US dollar under pressure; US consumer sentiment stays low; India adds a tax-free incentive for low income housing; EU confidence improves; UST 10yr yield at 0.73%; oil unchanged and gold higher; NZ$1 = 67.3 USc; TWI-5 = 69.9

US dollar under pressure; US consumer sentiment stays low; India adds a tax-free incentive for low income housing; EU confidence improves; UST 10yr yield at 0.73%; oil unchanged and gold higher; NZ$1 = 67.3 USc; TWI-5 = 69.9
"Fiordland Jewel" in First Arm, Doubtful Sound. Photo by Roger Harris

Here's our summary of key economic events overnight that affect New Zealand, with news one global economic deck chair is being re-arranged.

Today the US dollar is falling, sharply, but really just adding to a recent trend that started in early April as the pandemic set it. It is now at its lowest level in two years and lower than four years ago. The Trump Administration policies have undermined the greenback as traders move to discount its long term prospects. A cheaper USD makes US assets easier for outsiders to buy and partly explains why Wall Street 'values' have been rising. A Fed that is loosening its focus on inflation may be the driver for this latest decline.

It also helps explain why commodity prices have been rising - from iron ore, to precious metals. And why the Chinese currency "is now at its highest level of the year".

In the US, and in the Chicago industrial heartland, their PMI slipped a little in August from July but this should be seen as a net positive because for the second consecutive month it was above the level-pegging '50' benchmark after being below for all prior months of this year. But the important new order subcategory fell.

The next US consumer sentiment survey came in slightly better than the weak July result but still a heavy -17% lower than this time in 2019. The surveyors said it is in a "depressed range".

Core American inflation moved up slightly but only to +1.3% in July and confirming there is really no inflationary pressure in their economy at this time.

India has made an "interesting" move to support investment in housing for low income people. It has given an income tax exemption for foreign funds who invest in "affordable rental housing" via debt or equity.

In Europe, economic confidence continues to improve in August, with companies from manufacturing to services benefiting from higher demand following the end of pandemic lockdowns. It was a fourth consecutive rise and better than expected with the service sector giving a recent boost. One trend in the consumer part of these surveys however is that people are more worried about their job prospects.

Back in New York, the S&P500 is up +0.6% today in late trade. That looks like it will cap a week with a +3.2% gain to a record high. Since the start of 2020 the S&P500 has added +US$2.3 tln in capitalisation, almost half of that is the past two weeks. Overnight, European markets were all lower by about -0.5% on the day. Yesterday, Shanghai ended the week up +0.7% for the week with a late surge. Hong Kong booked a +1.2% weekly gain with a positive Friday result. Tokyo, which was hit with the resignation of the long-serving Japanese prime minister, was lower on the day by -1.4%, wiping out all its prior gains for the week. The ASX200 also fell on Friday, down -0.9% to cap a week of decline (by -0.6%). The NZX50 struggled to stay open in the face of a cyber attack but it did manage a fairly normal afternoon session to close out the week - and it posed a healthy +2.0% weekly gain despite all its infrastructure problems.

The latest global compilation of COVID-19 data is here. The global tally is 24,554,000, up +287,000 since when we last checked this time yesterday. Global deaths reported now exceed 833,000 (+6,000 in a day).

Just under a quarter of all reported cases globally are in the US, which is up +52,000 since yesterday to 6,072,000 and a relentless rise. US deaths are now just over 185,300 and a death rate of 559/mln (+3/mln). The net number of people actively infected in the US rose overnight to 2,532,000, so back to many more new infections than recoveries.

In Australia, there have now been 25,448 COVID-19 cases reported, another +126 overnight, and mostly in Victoria but also with a new cluster developing in Sydney. Australia's death count is up to 583 (+11). Their recovery rate is up over 81%. There are 4237 active cases in Australia (-152) indicating a turned tide and more recoveries than new infections.

The UST 10yr yield is -2 bps lower today at 0.73%. Their 2-10 curve is a tad steeper at +59 bps. Their 1-5 curve is down marginally at +16 bps, while their 3m-10yr curve is basically unchanged at +65 bps. The Aussie Govt 10yr yield is up +3 bps at 0.99%. The China Govt 10yr is also up and by +1 bp at 3.09%. And the NZ Govt 10 yr yield has joined in with its own belated rise at the long end, up +7 bps to 0.64%.

