Dairy prices slip again; US retail sales rise; US factory PMIs improve; China bond issues near record high; Aussie grain the next China target; UST 10yr yield at 0.67%; oil unchanged and gold up; NZ$1 = 67.6 USc; TWI-5 = 70.1

Dairy prices slip again; US retail sales rise; US factory PMIs improve; China bond issues near record high; Aussie grain the next China target; UST 10yr yield at 0.67%; oil unchanged and gold up; NZ$1 = 67.6 USc; TWI-5 = 70.1

Here's our summary of key economic events overnight that affect New Zealand, with news that risk appetites seem to be improving today.

But first up, there was a dairy auction today with prices in US dollars coming in down -1.0%. But the rising Kiwi dollar has undermined that soft result further and in local currency prices are down -3.3%. Volumes sold were the highest of 2020 but prices are now the lowest, in either currency. The key WMP prices fell -2.0% while the SMP price rose +1.8%. But there is now no hiding from the fact that overall prices in New Zealand dollars are now at their lowest since the start of 2019. We are now in territory where farmgate milk payout prices will be under consideration.

In the US, the Fed's balance sheet is starting to rise again and now tops US$7 tln. Within that and driving the recent rise, is their buying of mortgage-backed securities, and their holdings now exceed US$2 tln.

US retail sales are rising now, and quite strongly. Last week the US Redbook data showed a +4.6% year-on-year rise and a significant improvement from the flat result the week before on this basis. Month-on-month gains are strong too (+5.8%).

The widely watched ISM factory PMI was up in August too, expanding at a good rate now with good new order levels. But their employment subcategory is still contracting at about the same rate, so no turnaround there.

The internationally benchmarked Markit PMI for the US is expanding too, but not as strongly. But this one does show a rise in employment in the factory sector.

This are similar in Canada's factories but with an even faster expansion of payrolls.

And a Canadian banking regulator is rolling back rules on deferred mortgages. They can no longer be considered 'performing' if they have been deferred.

In China, local governments accelerated bond issuance in August, issuing ¥1.2 bln with total bond sales (NZ$260 bln), the second highest monthly level ever after the NZ$280 bln in May. Their state railway completed more than 1300 kms of new routes in the first six months of 2020. The old Chinese "investment" playbook is in full operation now.

And China's private factory PMI survey came in more expansionary than the official one.

Hong Kong retail sales are still in the pits. They were down -23% year-on-year, no improvement from the -25% drop in the previous month.

Core inflation in the EU came in less than expected in August and much lower than for July, and is heading back down to zero and below. But all that negative pressure is only coming from oil prices, so consumers are getting a net benefit.

In Australia, they have been hit with another Chinese trade action. It largest cooperative grain exporter with 4000 members has been told its exports are no longer welcome - because of invented 'pest detection' claims. China is tightening the screws.

And the RBA issued its monthly update, maintaining all its current settings. It extended it its Term Funding Facility access to AU$200 bln. And it is altering its language signals, showing it is considering further loosening of unconventional stimulus if the economic and financial situation need it. And it is clear they currently think this is likely.

In New York, the S&P500 is up 0.4% in afternoon trade today. Overnight there were mixed results in Europe, although London fell a sharp -1.7%. Yesterday, Shanghai closed up +0.4%, but Hong Kong and Tokyo managed little gain. The ASX200 ended down -1.8% and the NZX50 Capital Index was down another -1.2%.

The latest global compilation of COVID-19 data is here. The global tally is 25,560,000, up +260,000 since yesterday. Global deaths reported now exceed 852,000 (+5,000 in one day).

Just under a quarter of all reported cases globally are in the US, which is up +36,000 in a day to 6,226,000 and a relentless rise. US deaths are now just over 188,000 and a death rate of 568/mln (+2/mln). The net number of people actively infected in the US rose overnight to 2,575,000 (+3,000), so more new infections than recoveries.

In Australia, there have now been 25,819 COVID-19 cases reported, and that is only +73 more than yesterday. Although most are in Victoria, it is definitely abating there. Australia's death count is up to 657 however (+5). Their recovery rate is up over 83%. There are 3664 active cases in Australia (-85) indicating a turned tide and more recoveries than new infections.

