US posts awful trade result; more US jobless lose benefit support; China's service sector expanding well; France launches huge stimulus plan; UST 10yr yield at 0.62%; oil and gold down; NZ$1 = 67 USc; TWI-5 = 69.9

US posts awful trade result; more US jobless lose benefit support; China's service sector expanding well; France launches huge stimulus plan; UST 10yr yield at 0.62%; oil and gold down; NZ$1 = 67 USc; TWI-5 = 69.9

Here's our summary of key economic events overnight that affect New Zealand, with news investors have had enough of high valuations unsupported by the real economy - for today at least. Risk is off.

Firstly, the US trade balance has come in a terrible -US$63.4 bln for July, the worst result since 2008. Exports were down more than -20% from the same month in 2019, imports were down -11%. The tariff war is having no impact on imports from China because the US deficit with China went up to -$31.6 bln in the month and worse than for June. The only impact it is having is that American are paying more for these imports - and ironically they purchased +8% more from China in July than June. The Chinese purchased -2% less from the US in the same period. The US is running a busted trade policy - although that comes as no surprise to everyone but about three people.

Initial US jobless claims were up +881,000 last week which was slightly lower than expected. The total number now on jobless benefits dropped to 13.25 mln, a decrease of -1.25 mln as increasing numbers of people lose their social support entitlements. Congress can't get its act together to renew support programs.

US job cuts so far this year surged +230% compared to the same period of 2019.

The widely-watched ISM services PMI is still expanding but at a much reduced pace than was expected. Employment is still contracting in the sector however.

The combination of the dire trade balance and the toxic direction of unemployment support has been too much for investors and markets are down very sharply with the NASDAQ down -5.3%. All other indexes are also sharply lower. Today no-one is buying the dips, not yet at least.

China's private sector PMI for services was out today and it came in marginally lower in August than for July, expanding at a PMI of 54.1, as normal business conditions return to China. A feature of this report is the shift of the employment component into expansionary territory. Also this services PMI version is now slightly weaker than the official version (55.2) and that hasn't been the case for all of 2020.

The Chinese central bank made a surprise net liquidity injection into their banking system of NZ$4.5 bln via open market operations yesterday.

But traders are watching the copper price as Chinese demand is rising while supply is not. And iron ore prices just keep on rising and rising.

In the EU, PMIs came in on average slightly better than expected in August. They were marginally lower than July, but still expanding. They were bolstered by the German result.

But EU retail sales disappointed in July, falling far short of expectations. But at least they did eke out a small year-on-year gain which in the circumstances is positive.

France has launched a €100 bln economic stimulus package to kick-start their coronavirus-damaged economy. It's 'investment' will be focused on green energy and transport.

In Australia, their July trade surplus narrowed a bit more than expected. Exports fell (-4.4%) and imports rose (+6.9%). Their service exports took a sizable step lower, down -12%. Their July surplus was +AU$5.4 bln and well below the June surplus of +AU$8.1 bln.

In New York, the S&P500 is being trashed today, down -3.9% in afternoon trade today. Overnight European markets fell about -1.4% on average. Yesterday, Shanghai closed down -0.6%, Hong Kong was down -0.5% and Tokyo managed a +0.9% gain. The ASX200 ended up +0.8%, and the NZX50 Capital Index was up +1.3%.

The latest global compilation of COVID-19 data is here. The global tally is 26,112,000, up +277,000 since yesterday. Global deaths reported now exceed 864,000 (+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 6,310,000 and a relentless rise. US deaths are now just over 190,500 and a death rate of 575/mln (+4/mln). The net number of people actively infected in the US slipped overnight to 2,564,000 (-9,000).

In Australia, there have now been 26,049 COVID-19 cases reported, and that is +126 more than yesterday with a new small but stubborn NSW outbreak. Australia's death count is up to 678 (+15). Their recovery rate is now 84%. There are 3464 active cases in Australia (-112) indicating a turned tide and more recoveries than new infections.

