US data mixed but consumers and banks are downbeat; more airline job cuts; Aussies brace for more job losses, lower property prices; UST 10yr yield at 0.69%; oil firm and gold down again; NZ$1 = 65.4 USc; TWI-5 = 68.5

US data mixed but consumers and banks are downbeat; more airline job cuts; Aussies brace for more job losses, lower property prices; UST 10yr yield at 0.69%; oil firm and gold down again; NZ$1 = 65.4 USc; TWI-5 = 68.5

Here's our summary of key economic events overnight that affect New Zealand, with news of widely varying economic data out overnight.

Retail sales in the US rose strongly, up +4.1% from the week before and down only -0.6% from the same week a year ago. This was the closest they have come to a year-on-year gain since before the pandemic.

And new home sales rose far more than expected in July, in fact to a new all-time record high for any month and an impressive +36% more than the same month in 2019. Sales were particularly strong in the Mid-West and South and these July sales filled in some of the low results posted in the March to June period.

But despite those two positive bits of data, American consumers are feeling downcast in August, and much more so than analysts were expecting. Both the Present Situation, and the Expectation categories took unexpectedly sharp reversals down. In fact, analysts had expected improving consumer sentiment, but apparently that is not the case. This measure is now at a six year low.

Maybe consumers are overdoing the gloom it somewhat. The latest regional Fed survey from the Mid-Atlantic states area shows factories making a small recovery and employment - usually the laggard - eased up, even if only marginally.

But then, maybe they aren't. Banks are feeling the same gloom as consumers with profits down -70% in Q2-2020 than the same quarter a year ago. And these same banks took in a flood of new deposits, more than +US$1 tln of additional money. That is a growing problem because even though they pay hardly anything for that money, their Net Interest Margin fell at a record rate - to 2.81% and the lowest ever recorded. (New Zealand banks would be envious however; RBNZ data shows our NIMs are far tighter at just +1.82% and also a record low.)

And American Airlines said it will cut 19,000 jobs in October when their government wage support scheme extended to airlines during the pandemic comes to an end. The world's biggest airline said the cuts, on top of voluntary departures and leave, would leave its workforce 30% smaller than it was in March.

In Australia, nearly 2,500 more Qantas jobs are being culled as the airline looks to outsource domestic ground handling operations in a bid to save cash during the COVID-19 pandemic. And that is on top of 6,000 job cuts made earlier.

And, NAB is forecasting Australian unemployment to peak at 9.6% early next year and the only fall to 7.6% by the end of 2022. They are also bracing for a 10-15% fall in house prices, with the biggest falls in Sydney and Melbourne. They also see steep price falls for commercial property, especially retail and office space in the Sydney and Melbourne CBDs. None of this will encourage banks to lend unless deposits are substantial.

In Germany, a key business sentiment index there shows them on the road to a recovery with improving results.

In China, some mid-sized banks are under severe liquidity stress, and that is requiring bailout actions by Beijing.

Back in New York, the S&P500 is up +0.2% today in late trade. They follow Europe where results were flat overnight, except in London that fell -1.1%. Yesterday, Shanghai fell -0.4%, Hong Kong fell -0.3, and Tokyo rose and impressive +1.4%. The ASX200 also closed up +0.5% and the NZX50 Capital Index rose +0.6% although it had an early close after suffering a cyber attack.

The latest global compilation of COVID-19 data is here. The global tally is 23,721,000, up +213,000 since when we last checked this time yesterday. Global deaths reported now exceed 815,000 (+5,000 in a day).

Just under a quarter of all reported cases globally are in the US, which is up +37,000 since yesterday to 5,929,000 and a relentless rise. US deaths are now just over 181,600 and a death rate of 548/mln (+2/mln). The net number of people actively infected in the US fell -15,000 overnight to 2,525,000, so more recoveries than new infections - a rare day's result.

In Australia, there have now been 25,053 COVID-19 cases reported, another +137 overnight, and still very much concentrated in Victoria. Australia's death count is up to 525 (+8). Their recovery rate is up to just over 79%. There are 4719 active cases in Australia (-1082) indicating a turned tide and far more recoveries than new infections.

The UST 10yr yield is up +4 bps at 0.69%. Their 2-10 curve is rising and now at just under +53 bps. And their 1-5 curve is up marginally at +16 bps, while their 3m-10yr curve is up as well at +61 bps. The Aussie Govt 10yr yield is up +4 bps at 0.92%. The China Govt 10yr is also up +4 bps at 3.06%. But the NZ Govt 10 yr yield is going the other way, down by another -3 bps to 0.55%.

The price of gold has fallen again overnight, down another -US$9 to US$1,920/oz.

Oil prices have risen overnight but by less than +US$1. They are now just under US$43.50/bbl in the US while the international price has lifted to just under US$45.50/bbl.

