Indian economy shrinks sharply; Japanese and Korean retail sales stumble; China's PMIs positive; air cargo weak despite recovery; UST 10yr yield at 0.69%; oil unchanged and gold higher; NZ$1 = 67.5 USc; TWI-5 = 70

Indian economy shrinks sharply; Japanese and Korean retail sales stumble; China's PMIs positive; air cargo weak despite recovery; UST 10yr yield at 0.69%; oil unchanged and gold higher; NZ$1 = 67.5 USc; TWI-5 = 70

Here's our summary of key economic events overnight that affect New Zealand, with news the bond markets seem to have concluded the Fed's new inflation settings won't work.

But first, the latest regional Fed factory survey is out from the Texas region and that shows a good recovery in new orders and an even better recovery in employment. It was an outcome market observers weren't expecting.

In Canada, the number of residential building permits issued in July fell -5.8% and that was a surprise which exposed the good June gain as an outlier.

Indian Q2 GDP was reported overnight and it fell much more than was expected, shrinking at the rather startling rate of -24% pa when a -18% retreat was expected. That is a record decline. That is on track for a -10% fall in all of 2020, and as the pandemic is still gripping the country, a similar fall is expected in 2021.

In Japan, the recovery of consumer confidence, which wasn't strong in the first place, seems to have run out of steam before getting anywhere near last-year levels. And last-year levels were depressed anyway.

So it is no surprise that Japanese retail sales stumbled in July from June and recorded a -2.8% year-on-year change and worse than expected.

And Japanese industrial production fell -16% year-on-year in July but that was much less than the June result. Month-on-month it was up +8% in a good recovery.

South Korea retail sales slumped -6% in July from June, and erasing the good year-on-year gains that had, dragging that metric back to just +0.5%.

South Korea industrial production also came in much worse than expected in July, taking it into reverse and down -2.5% year-on-year.

China's official factory PMI for August has held its small expansion level and came in at almost the expected level. But their services PMI is showing a clearer expansion. New factory order growth is now at its best level in a year, even if it is an expansion that is modest. New export orders are now hardly contracting after a horror run, so that is a major improvement. New orders in the service sector are expanding well now. Expected future activity has turned quite enthusiastic in both sectors. In recent months, these official readings have proven conservative compared to the private PMI surveys.

And retail beef prices in China are rising again, up week-on-week to be more than +14% higher than the same time a year ago. The shift from pork is growing and there have been disruptions in imports (including from Australia) so prices there have been on a 10 week surge to now average NZ$18/kg.

In Australia, their muscular challenge to China's bullying is not working out for them so far. Few other countries are brave enough to join them, the Americans may let them hang out to dry, and China is doubling down on its wine restrictions.

Airlines are remaking themselves as air cargo carriers now that the passenger market has collapsed. Globally, air cargo is down -14% year-on-year in July, and that is a good recovery from the February to June period. And airlines are watching the new export order growth data and seeing further upside.

In New York, the S&P500 hasn't managed any gain today, and is flat in afternoon trade. Overnight there were falls of about -0.8% in Europe. Yesterday, Shanghai closed down -0.2%, Hong Kong closed down -1.0%, but Tokyo closed up more than +1.0%. The ASX200 ended down -0.2% and the NZX50 Capital Index was down -1.3% in a difficult day of trading again marked by DDoS attacks.

The latest global compilation of COVID-19 data is here. The global tally is 25,300,000, up +231,000 since yesterday. Global deaths reported now exceed 847,000 (+3,000 in two days).

Just under a quarter of all reported cases globally are in the US, which is up +32,000 in a day to 6,190,000 and a relentless rise. US deaths are now just over 187,400 and a death rate of 566/mln (+2/mln). The net number of people actively infected in the US rose overnight to 2,572,000 (+15,000), so more new infections than recoveries.

In Australia, there have now been 25,746 COVID-19 cases reported, and that is only +76 more than yesterday. Although most are in Victoria, it is definitely abating there. Australia's death count is up to 652 however (+41). Their recovery rate is up over 83%. There are 3749 active cases in Australia (-199) indicating a turned tide and more recoveries than new infections.

The UST 10yr yield is down -3 bps today at 0.69% and a reality check for the Fed and its new policy shift. Their 2-10 curve is marginally flatter at +57 bps. Their 1-5 curve is also flatter at +14 bps, and their 3m-10yr curve completes the flattening trend at +61 bps. The Aussie Govt 10yr yield is unchanged at 0.98%. The China Govt 10yr is lower by -3 bps at 3.06%. And the NZ Govt 10 yr yield is little-changed at just over 0.63%.

The price of gold is up a modest +US$4 today to US$1,968/oz. But the price of silver is up a strong +2.8% and outshining the yellow metal today.

Oil prices are little-changed again today at just under US$43/bbl in the US while the international price is just on US$45.50/bbl.

The Kiwi dollar marginally higher again today and now at 67.5 USc. Against the Australian dollar we have slipped marginally to 91.3 AUc. Against the euro we are back to 56.5 euro cents. That means our TWI-5 is unchanged at 70 and the currency-depressing impact of the last MPS has all been unwound.