The UST 10yr yield is down another -3 bps today at 0.62%. Their 2-10 curve is flatter again now under +50 bps. Their 1-5 curve is down -2 bps at +11 bps, and their 3m-10yr curve flatter too at +53 bps. The Aussie Govt 10yr yield is down -2 bps at 0.89%. The China Govt 10yr is still rising, up +3 bps at 3.14%. But the NZ Govt 10 yr yield is little-changed at 0.64%.

The price of gold is down again, down -US$9 today to US$1,932/oz.

Oil prices are slightly lower again today, down to under US$41.50/bbl in the US while the international price is down slightly less to just on US$44/bbl.

The Kiwi dollar is lower today and has given up some of its recent gain to be at 67 USc even. Against the Australian dollar we have dipped to 92.1 AUc. Against the euro we are down -½c to 56.6 euro cents. That means our TWI-5 has softened to 69.9 but still above where it was this time last week.

The bitcoin price is sharply lower today again from this time yesterday, now at US$10,744 which is another -5.5% drop. In fact since Wednesday it has dropped more than -US$1200 or -NZ$1600. 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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89 Comments

It's always worth watching what the money is doing.
"Drury family sells $204m Xero shares, PushPay boss Bruce Gordon offloads on way out the door."
https://tinyurl.com/yy3yte6q

And Tesla has lost 20% over the course of this week.
https://tinyurl.com/y6t6497j

Yes split from his wife means payout time...still inholds a big stake in Xero.

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"The most expensive mistake anyone can make is to choose the wrong partner in life"
(But ever being the optimist I reckon 5th time lucky is the answer!)

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According to Clint Eastwood there is one thing that makes marriage work. And he went on to say that when he finds out what is he will get married again.

There's a saying, marriage is grand but divorce is 600

A man marries a woman, hoping that she will never change, but she does!
A woman marries a man, hoping that he will change, but he doesn't!

At $103 per share why wouldn't you? When Xero was set up that would have been an unbelievable price.

Many insider selling in last week and who will know better than people running the company of what is comming.

Similarly yesterday heard construction board member asking for relief to construction industry by providing $50000 relief to buyer to boost new construction (Is new construction not high at the moment).....do they too know what is coming next.

TSLA down 20% in two days, yet still up 10x over the last 18 months. Long way to go yet I reckon.

Yeah but when market falls, worst hit are those who have entered last on high price unless have deep pockets and are in for loooong period but this time when market falls many first time investors who have been lucky so far and having not experience downside and who have streched beyond to invest will be worst not only losing money but even mental health.

A long way to go in which direction? There are plenty betting on both sides of that coin toss.

Well yes if everybody thought the same thing we'd already be at that level!

I love tesla but I can't see it being worth more than all of the world's other carmakers combined...

Well Tesla is apparently worth more than Toyota even thought it doesnt make a profit or pay dividends while Toyota has a profit of about $23B

So.............

Xero bought Waddle, an AU company with some very good software that Xero needs, not sure why, perhaps Waddle has better programmers. Got an absolute bargain. Waddle sold out too early, or too cheap or both.

What did Bruce Gordon do? No access as paid article. Thanks

One day fall on equity market may be healthy but steep fall is a concern and have to watch with cautious for if it continues for another day and carries over to next week than may be bad .

https://on.mktw.net/3bldErV

Just watched a YouTube clip. If it closes at its low today it is bad and if it closes at its low tomorrow it is REALLY BAD.

Something has triggered a sell off in the AUD this morning. AUDNZD and AUDUSD pairs have been dropped for about 30 minutes or more.

CNBC are reporting doom and gloom.
https://www.cnbc.com/2020/09/03/markets-are-facing-a-potential-minsky-mo...

Time to move KiwiSaver to cash? When I was a blackjack player one of my rules was if I lost a good chunk of my bankroll and then managed to win it back I would call it a night.

This is where the cash flow crunch is starting to happen. Everyone needs cash to pay taxes and other financial obligations in October. Given that we've seen EU investment funds go illiquid I'd say we're heading for a huge crash in the US. That'll likely drag our market down with it, then when the margin calls come in gold will get dragged down as well.

I'd take a financial position of sneaking onto a spaceship and leaving earth.

I’ve been in Cash for years - most of the return is from the employer & Govt anyway, so why risk it, unless you’re just starting out.