The price of gold has risen as the greenback has fallen, up +US$37 to US$1,965/oz and essentially repricing based on the currency shift.

Oil prices are little-changed today at just under US$43/bbl in the US while the international price is just on US$45/bbl.

However the US dollar has sunk rather dramatically and that has pushed the Kiwi dollar sharply higher this morning, up almost a full +1c to 67.3 USc and an overnight appreciation of +1.3%. Against the Australian dollar we are a little firmer too, at 91.6 AUc. Against the euro we are up to 56.6 euro cents. That means our TWI-5 is up to 69.9 and a one month high.

The bitcoin price is up +3.1% from this time yesterday at US$11,516. 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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54 Comments

If your job or business is not affected than this is the best time for many with cheap money and plenty of stimulus from government.

Just don't be the one left holding the bag...

Why didn't they think of this before?? Why didn't they just have the OCR at 0.25% and money printing from ages ago? It's the best time. The. Best. Time.

10
up

I had an interesting talk to a farm consultant who is marketing some farms for a corporate, sounds like low interest rates have led to some investors wanting out, as they cannot live on the low returns of other investments in banks, a feeling that this is high risk investment now.

I was thinking how many corportes will be affected, how big a deal is this. Will people investing in property see this as the top and with all the new regulations also exit?

I think Orwell was onto it in Wigan pier, socialists don't so much love the poor, it's their hatred of the rich that drives them.

As the inequality continues the rich will be targeted ,even though a lot of their wealth has been due to government policy. They real rich, the guys who can afford Cayman islands tax havens will get a free ride again.

I think all foreign investors in NZ should be asset taxed. The road south of us has just got a 15 million dollar grant from the covid response and recovery fund, who's the big user? a big malayan owned forestry company who probably pay very little tax in NZ. They say it's a tourist cycle route, with a logging truck every 10 minutes it wouldn't be fun on a bike

https://www.stuff.co.nz/manawatu-standard/news/300088298/tararua-distric...

Andrew, I know the road well. This road used to be a fully funded state highway but was abandoned to the sparse local ratepayers in a district with (one of?) the highest km of road/population in the country. Like you I felt forestry was getting a free ride and ratepayers completely unsupported with no benefit from all the RUC being taxed on the trucking companies who's trucks were destroying this road.
I have a friend in logging who pointed out to me that over the lifetime of a forest if that land had been grazed there would be the same amount of trucks on the road carting livestock, fertiliser, wool, diesel, etc. Moot point I guess but a valid point of view.

My livestock carrier tells me that logging trucks do a lot more damage to roads, always loaded to max. Also most farm trucking is in summer these trucks are all year.
The farm i was born on now has a loaded truck every 10 minutes and then it returns, we never saw volumes like that when the country was sheep and beef. It's impossible to shift stock on the road now.

.

Hadn’t come across that one before but Orwell certainly hit that nail dead square. Certainly encapsulates the motives and notions of the NZ Green Party.

Billions in assets and making a loss. No feedback mechanism to encourage better ownership.

Talked to my QS neighbour recently. Big, shovel-ready (consented - resource plus building) commercial projects on hold, as they now cannot meet ROI targets. Huge uncertainty about leasing prospects. And it's not because of lack of funding: there's plenty of cash available, but parked, because investors are so uncertain about where to - er - Invest, that they are simply sitting on their stash and waiting for the clouds to clear.

Interesting. I had heard that development funding has got a lot harder.

be interesting to run a poll of how many think we are going to get deflation?

Looks like Central Banks are going to be proved fools. I'm with Snider.

This has to be a joke

https://alhambrapartners.com/2020/08/27/this-has-to-be-a-joke-because-if...

https://www.youtube.com/watch?v=f0dUmsyC1Kg&feature=youtu.be

Deflation followed by hyperinflation (eventually)

Unlikely. Japan has been trying to generate ordinary inflation since 1999. The US:

They’ve spent the last eleven almost twelve years failing to hit their inflation target, so now they’re not only going to get inflation above the target they can’t hit, they’re also going to keep it there for enough time to average out the decade they’d already botched. And using the same tools, QE’s and ZIRP’s, to do it!

These are not serious people.

The zero lower bound is indeed a trap, but the trap isn’t what it’s portrayed to be. Instead it is this: once you get there you have to get rid of all of those who let it happen because they obviously had no idea why it had happened and, most importantly, these people will have no idea how to get out of it.