The bitcoin price is up +0.7% from this time yesterday at US$11,736. 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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28 Comments

Correction required: "a similar fall is expected in 20201" .. 2021?

That steaming cup of coffee has got me heading to the coffee machine again already.

Did the south island get snow last night? Friends are posting pics of animals in snow, looks like a nasty storm with lots of wind damage.

windy.com showing all the Southern Alps getting some, your turn tomorrow is the forecast. Maybe some as far North as the Urewera's. Hopefully a bit of precipitation for your locality with it!

Yep its snowing on the Plains (an inch or so only here at 500')

20cm or so at the otago ski areas. (Hooooray)

Snow on my deck, and quite thick on the wilding pines above our place. Rubbing our hands together thinking about all the Aucklanders coming down to enjoy it!

I can tell you that more than a few aucklanders are also keen on the prospect, at least in this house. The snow was starting to look a little marginal, the big dump is great news.

Mt Hutt has had 28cm in the last day...might even break out the Völkl Super Sports meself....

Type3 squareback?

Yes, square-ish backs. Old-school 5-stars. Bought 'em on TM, still had the QC stickers on them. Maintain 'em myself. Plenty of meat on the edges, good Austrian steel.

In Australia, their muscular challenge to China's bullying is not working out for them so far. Few other countries are brave enough to join them, the Americans may let them hang out to dry, and China is doubling down on its wine restrictions.
US full on with threats.

You have no money, no economy, and you're on the verge of civil war. Sit down, yank. Link

we could get loads of cheap Aussie wine, always a silver lining .

PaknSlave cheapest longlife milk is from Aussie. WTF. The staff member said they get it because of the easily operated lid!!

"A prominent Australian journalist has been detained in China as tensions between the two countries rise."
https://edition.cnn.com/2020/08/31/media/cheng-lei-detained-australia-ch...

It's getting increasingly dangerous to be an expat in China. They have on occasion started using them as hostages to coerce foreign govts - eg Canadians detained over fraud arrest of Huawei exec in Canada.

The fraud is perpertrated by those saying her Canadian arrest was fraudulent.

So they admit they are wrong, but how long until they come up with a plan that gives them something to work from going forward?

This is a really bad look. Darwin Port was leased under very dubious (corrupt) circumstances. The Chinese should have everyone reason to feel aggrieved. Ex-minister Andrew Robb left parliament to work for the Chinese company who took over the Port and was basically paid a king's ranson to do nothing.

Anthony Albanese will be coming up with his own amendment to move for the cancellation of the $506 million leasing of the Port of Darwin to a Chinese government entity, according to Sky News Political Editor Andrew Clennell.

https://www.skynews.com.au/details/_6186152390001

If it was a corrupt deal, why would they have the right to feel aggrieved?

Former Liberal trade minister Andrew Robb was instrumental in Australia signing a 2015 agreement to eliminate import tariffs with its biggest trading partner, China.

Mr Robb, who now runs a very lucrative consultancy advising Chinese firms, said the relationship was the best it had ever been – despite ‘wolf warrior’ diplomacy threats from Beijing to boycott Australian goods and services and the new suspension of beef exports.

https://en.brinkwire.com/news/former-trade-minister-andrew-robb-says-aus...

That is a classic business model. Goldman Sachs use it all the time. Get a government minister to look after you, then pay him/her big bucks to repeat, repeat, and repeat nice lies about you and the crooked deal you all did together. The catch with this one is that the Aussie government can just take the harbour back off the CCP, and they can go whistle. If Aussie has to go back to trading with China the way they did 50 years ago, so be it.

I have nothing but contempt for Andrew Robb and he's been taking the pis and filling his pockets ever since his political career ended. If you take a look at his website, etc, everything stinks of little more than fixer. Unfortunately, Aussie politics is out of control. The corruption is rampant.

To your point about the business model, yes, I understand.

It's termed the 'Revolving Door' in the States....Out of Gubmint, into a cushy consultancy/schmoozing/PR slot, back into Gubmint after a decent interval with all that Private Sector background as additional recommendation, wash, rinse, repeat....

Sounds a lot like what John Key did - spent his years as PM pumping up the housing market by opening up migration floodgates and limiting reforms on the supply side. Also, high migration allowed our tourism sector to grow exponentially off low-wage exploited workers.

The man then left public office to take up the chairman role at NZ's largest banking corporation and also became a board member of our largest tourism company, Air NZ; he resigned from the latter position at the first sign of trouble in March 2020.

File under 'Incumbent Inertia" - the hidden cost of Legacy IT (ht Instapundit).

Lest one snorts the Hopium and thinks 'It Cannae be Happening Here', I'm aware of one DHB that up until a few years back (and maybe it still has) had a Patient Management System written and maintained by a roomful of geezers, in....drum roll...COBOL....

be careful out there guys, dangerous times

https://wolfstreet.com/2020/08/31/e22bn-hedge-fund-h2o-majority-owned-by...

“On behalf of the whole H2O team, we would first like to extend to you and to your clients our sincere apologies for our risk-adjusted losses, which have been particularly significant since early last week… If 2008 was a liquidity crisis, 2011, a volatility crisis and 2016, a convexity crisis, 2020 is a combination of the three previous shocks.”