My main reason to be in an aggressive fund is that KiwiSaver is my only exposure to something other than term deposits and property.

I switched from Growth to Conservative quite some time ago as the market is just too volitile. My provider acts progressively by changing
investments to try to meet the marketplace which is difficult when their are multiple variables. Needless to say, it doesn't always work.
Still,its best to take a shower than a bath.

Been in govt bonds since early 2019 and mostly cash since March.

US Treasuries go up in value when yields fall, but many don't seem to understand this inverse relationship and they think lower yields are bad. Dropping yields are awesome as your bonds will go up in dollars.

Falling rates means that the smart money is pouring into government bonds. And for good reason.

Has the Govt subtly moved towards acknowledging that full elimination is probably not realistic longterm?

I suspect the government is moving with sentiment. Lockdown fatigue and businesses being pushed to the brink of collapse will lose support.

Level 2 in Wellington has hit businesses with many people working from home. After restarting all the delayed projects I'm seeing a light forward workload. It's going to look increasingly brutal heading into the end of the year.

Time to go Swedish, and get on with life and business.

I am. I've been at the office for all of Level 2. There's work to do, meetings and buildings to look at. It's just the lockdown makes many potential clients nervous with the uncertainty.

The hypocrisy of Jacinda

All presented with a massive smile....

Careful MB, you might get arrested for suggesting such an idea, have you seen what's happening in Oz? (See my BBC post below).

" Bullish Switzerland moves on from lockdown and focuses on economy
Critics warn of complacency but Bern believes the country must learn to live with virus
... just 1.9 per cent of new infections occurred in nightclubs and a further 1.6 per cent in bars and restaurants. Most — 27 per cent — occurred within families."
https://www.ft.com/content/42a1a52b-287e-4dee-9a60-01ab01dcf5c9

Similarities Covid/'flu readmission. "In summary, among patients discharged following admission for COVID-19, the rate of early return to hospital was relatively low (3.6%), with only half requiring readmission. The most common cause for return to hospital was respiratory distress. Returning patients were more likely to have a history of COPD and hypertension
...Another study on influenza observed 5.2 readmissions per 100 index hospitalizations within 10 days and 8.6 within 20 days."
https://link.springer.com/article/10.1007/s11606-020-06120-6

Public Sector workers are being told to come into the city even if they are still capable of working from home. It's hard not to see that as political as much as anything else. Imagine being freed from your commute, being able to spend time with your family and then being ordered back to that grind when it doesn't really change your output. Seems like an opportunity lost tbh.

I have seen an increase in people on public transport, still nothing like what it was at Level 1. It does seem to be a political move. I'm sure many will be happy having to commute again when many probably see it as unnecessary.

Have to keep those CBD's afloat as they are or they will have to be repurposed into housing districts.

Much to the agony of Wellington CBD businesses, cafes and restaurants in Hutt city, J'ville and Porirua are reporting record business as a result of a larger than usual footfall during weekday work hours.

Yep my forward workload is starting to look lighter as is that of many acquaintances I think the day of reckoning is arriving, especially now wage subsidies have ended.

That's exactly what I'm hearing from my contractors, too busy to do the job this month, but nothing on the books for next. We never work on a just in time schedule, instead picking gaps, you might call that counter cyclic

Interesting MB
The next week will be interesting as to whether we have been able to get on top of this outbreak. Yesterday's figure was promising.
The reality is that Covid is not going away any time soon, a vaccine and widespread supply is likely to be some time off, and numbers of Kiwis concerned about and resisting lock down restrictions growing.
A positive is that we seem to have not only got good testing but just as importantly also our tracing system.
Our tracing systems seems to be the world's best.

How many times do I need to tell you that the USD is the only asset on special right now?

Hoped that Australia would have the coronavirus more under control by now, was surprised how authoritarian its turned in to literally over night. Apparently they're now arresting people who post government protest messages on Facebook. BBC article: Covid: Australian anti-lockdown suspect's arrest draws controversy.

"The arrest of a woman in Australia for promoting an anti-lockdown protest online has drawn criticism, after video of the incident went viral." https://www.bbc.com/news/world-australia-54007824

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Arrest the people, not the virus. It's the Australian way.