And while you may not think that has anything to do with what’s happening in Wisconsin right now, as well as around the country and the rest of the world, as I’ve been warning for years (too many) you can’t go this long without real economic growth (the inflation “puzzle” a symptom of this) and expect any other set of results.

Clueless central bankers, the ZLB trap they will never escape, and an increasingly hopeless, disturbed world putting the torch to itself because someone’s going to be made to answer for all of it. Will it be the right people with the right answers? Don’t ask Jay Powell, or all the others like him. He’s too busy showing you he has no idea.Link

It's easy to get inflation, just screw up numbers, but then the other way.

Hmmmm....

If you have to work overtime just to catch up to where you were supposed to be, you haven’t done a good job. It’s really that simple. And in the context of inflation, therefore legitimate economic growth as distinguished from fake booms, that’s really all bond yields are.

The lower rates go, and the longer they stay lower, the more they signal lack of faith in the Federal Reserve to change the situation; the economic situation because of the monetary situation. That’s what UST yields reflect, an increasing demand for the safest and most liquid instruments because no matter what the unemployment rate has indicated those working inside the actual monetary system have been able to appreciate this vast and growing difference.

And now the Fed admits it, too. That’s pretty much the full reality of Jackson Hole 2020 in a nutshell. Link

Andrew we heading into deflation within many parts sectors of the commercial property market I have heard of numerous cases of landlords accepting 50% cuts in rentals often along with a low quality tenant in a desperate bid for cashflow. Major tenants are negotiating big rental cuts. How long is it before yields on all but the most prime of locations begin to rise as the market recognises the risks involved the result being a huge drop in values

I just had some outside painting done ( saves me killing myself by dropping off the top floor!) and I'd expected it to cost about $10k - judging from past experience, and the quote came in at $5.5k. The painter was booked up for weeks, and I asked him why, if he's so in demand, isn't charging more. He replied, "Because people won't pay any more and I'd have had all the free time in the world to do your job".
Deflation is already here; in wages and employment, if we could only but see it. (Of course, maybe I was off with my expectation, but 3 days, 2 1/2 men; materials; scaffolding and equipment?)

Inflation in non discretionary items food petrol etc but deflation elsewhere. Although as businesses fail it could lead to less supply less competition and higher prices all round. Stagflation here we come

It seems small consumables are having high inflation at the moment ~ I've noticed the cost of a coffee has been creeping up 10% or so, I popped down Tamaki Drive today and the cost of a scoop of ice cream had gone from 5 to 6 bucks. Likewise grocery shopping ~numbers seem to have crept up here and there.

But here is the thing, incomes are falling, commerviak rents are falling and job losses will accumulate so all things being equal we have to see deflation at some point on domestically produced goods and services.

Likewise as rents and wages fall the ability to cut prices on imported goods will follow.

So I guess for my money we are going to see deflation creep in so long as we dont have a currency collapse and high levels of imported inflation.

Andrewj, I also think we will see deflation/disinflation at least in the short term but I think there are longer term deflationary head winds too. Growth has been slowing for decades and I think there are profound demographic issues involved. From my perspective, the higher growth rate we had in the post-war era was the anomaly not the norm. We are returning to something more like the long term historical norm of lower growth and higher inequality. I don't agree with every conclusion that Pikkety makes, but his data sets are solid.

Inflation measuring is a mess. ATM essential items are going up and discretionary items are going down but the CPI basket doesn't take into account the psychology of types of spending. Discretionary items have been trending down for decades but if there is a big pull back from globalisation then these prices could increase prices if there is still demand. The question is, will there still be demand in a major economic slump for discretionary items? High levels of debt, rising inequality, low wage growth, boomer retirement, slower population growth, pandemic and geo-political uncertainty are deflationary forces.

I don't agree with the very superficial assessment of "hyper inflation" that many commentators make on here (ie that QE leads to inflation, money printer goes brrrr etc). Hyperinflation historically has been related to massive foreign debt issues (including Weimer Germany), it's not just a simple case of printing money creating inflation but often related to an exchange rate issues related to the debt issuing currency and the cost of imported goods. NZ does not have high levels of foreign debt and a lot of imported goods are discretionary. RBNZ could debase NZD but other countries are also busy trying to debase their own currencies, so that effect might be neutralised in terms of import inflation anyway.

There will always be capital seeking yield, so we could see asset price inflation. Depends how globalised the capital markets remain.

