdotal reports of reinfection in the US, Europe and Asia but no absolute proof, due either to RNA not being sequenced or the strain being the same.
If these cases were due to reinfection, particularly with the same strain, then the implications are far more serious. And evidence from other coronaviruses is not encouraging. We can be reinfected with the same strains of cold coronavirus multiple times with no lessening of symptoms.
Bad,but predictable, news for vaccines and another nail in the coffin of the long dead herd immunity hopes.

It is a rare occasion that the RBNZ has a failed bond auction.( as also noted by Mr Wong) Yesterday was such an occasion.
https://www.rbnz.govt.nz/statistics/d3
Given the world is awash in everything but commonsense , the RBNZ needs to put more effort into its book or at least encourage those looking after the book to search for more willing buyers.

Stuff: Buy the most expensive house you can afford, as soon as possible.

https://i.stuff.co.nz/business/opinion-analysis/300089737/will-house-pri...

What could possibly go wrong?! (I'd guess the Opinionator means 'higher' unemployment?. But that comment is about as intelligent as the rest of the article)

Clearly there is the spectre of lower unemployment, which will be painful for many. But the sad reality is those most likely to be laid off are less likely to be home buyers....

Have got my eye on a brand new subdivision down the road from me, praying for house prices to fall as i'd like to trade up without the net result being a $500k mortgage.

Haha haha!!! Gold. This is absolutely ridiculous......Stuff, journalistic integrity personified.

"The want us to spend money rather than save it, which includes buying houses."
The words "includes" should be replaced by "means exclusively". As comments elsewhere on business lending suggest, banks aren't looking at anything else.

Well why not? The RB and govt will bail anyone and everyone out given they are realising they have license to print as much money as they want or lower interest rates to negative and beyond (despite this not working anywhere ever).

If you get into trouble, just put your mortgage on (never ending) loan repayment holidays... eventually these will become so big the government will have to do something about them... and we all know what that will be. Printing and bailouts!

No vested interest here, eh. Simplicity who Sam Stubbs heads up has recently gone into the mortgage market. Whilst Sam is a seemingly an affable chap, he is ultimately a salesman. Do you take advice from people who have an obvious benefit in selling you on the outcome of that advice?

Headlines in NZ Herald today
Singaporean-based Kiwis bid hard for Ponsonby bungalow as offshore interest grows
London Kiwi bids hard to secure Onehunga villa for $1.9m - $500K above CV
They could be acting as proxies for "foreign" inelligible buyers (mates)
Provenance needs to be verified

A close friend and one of the best RE agents in the Ponsonby area confirms that, to her own disbelief, many buyers are still out there with lots of $ to spend

And who does your close friend tell you who the vendors are?
(Answer: Smart sellers who can see what's coming for Ponsonby and the rest of New Zealand?)

Well, there's a buyer for each seller so time will tell if the sellers or buyers were smarter. You're just making an assumption that the seller are smarter to fit what you believe

Are global financial index headlines misleading speculators?

Mind the gap: S&P 500 has reclaimed record high but avg stock is still down for 2020. (via BBG)Link

Don't be deceived - the S&P500 Index is itself an average of the price of all the component stocks

What is needed is data about how many $1,500,000+ properties change hands privately off-market within 2 years

The Scottish economist Adam Smith, in his Wealth of Nations, 1776, wrote:
"To found a great empire for the sole purpose of raising up a people of customers, may at first sight, appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers, but extremely fit for a nation whose government is influenced by shopkeepers"

Listening to the daily demands of the New Zealand hospitality speed-diallers drowning the media with demands of help - NZ must be a nation of hospitality establishments operating cafes, fast-food outlets, low-cost restaurants, ethnic take-aways

Good one iconoclast. Seems we are building an economy where everyone - everyone - is dependent on government.
Going to end well - not