Yeah it's a bit surprising and shocking, thought that type of thing only happened in China. Oh well.

Is it really though? Australian authorities has always preferred hardline tactics. Just look at their police

The young gentleman with the large boots who inspected me thoroughly for explosives at Melbourne airport a few years ago had a small man, couldn't believe anyone would be stupid enough to give him this much power, bad attitude. I am assuming and hoping he got beaten up a lot in the school playground for being a total pillock. Aussie authorities seem to employ a lot of these people. I am also hoping he gets robbed of the 34 power giving items he had attached to his belt. What a classic plonker.

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The appeal of living in NZ is not much these days, but OZ has totally lost it.

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I totally agree with you guwop. I find myself more and more looking to sell up and move back to Europe. At least with house prices defying gravity here I can buy a nice mansion over there one that's built to last, not a glorified NZ shed. :)

Yep, I hate to say it but when Covid passes....could be a few years until we're through it completely, I'll be heading back to my little corner of Asia where the weather is warm year-round and the cost of living is low.

Probably a good move with the way NZ and Oz are headed. :)

12
up

There's pros and cons everywhere. Nz is far from perfect but I would still say overall it's in the top 10 countries to live in.
Ultimately it depends on the person and what their needs and preferences are.

We do take for granted what we have here. Call me glass half-full but I feel we punch well above our weight for a small country in the middle of nowhere.
I may be going out on a limb here but I believe there is still a great deal of social cohesion in NZ despite being ethnically diverse, which I realise when I travel elsewhere in the deeply troubled world.

See how peaceful countries react when faced with a growing minority that don't necessarily adhere to their 'liberal' values: https://zeenews.india.com/video/world/after-sweden-riots-erupt-in-norway...

Agree. We are a pretty harmonious country, generally.
But we do have some real issues that shouldn't be glossed over.
Our isolation is both a blessing and a curse.
As is our small size
Cost of living is very high, and a lot of concentrated pockets of poverty.

Have you decided which bit of Europe? The whole continent is going to hell in a handcart from here.

Interesting no concern over the 6ooo head of cattle on ship that sunk...just people on board. Just burger patties and milk shakes lost to the masses I guess?

A lot of nutrients added to the ecosystem.

Looked a bit top heavy from the pictures, any wind loads on a structure like that, needs something down the bottom pretty heavy to resist typhoon wind loads. Not many of those ships around, and one less now. Who will be paying for the loss, the importer or the exporter?

It's an inherent problem with livestock carriers, all the feed (several 1000 tonnes) is carried below deck but as it's consumed they become topheavy. The master of this ship will have questions to answer (assuming he survives) about sailing into the tail of a typhoon but was no doubt driven by schedule demands from the owners. Just like the Rena

frazz
Personally, it feels a little close to home as I watched the boat loading in Napier.
Concerns - as with live sheep exports - expressed at time ,but it was more about the economics of exporting live cattle to China and less about animal health.
The loss of 42 crew very sad, but neither is the visualisation of 6,000 caged cattle drowning.

Agreed p8.There is no justification for live animal exports other than short term economic gain. O'Connors positioning about an ethical responsibility is pure dross. NZ can easily trade it's genetics without the trafficking of live animals to do it. Hopefully O'Connor will grow a backbone and place a permanent moratorium on live cattle exports

Gareth Hughes on Rnz yesterday was excellent on this. Pity he's leaving parliament.

Yes, that is a shame - and then last election they lost Kennedy Graham. They're now in a position where the next ranked male candidate is at #8 (not a sitting MP) and so this makes it very difficult to consider an alternate co-leader at this stage.

I still don't understand why they need two leaders??

What has surprised me (well not really) is that they have eight MPs of whom only two are men. Surely someone in the media has quizzed them about their lack of "diversity". If it was good enough for Todd M to be asked that Q then surely it needs to be asked of the Greens.

12
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https://www.resilience.org/stories/2020-09-03/education-in-a-time-of-col...

"Instead, we are witnessing the slow but inexorable disintegration of our quasi-religious faith in the story of infinite material progress as capitalist hubris collides against the biophysical limits of our planet".