If NZ government crowds out private industry with massive fiscal spending, that might be inflationary depending on the level, but longer term it would hollow out productivity in NZ so unlikely to be inflationary.

Question: does anyone know the NZ approach to therapeutics.

https://www.newstalkzb.co.nz/podcasts/the-leighton-smith-podcast/
Professor Thomas Borody is most famous for his ground-breaking work developing the triple therapy cure for peptic ulcers in 1987, which has saved hundreds of thousands of lives.

In podcast 78, he details his solution for Covid-19.

When you hear this interview, you may well agree that New Zealand should be taking his advice.

And the Peak Prosperity guy with the "Triple Therapy"
Ivermectin, Tetracycline & HCQ.
https://youtu.be/YMr_X63tUN0

Tong says he has not seen Dr B's data.
- he doesn't have a view.

"Tong says he has not seen Dr B's data." That's academic speak for "There is no data".

That your rule of thumb or conspiracy theories.

"Rule of thumb" is a misogynistic turn of phrase harking back to a time you could beat a woman with a stick as long as it was no thicker than the width of your thumb.
"Conspiracy theory" is a misappropriated term thrown around to slur people who don't parrot centralized propaganda points with sufficient acumen.

The plan is pending approval from Moscow. Meurant, a former National party MP and police officer with a longstanding record dealing in Russian businesses, is hopeful the group will get the green light. This is despite scepticism from western scientists over the vaccine’s efficacy and safety and New Zealand experts raising concerns.

Russian vaccine must be efficacious - US had to resort to the only formula it knows to compete - sanctions.

Diplomat blasts US sanctions for targeting Russian scientists working on COVID-19 vaccine
The diplomat stated that the sanctions may be an instrument of unfair competition Link

That scenario is as outrageous as it is unsurprising. Almost impossible nowadays for the ordinary folk anywhere in the world, to have any trust or confidence in any political and/or government bodies. Actually in truth, guess should not have said nowadays.

Russia made the vaccine o nthe back of MERS and SARS research, soon after Navalny was "poisoned", and then sanctions came into effect against the very companies that developed the vaccine.
This is the playbook.

Sanctions against Russia seem to be a matter of expediency where the West is concerned.

Merkel supports completion of Nord Stream 2 project
The German chancellor considers unreasonable to link this economic project to the Navalny case Link

Consider sanctions a US modus operandi pushing up against the hard economic realities of a German people who like efficiency and making money. They won't buy US LNG for twice the price. End of story.

I've given up on Zerohedge..its gone so far right my back hurts.

Yes and have a read of the Wade Davis article in Rolling Stone for a timely commentary about the USA.

Once Trump is returned, the Democrat cities back in order, the vaccine rolled out for SARS2, then watch the USA economy take off again.

All those pigs lined up for takeoff?

Just don't mention the debt...

The violent protests are boosting Trumps numbers.

The "fiery but mostly peaceful" protests?

Second cluster, the church is getting bigger

https://i.stuff.co.nz/national/health/coronavirus/300094579/coronavirus-...

Thirteen more cases of coronavirus have been announced on Saturday.

Eleven of the new cases are in the Auckland community, with 10 linked to the Auckland August cluster and one under investigation. The two others are imported cases, caught in managed isolation.

The Mount Roskill Evangelical Fellowship ‘sub-cluster’ now has 18 cases linked to it – with six more announced on Saturday.

Rather predictable that this would be the case, but damn. I suspect that with that gathering momentum Auckland level 3 might be extended. Very telling that they have stopped doing the press conferences when the news goes bad - they were always about plumping the PM's profile rather than public benefit.

Is it safe to visit Auckland?

it is generally - just stay away from Ponsoby/Grey Lynn - too many lefties.

As expected (given how recently these cases have been cropping up): Church members were gathering for private prayer meetings during lockdown: https://www.tvnz.co.nz/one-news/new-zealand/members-mt-roskill-church-ga...
This is potentially going to blow up case numbers badly, depending on how frequent and how mixed these prayer meetings were.

Eye opening

The currency graph at the bottom of the article has a technical target of 0.715 for the kiwi to the USD according to my own analysis made on 21st July. Not terribly keen on this scenario, but will see if it pans out.

I think I have the worst timing in the world for getting money out from the US... You can take one guess when I need it.

I have the worse timing for changing NZD to USD!