The UST 10yr yield is down -2 bps today at 0.67%. Their 2-10 curve is marginally flatter again at +55 bps. Their 1-5 curve is also flatter at +13 bps, and their 3m-10yr curve completes the flattening trend at +59 bps. The Aussie Govt 10yr yield is down -4 bps at 0.94%. The China Govt 10yr is unchanged at 3.06%. And the NZ Govt 10 yr yield is also unchanged at 0.63%.

The price of gold is up a modest +US$3 today to US$1,971/oz.

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

The Kiwi dollar marginally higher again today and now at 67.6 USc. Against the Australian dollar we have risen to 91.6 AUc. Against the euro we are back up to 56.7 euro cents. That means our TWI-5 is slightly firmer at 70.1.

The bitcoin price is up +2.2% from this time yesterday at US$11,994. 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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71 Comments

I've been warning of the Tiwai Point dross problem on these pages for ten years. There is a lot more about than what is currently in the news.

Shame the comment ui is so poor here on interest. There is no practical way to see those comments. Would be an interesting read.

There isn't even reply notifications or any comment history.

Agree. Worst I've seen, it's from the 90's. Doesn't do the quality of the articles any justice.

Were the Haysoms a genuine well-meaning failure?

Or a cynical set-up designed to save Rio Tinto an inconvenient cost?

My golf buddy said 2 different firms went bust trying to process that waste. Both accepted all of Rio Tinto's money though, and they never got a refund for the lack of processing. I bet the ownership of the waste passed to the processing firms as part of the deal, so not RT's problem.

There is fluoride as a byproduct also, mostly likely where it comes from to put in our water.

If you recall my inside info from working there is that they've been dumping the byproducts in seals pits along the coastline. I only had the story of a workmate to go on, but he wasn't the type for hyperbole. It is something that all the workers know but no one really talks about. I mean gotta pay the mortgage right?

Here is a mainstream article featuring one of these "Bump Pits" https://www.stuff.co.nz/southland-times/news/features/102663052/tiwai-2-... Look up Tiwai Point on Google Earth and you'll see the no mans land along the beach where the Smelter can hide away their dirty secrets. I accidentally drove my small crane out of the perimeter fence one time while looking for the paint shop in the South East Corner, I was new and didn't know where it was. I was told later not to go out there again or it might cost me my job, they've got security camera's watching and I was noticed.

I would suggest that any new power deal with Rio Tinto must include the immediate resolution of the dross issue. The Govt needs to be involved in any negotiations.

It would appear various govts. have been involved over the last 30 years and all they've managed to do is bend over...

Is it only me that sees a comparison to the recent event overseas of an exploding warehouse? The only difference being the public weren't aware...

Tertiary education sector faces cuts as International student numbers dwindle.
The NZIST CE, Stephen Town, discusses closing central Auckland sites saving lease $$$.
https://www.rnz.co.nz/news/national/424791/cuts-and-closures-as-polytech...

27
up

When I was at primary school, the nuns' business model included zero foreign students. Same with high school. My children's high school had 20 foreign students each year, with very few from any one country. The rector specifically did not want to rely on them, and did not want them forming cliques of their own race/nationality/language. My son's Chinese mate got the whole soccer team cheap knock off Barcelona strip with their own names on them in the school holidays. Top, shorts and socks for $15. We all remained close friends and went to his hilarious Chinese wedding a few years ago. That is the correct way to run foreign students. Don't rely on them. Don't have too many. Make them soak into our culture, instead of living their own culture in NZ.

The business model for tertiary & some schools now is a 'high dependence on international fees'.model.
Govt funding levels to education adds this pressure. But its also a whole industry that has grown - intertwined with immigration goals.

Calling it a "business model"not the best description. It's more just adding some lolly and comfort for the so called educators. Facilities the taxpayers have provided are sold off internationally.
A young relative at Lincoln has been telling me how as a New Zealand student, she is disadvantaged by the attention that is lavished on the students from overseas. She sees she is distinctly second class.

We were looking at having a Chinese girl as a homestay. It was almost set up when we discovered that a Chinese minder dude wanted to come to our house to interview us and to approve us. A further step that we were not aware of. We of course pulled out immediately. No way did we want anything to do with her and her CCP minder.

14
up

Doesn't seem unreasonable. If you were sending your kids overseas to homestay, wouldn't you want a presumably trusted third party to actually inspect the place and ensure the family aren't raving lunatics?

We were already vetted by the NZ company involved. Incl police report.