And the Kiwi dollar is unchanged yet again today at 65.4 USc. Against the Australian dollar we are basically unchanged too, at 91.1 AUc. Against the euro the story is similar at 55.3 euro cents. That means our TWI-5 is still at 68.5 and still in a stable range.

The bitcoin price is down -4.1% from this time yesterday at US$11,276 and a three week low. 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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48 Comments

Worthy of repetition:
"The UST 10yr yield is up +4 bps at 0.69%. Their 2-10 curve is rising....."

Mass exodus from the coastal cities?
Sales were particularly strong in the Mid-West and South
https://dnyuz.com/2020/08/20/movers-in-n-y-c-are-so-busy-theyre-turning-...

Or is that people are fleeing the high tax regions? Or is the USA following the Yugoslavia path and people are fleeing the riots and seeking safety? If so, next come the armed barricades. Scary as.

For the viewpoint from Yugoslavia (I do not agree with her recommendations, but the process is well described):
https://www.armstrongeconomics.com/armstrongeconomics101/economics/a-war...

From what I gather many have realised they have no good reason to stay in NYC. They can live and work elsewhere with a much lower cost of living. Talking to some US based traders this week they pointed out that there are many rent deals in NYC but it's two months free or a reasonable rate with a long term multi-year lease.

The volume of people leaving NYC is going to hurt the local economy worse than the virus.

It will quickly become a rout as the network effects of big cities collapse - reduction in activity will snowball into further reduction in activity and all the businesses that relied upon volume for survival will severely diminish or die. Arts and entertainment industries in particular will die. And the real estate and taxation collapse will be devastating. Greens and urban planning zealots will be particularly salty when people abandon the dsytopia that is high density anti-car urban living for the suburbs and ex-urbs.

12
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NY is/was a great, vibriant city, however every thing good about it high end retail,cafes, restaurants, night life etc. is incompatible with the new normal.There is just no point staying there so long as the "social distancing" thing exists. The NY lifestyle you see on movies all the time is dead.

You might as well move to Denver where there the weather is great & the life style has suffered relatively less from the new normal. Plenty of hikes & large, open spaced beer gardens to visit in this city. Further you can literally get 5x the house size for half the money. It is a no brainer really.

14
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It's an exodus from Democrat held cities and states. The people have had enough of the violence, disease transmission and ineffective government in the Blue states.

Nonsense. Certainly wfh and social distancing favour the countryside rather than the city, but very little of what you listed.

I agree with you. Spent a few months in Seattle and Houston; there's hardly any difference between the red and blue governments on matters of economy (both are pro-big business and largely ignore worker rights) but it seems that the Democrats try to overcompensate that with excessive social liberties.

I guess you are currently glued to the Republican National Convention - this speech was a real winner
https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12359561

I don't tend to read tabloids like NZ Herald but yes that speech was a shocker.

I thought pretty much all large cities were democrat controlled? Urban/provincial is the primary dividing line for 21st century democracy.

Shout out to all the shove ready projects that are now underway & smashing it.

https://youtu.be/PGHymTuX0_U
Up the A Team.

13
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Plan? That's the problem, there isn't one.

The daily routine of the vast majority of the workforce was no different today from 1959. In 2019, the commutes were longer, white-collar workers stared at screens rather than typewriters, factory workers tended robots and so on, but the fundamentals of everyday life and the nature of work were pretty much the same.
Beneath the surface, the fundamental change in the economy was financialization, the commodification of everything into a financial asset or income stream that could then be leveraged.
This layer of speculative asset-income mining had no relation to the actual work being done; it existed in its own realm. The two realms have now disconnected, and the real-world economy has been ripped from its moorings, as patterns of work and every-day life that stretch back 70 years to the emergence of the postwar era unravel and dissolve.
A bailout by the Federal Reserve won't change the fundamentals of the collapse of financialization; all the Fed can do is reserve scarce lifeboat seats
The implosion of the 1959 economic model and financialization will soon sweep away tens of millions of high-paying professional jobs that no longer have any financial justification.

(CH Smith)

Wall Street trading rooms have seen this happen. Developers coding trading software has replaced buildings full of people. Far fewer people that are far more productive.

One of the projects I'm working on got $12m. It was happening anyway it's just the debt won't be so bad for the community as far as I can see.

Well done.
Sounds an easy approval.
Have any activities been accelerated, brought forward?

If debt is being replaced with equity, won't that mean project returns need be higher to provide more and higher equity returns?.

There are likely more features included that were removed from the limited budget during value engineering. So some activities will be brought forward or not dependent on fund raising in the future.

It is a public sector project so ROI is not an objective. Value to the community and less debt to be serviced for taxpayers are the returns.

Shove ready, HT?

That widens the scope

:)

Reality starting to bite we are not far behind will the markets hold or follow reality
shorturl.at/zRT16
We have done a good job so far propping everything up but next 6-12 months is the real test if it works.

Becnz
In March you were claiming “in 6 weeks when price go backwards”, and then June “Give it 3 months and demand should be gone” . . . . . so do you know when it really is or are you going to just keep guessing and putting it out further? :)

It was collapsing but we are seeing the greatest money printing exercise of all time it will either hold or drop but one way or another we will pay for with deflation or inflation.

Fake economy

bcenz
Whatever one thinks of RBNZ action the reality is that mortgage deferrals have been extended and further cuts to the OCR and further QE are on the table and that is likely to continue well into next year. The current Government is likely to return and seems most likely that it will be committed to continuing its philosophy which supports both businesses and in particular jobs - expect the although high but comparatively low levels of debt to increase. Existing money and future supplies of money have got to go somewhere and cash is not the answer so expect asset prices to at least hold and likely increase.
How sustainable is this? It would seem COVID is going to be around for at least 18 months to possibly 2 years and over that time frame more if the same is possible.
This is not fake but reality.
By the way, this may be a lengthly post but that is substantiating my view - not just guessing.

12
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I dont know about the claim they are supporting jobs and businesses. If I owned a bar I would feel beyond short changed at this governments level of support, the wage subsidy doesnt cover the lease cost, the beer they wouldve had to throw away because it is oxidised, the food they dump when they given 2 days notice of a shut down. My wife is a Travel broker, she will have no business for at least another 12 months. I dont believe any government has the slightest clue how small business works and what it takes to support it. Asking Rob Fyfe may not give you the right answer.

Asset prices, thats where the support is going, im waiting for the trickle down, but its more likely I am being pissed on.

Very well put.

90% of Auckland businesses are claiming the wage subsidy. Jobs and businesses are being supported to an extent that is, as far as I'm aware, absolutely unprecedented. I'm not saying that's a bad thing, the whole situation is unprecedented.
But how long should businesses that are simply not sustainable be supported?
Of course it's hard to answer because we have no idea what the global situation will be in even six months. But I'd argue that in the case of travel agents, in particular, support would be better targeted at retraining or recapitalising into a different business than trying to keep existing businesses afloat.

Do you feel it is the government's job (at taxpayers expense and no matter what the cost is) to prop up all companies that do not have the reserves to ride out this Covid economy?

Good and Bad data.

Good for people able to dable in housing and stock market.

Bad for people losing job or business or underemployed.

22
up

Stock Market All Time High.

Housing Market All Time High.

Unemployment All Time High.

Business Closing or about to Close All Time High.

Panademic All Time High.

Uncertainity All Time High.

Stimulus by government All Time High.

Printing of Money All Time High.

Debt All Time High.

Inequality All Time High.

Just feeling the tension building!

Starting Jan 09 is not a helpful way of doing that...

Very true.
The point in time at the origin of the time axis has a tremendous influence on the shape of the chart.
For example, if you start your chart in Q2 2020, the things will get better-looking for sure. (How could they get worse?) On the other hand, if you start in Q2 2019, the trend will probably be downhill.

10
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Richard1965 this is only true if you fix a specific date in history from which to base the claims.

We have government and economic records for the UK going back 1000 years and I can assure you, inequality is NOT at an all time high, neither is pandemic, neither is unemployment or even debt (not debt as a percentage of GDP or assets.)

At various times in history, it has been a lot worse. And in fact, for MOST of history, inequality has been significantly worse. We still had famines and subsistence farming in Europe up to the 19th century and we didn't see anything like equality till the 20th. We all forget that the phase of relative equality in the West, where people own their own homes, can access mortgages, buy food, have political leverage via democracy.... that's actually the anomaly. It just happens to be the anomaly that most of us have lived through and have come to accept as normal. Human beings have made the mistake of recency and hindsight bias so many times, as cycles of culture and society change.

If you took a "lower class" woman from the 19th century, for instance, and gave her a week to experience the life of a 21st century "lower class" woman she would laugh you off your seat for suggesting we are at "inequality all time high". She had next to no rights in the 19th century and she was usually malnourished and at very poor mortality chances.

We should never be complacent about equality. It isn't a natural occurrence. It was hard won and very, very fragile.

A large energy and resource component in that equality also. Things are only (relatively) equal in a surplus environment.

Big time, as soon as we reach limits of resource surplus, or enter any kind of resource scarcity, the power imbalance massively tips towards those who own and can secure the resources.

10
up

"Inequality" the buzz-word of the authoritarian.
People are not all the same.
The force and power required to overcome "inequality" is terrifying and inhuman.

To be sure, I support "equality of opportunity". "Equality of outcome," however, is socialism.