Australia presented with invented “pest detection” interference to exports. Old history, but some irony too, recall NZ had the similar problem with apples for export to Australia. Old tricks, new players.

That was over Fire Blight in apples. Aust played hard ball with NZ for over a hundred years.
https://www.mfat.govt.nz/en/trade/trade-law-and-dispute-settlement/previ...

Remember the special tariffs on Jap cars to protect the Wolseley and Vauxhall Viva car sales? Motorcorp in Wellington had a new Morris Marina and a new Honda Accord beside each other in Wgtn in 1981. I bought the Accord. Bit more open, but same story. Nothing changes. If the PRC could find someone else with iron ore 1 cent cheaper than Aussie, they would be the supplier. If Aussie could find a buyer with 1 cent more for all Aussie ore, China would get none. Just part of the hustle and bustle of trade.

"You know it’s a bubble when you have to edit the Y axis on all of your charts because valuations have broken above every historical peak, and estimated future market returns have fallen beyond the lowest points in history, including 1929.

One of the things to remember about investing is that the higher the price you pay today, for a given stream of future cash flows, the lower the long-term returns you can expect. It’s exactly when past returns are most glorious that future prospects are most dismal.

Yikes
The most important observation about market valuations here is that while a decade of zero interest rate policy has encouraged yield-seeking speculation in stocks, the resulting extreme in stock market valuations has also driven likely 10-12 year S&P 500 nominal total returns below zero. The same outcome accompanied the decade following the 2000 market peak."

https://www.hussmanfunds.com/comment/mc200901/

Yield seeking speculation in everything. Houses, stocks, old cars...you name it.

Capital gain seeking speculation in everything, no yield required.

The fact remains that those closest to the central banks printing press are the real winners - they’re laughing all the way to the bank...

Normally we would see this sort of thing reported in our media but now days it seems to be about suppression to calm the masses. If it was being reported correctly I doubt taht today's 90 @ 9.00 header of risk appetite would be the same.

I'd be very wary of the Federalist as a news source. They are not benign 'citizen media', they are a heavily Astroturfed outlet for the various lobbying and PR arms of the Republican party.

12
up

there is no benign 'citizen media'.

Pretty obvious by the way they brush aside the police shooting which triggered it all - a childish world-view that sort of goes with the authors profile picture. God bless the US.

The shooting of a convicted felon who was armed with a knife and had just attacked those same police? The police were called because he was breaching a restraining order his ex-partner had against him for his repeated assaults. This wasn't just some random shooting.

I suspect they knew who he was and where he lived then.

Possibly. And next time they come to pick him up, he could just resist arrest again and the police should back off and try again later, right? Or maybe he could just check himself in to the nearest police station when it's convenient for him.

He wasn't a threat to anyone. They could have waited for backup instead of endangering his fiance and children. Perhaps you think they should have dispatched an execution squad to do the job properly. Maybe a drone strike.

He was fighting police and had a deadly weapon in his hand, hardly not a threat to anyone. He was also in breach of a restraining order his ex-partner had against him for assault, so certainly a threat to her and her children also - she felt threatened enough by him to call the police, after all. Not to mention his open warrant for arrest.

If you'd like to live in a state without police, suggest you grab a plane ticket and make tracks. I prefer to live in a society where a woman who fears for her safety can call the police and they will arrive and deal with it.

11
up

These protests in the Democrat states, instead of galvanising support, appear to be driving people towards voting Republican.

Any actual evidence of that? I haven't seen any.

11
up

I think there was a plan for the USA and Trump wasn't part of it. Clinton Obama were, Obama ran an expensive oil policy which resulted in massive fracking, Trump has run a cheap oil policy, with all the troubles that has caused local production.

The wheels come off when Trump won, he was a wild card, thought to never have a chance, he screwed up the plan, bringing troops home, tough on China, USA first, immigration.
Some very powerful people are determined to get rid of Trump, fortunately for them they still control the Democrat party.

That's just silly rubblish.

I stand my my belief that the oil policy of Obama was for expensive energy and that made fortunes for US companies. Now China and Russia have stepped up and life gets more interesting now China can control the demand side.

A cynic could say "part of the plan" - who are these rent-a-riot people? It's been obvious from day one there are "agent provocateurs" at work amongst these protests.

Andrewj. Don't get sucked in to the changed turn hard right by The Federalist. It might have started out conservative, but it has descended into consiracy theories in the past year or so. Be sceptical. It not independent reporting, but a polemic now (aimed at suckers).