Errrm. Actually, not always. Some of the people who made the biggest impact on equality were economic liberalists and/or on the right end of the political spectrum. So, as an example, in the UK, in 1971 only 51% of people owned a home and then by the 80s it was over 70% and much of that was because of the economic liberalism to allow access to mortgages for working classes and Margaret Thatchers "right to buy scheme". However, she is often also considered to have worsened poverty, do it really is quite complex and depends on what you measure. Usually, these things are measured in a hugely biased and bipartisan way dependent on whether you support red or blue team. Going further back to the Industrial Revolution, many of the political changes that gave more and more people the vote and other legal rights, came from the predominantly right wing aristocratic political movers and shakers. There wasn't even a labour movement to speak of at that point. Legal rights and movements in equality have ebbed and flowed but they did this before Karl Marx was even born, so we can't refer to it as always as socialism.

I absolutely agree that equality of opportunity rather than outcome is important, provided society provides a safety net for those who have no real opportunity (for whatever reason) and also acknowledges that equality of opportunity is extremely complicated. For instance, in the 60s in Detroit, Black Americans were always charged a higher interest rate than white people and automatically considered a worse credit risk, (even highly successful, wealthy black Americans). This contributed to an inequality of opportunity and yet was invisible to most as a background factor to continued inequality. Same can be said for wage parity between men and women, where women still earn significantly less than men for the same work and when qualifications are matched. Is it socialist to try and address this? Is it socialist when right wing parties attempt to address this or just left wing? How do we achieve equality of opportunity without in depth assessments and legislative/social change? Are progressive policies in this respect only socialist if they come from the left? Authoritarianism is just as much of a risk on the left and the right, it existed throughout human history, before there was ever such a thing as a "left".

Exactly, GN. Scheidels' 'Great Leveler' is the primer here for those tender souls who weep over 'inequality' of any stripe. His catch-phrase - 'the original 1%' - has a 10,000 year history behind it.....

And the four 'Levellers' he identifies and documents with Gini income coefficients are:

  1. Mass-mobilisation warfare
  2. State collapse
  3. Pandemic
  4. Transformative Revolution

I suspect 'careful wotcha wish for' is the riposte to all them Tender Souls.

US retail sales strong due to all the looting being booked as a sale.
House sales up as the apartment owners flee the big cities and buy a bolt hole.

Spin things any ways you like....

We can naively look at these grim international figures and do our naive, islander patriotic backslapping, singing 'We don't know how lucky we are' if we like. It might make us feel better.

However, I suspect the very hard times here just been deferred. For me, THE question for the next 6 months is whether we return to Level 3 again. If we do, and mathematically that is very likely, I think that will be the final straw for the economy.

I would like to say the govt has a robust economic plan to mitigate. Unfortunately I don't think they do.

Depends. Does printing money for wage subsidies and dole top-ups count as a robust economic plan?

In some sense it has worked relatively well so far.

It worked in kicking the can a few more steps down the road

http://charleshughsmith.blogspot.com/2020/08/how-nations-collapse-disuni...

A worthwhile read from Charles Hugh Smith on disunity and division. Interesting to see him referencing Nicholas Talebs "anti fragile". Sort of why I knew we'd never keep Covid-19 out, our systems are just too fragile. But we'll probable never keep civil rights for the same reason. Covid itself has become a source of disunity. I'm seeing serious cracks appearing on social media.

An aside to this is that I recently found Talib on the Encyclopedia of American Loons, which is a bit of a surprise. Looked more like a personal vendetta against him though.

A great thinker. Would be interesting to see his views on preparation for this pandemic which I am sure he would argue is not a 'Black Swan'.
I imagine he wouldn't be impressed...

He has been writing a long time, worth going through some of his old work. You could almost say a stuck record, but it finally jumped to the next track and he has better material to work with now. Lol. I'd be a little hesitant to apply "great" to him. He is very very good, but just short of great.

Yes, Scarfie, OfTwoMinds has been on my blogroll for years. Thing is, it's far, far easier to gin up Division than it is to patiently, over decades and generations, let Unity quietly self-assemble......

I am curious about the price of gold. It has never interested me, but I know that there are many enthusiasts on this site. My question is, why is the price not higher,given all the global economic and geo-political issues?

I looked at charts from Bullion.com and in NZ$, the price has risen by around 24% over the past year. By comparison, my 6 largest NZ shareholdings have risen over the same period by 30%-excluding dividends. Now that does include F&P H'care, but also one loss maker. Over 5 years, the gold price is up by 65%, but the NZX50 Index is +110%. I hold over 30 shares in the index, so it's a reasonable comparison. in fact, I have outperformed that figure.
perhaps one of the gold bugs can put forward a convincing argument for it.