I have never read it before, if nothing else it's showing the polarization of populations, low wage economy with expensive healthcare, shutting many out of a future.

David, unfortunately, many media outlets have begun touting the conspiracy theory narrative and it has infiltrated many traditionally "right" leaning media outlets. The Murdoch owned MSM in the UK is rife with it now and I have noticed it steadily building in comments on this website. But the same is true of many "left" leaning news outlets. Even the BBC, supposedly neutral, has a very clear agenda. I used to head to the BBC business home page every day, but noticed increasingly that the news stories there might be more related to social justice and lifestyle issues than any business news (not to suggest that social justice issues don't require a place in MSM but there are very clear memes that belong to the left, as opposed to the right, and the BBC is demonstrating that bias IMO).

Anyway, what saddens me is that since I have joined this website, I have seen an increase in certain derisory phrases and labels used by individuals on both ends of the political spectrum in the comments. A lot of what i would consider propaganda (again both left and right), is regurgitated uncritically.

There seems to be a tide of more irrational political tribalism building globally. NZ is maybe behind the curve, but not immune.

The explosion of electronic messaging and communication has had dire consequences for integrity, value and truth in all walks of life. Before the internet all of this was pedestrian compared to after. You had to think about what you said before committing it to paper. Back in the 70’s when I first started attending reasonably high executive meetings in my then industry, my wise old boss advised “remember what is unsaid will invariably be more telling than what is said and what is in writing will be more important than the sum of both of them.” Unfortunately now writing is fast becoming as good as the next smart ass, pointless and gibberish text. The chaff has overwhelmed the wheat.

And the RBA issued its monthly update, maintaining all its current settings. It extended it its Term Funding Facility access to AU$200 bln. And it is altering its language signals, showing it is considering further loosening of unconventional stimulus if the economic and financial situation need it.

To match European Union inflation at minus 0.2%?

Peak Inflation? No, Peak Stupidity
Fat Chance, Flat Phillips

This is a real problem.

In Wellington, in MoH to the part time minister of health.
Massive failure in understanding
Projects
Accounting
&
We are in time of pandemic, lockdowns lessened, health system to step up.

https://i.stuff.co.nz/national/health/122600905/health-boss-parting-shot...

Levy later stated he “did not mean to be incredibly tough”, rather his role was to represent the view of the Crown and he was just doing his job.
- a declining ship departing comment.

Wellington head lopped

https://www.newsroom.co.nz/top-health-boss-quits-abruptly-amid-dhb-tension

Hipkins would not comment on Arrowsmith’s departure, and did not directly address the two-year DHB deficit timeframe, saying instead “we don’t accept that deficits are inevitable”.

They are if projects are delayed.
They are if notional accounting charges set by MoH have noting to do with reality.

Part time minister of health needs to read up.
Or get out of the way.

11
up

Why would we ever employ anyone who used to work at the NHS, a complete disaster in the making.

Just like KiwiBuild, Auckland Light Rail, the Capital Gains Tax and effective climate change policies, this Government got bogged down in a welter of working groups, coalition disputes, bureaucratic infighting and stonewalling, and an inability at the top level of Cabinet to direct the organs of Government to carry out its will.

Weak and overwhelmed ministers accepted 'Yes Minister' for an answer and were not able to stop the initial energy and direction from dribbling away into the sands of endless consultation, trials and ways for officials to avoid taking risks or challenging the status quo.

https://www.newsroom.co.nz/pro/back-to-government-as-usual-on-covidcard

Weak and overwhelmed ministers....
None of whom wish to out shine their boss.

# poor performance explained

You're like a broken record, we get it you loathe Labour. Going on and on and on about it, finding every excuse to stitch some failings into you replies no matter how irrelevant is pointless.

I have no sympathy with the antics of CDHB staff. With them it's gimme gimme, and tossing their toys when limits are made on their expectations.

"Trump Favored to Win 2020 Election for the First Time Since June 1st"
https://www.sportsbettingdime.com/amp/news/politics/trump-favored-win-re...

I'm looking at Bet365 right now, it has Trump @ 1.86 and Biden @ 1.95. PaddyPower still has Biden @ 1.91 and Trump @ 2.00.

Britain had WW2 at long odds for few years too.

There is a parallel - desperate masses, charisma and promises, failed establishment.

i imagine the betting sites are more reliable that the polls.

To a degree, but they still have to balance their own books. At times it is possible to arbitrage between bookies, for example when the Lions play the All Blacks a bookie in the UK might favour the Lions while a bookie in NZ may favour the All Blacks. It's entirely possible that those who gamble on political outcomes generally also favour a particular party and so confound the odds.

They show what people think is going to happen, in aggregate, weighted by their willingness to bet on it. So, depends on what you think of aggregate predictive ability.

It is not just ANY " aggregate predictive ability." - I would not put too much faith into that WRT predicting an earthquake say .
Outcome of an election is a man/crowd made thing - so the predictive ability of a ( granted , somewhat different .. ) crowd is not something to dismiss lightly.

Man made outcomes. "A top Democratic operative says voter fraud, especially with mail-in ballots, is no myth. And he knows this because he’s been doing it, on a grand scale, for decades."
https://nypost.com/2020/08/29/political-insider-explains-voter-fraud-wit...

The presidential debates could be a defining moment and will show if Biden is mentally all there.

Nancy Pelosi is asking for the debates to be skipped which is fuelling the conspiracy theorists.

I had thought so too, but recall in 2016 when Hillary Clinton got the debate questions in advance so she could prepare, and had canned answers fed to her through an earpiece. Conceivable that similar could be done for Biden, especially if the debates have to be done over video link for "safety reasons".

the powers that be may have to collapse the economy if that's what it takes to get rid of Trump.

There is a non-zero chance that both sides will refuse to honour the result should it not be in their favour - the mail-in ballots / voter fraud discussion is laying the groundwork for this. Then the US is in big trouble.

Where does this idea that 'they' are anti-Trump come from?
He's from the oligarch class. He's overseen massive corporate tax cuts, and an acceleration of corporate profits while the real economy goes down the shitter. He regards sharemarket indices as an absolute proxy for the state of the economy. He's a right-wing corporate looter who has done a tremendous propaganda job, using the culture wars (look over there! Antifa!) to convince people that he's something other than a millionaire working in the interest of millionaires. There's a staggering lack of perspective involved when his willingness to denounce rioters *matters more* to public perception than the wholesale dismemberment of the US economy, for resale to an ever-shrinking number of billionaires.

11
up

but he's not going to bomb Libya back to the dark ages or support ISIS in Syria, let China steal IP. The big problems in the USA began with Clinton allowing corporates to move to China and using slave labour, costing 8 million American jobs in mid-west.

I think Trump is a Patriot ,as hard as that may be for people to believe. MSM in the west have been discredited as a source of news. I have a great friend in the USA who works in police, I talked to him last week and he said that nothing in media is worth its salt, all bent and manipulated.

Brisket, yes, there is a whole other view, another perception to the view you describe.

If you are curious as to how that has come about, check out VDH, Tom Sowell.

Here is VDH.
https://www.amazon.com/Case-Trump-Victor-Davis-Hanson/dp/1541673549

For mine the decline of California to astounding.

Seriously - you have seen both men speak and you question if Biden is mentally there? You may need to go a check yourself out..

I don't trust the clips of Biden I think he is better than made out by certain self interested groups. Still Like Pelosi ,bloody old to be in such important roles.

There is woe at the lack of depth in the US sharemarket, where a handful of big tech companies have grown to dominate a quarter of the S&P 500 index and responsible for all of this year's gain. That lopsidedness is nothing next to China, where the top 3 stocks in the benchmark MSCI China Index comprise 38%

In NZ, 2 stocks F&P Healthcare and A2Milk account for 26% of the NZX50 index

I don't think I've seen anything approaching today's stock 'markets' since early '87.
One of my clients, John Spalvins of Adstream fame, had been warning for 2 years that "The end is nigh. It's all going to end in tears" and he'd shorted everything shortable.
In July '87, after several years of being laughed at and told he was missing the opportunity of a lifetime, he relented ." Bugger it! You're all right" and he quit his sorts and went max long.
The rest is history.
Adstream collapsed and John suffered horribly ( in layman's' terms!).

It all looks and smells so familiar, and yet "Beware October" seems such a cliche.
Time will tell as it always does.

Where the qv index update ?????

Always an interesting read Andy Xie
Beware: the US-China technology war is about to burst the tech bubble
https://www.scmp.com/comment/opinion/article/3099052/beware-us-china-tec...