Heck, I could have written that. Good to see the conversation becoming more mainstream.

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Unfortunately not many people want to hear it PDK. I would estimate ~90% are in denial.

It is sooo inconvenient all this collapse stuff. Easier not to look and do everything you can to maintain BAU.

I hear a lot more people questioning BAU - right across the board. The echelon I watch closest are the academics, hence the link.

Professors, lecturers, vice-chancellors, they've all got an obligation to tell those they teach, what really IS. Economics, particularly, more and more is about teaching what WAS. And almost nobody is teaching what WILL BE. And the ones brave enough to do so, don't gain advancement, indeed it's Jonathan Livingston Seagull vs the Elders, 101.

Fascinating times.

Great article. I certainly feel a weight of obligation in that regard. The difficulty I have is in presenting the reality of our predicament - I feel an educator has an obligation to provide solutions as well. Which is why I think so many academics struggle with saying that collapse is a fait accompli, even though we might well see it as that.

On that subject, here's a recent quantitative analysis that is very useful;

https://www.nature.com/articles/s41598-020-63657-6

It's why I think one of the foundational disciplines/knowledge that our children need going forward is ethics. Our choices are only moral ones, but few people understand their own morality and even less understand there are alternate ways of looking at our moral decisions.

Yeah, I'm extremely pessimistic about our ability to handle ecological and social changes that are coming.
I try to remain cheerful by reminding myself that I'm often wrong, and might be this time, too.

Academia is a great place to be wrong though - been very lucrative for whack-jobs like Ehrlich. Still on the public teat after all these years. Where else could you be so wrong and still employed?
"The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate…”

"the expected global cereal output still stands at 2 765 million tonnes, an all-time high and 58 million tonnes above the 2019 outturn."
http://www.fao.org/worldfoodsituation/csdb/en/

Same totally false and discreditted rubbish from Rachel Carson ad nauseam.

Kate I would think and hope that the 'solutions' that educators offer are about teaching students not to be constrained by 'conventional thinking', or to be bound by their own brilliance. Being open minded, receptive to others perspectives and ideas, with a dash of humility by understanding that they are not and cannot be the font of all knowledge or approaches to developing solutions. To say you must teach solutions could be a path to disaster as it could lock out innovation and new ideas.

Michael D Burroughs from Penn State University on dealing with ethics
Academics avoid, ignore and pretend the issues will go away
https://www.youtube.com/watch?v=_8juebyo_Z4
10 minutes of your time
I'm not suggesting you avoid or ignore

Yes, excellent!

Have to disagree Tim.comes up in conversation with most people I met at the moment. They realise the current system is on a road to disaster..many boomers trying to make sense of it all.

Must be the circles I mix in.

Business people, especially successful ones, are particularly in denial. I suppose they think how can it be so bad when I've done so well.

Another group is many elderly like my dear mother (nearly 80). She just can't accept that it's got so bad so quickly. That's when I try explaining the exponential nature of growth only to see her eyes glaze over.

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What are you on about PDK? That link is not "mainstream" it's one of your wacky sites.

See? The denial is strong in this one.

Indeed :-).

I believe most of our problems are caused by excess. Obesity and depression for example.

It's no good having an attitude like PDK's. These people have been wrong since the beginning of time.

The midpoint between excess and deficiency - Aristotle's "golden mean". Virtue ethics. I find it the ethical approach that makes a lot of sense to me..

I saw estimates a couple of months ago that actual US unemployment is 32m. Seems to be the case.

OUCH! Combined Mkt Cap of #FANGMAN (#Facebook, #Apple, #Netflix, #Google, #Microsoft, #Amazon, #Nvidia) drops $400bn today, equal to GDP of #Norway. Link

this is a nice overview of our predicament in some charts ...

https://ourfiniteworld.com/2020/09/01/todays-energy-predicament-a-look-a...

Why doe this site report total jobless claims in US are 13M when it is clearly closer to 30M (refer article from Wolfstreet)?

They have to keep to the reported figures. It is the same with the US infection numbers, we all know that the true infection numbers are by far greater but they have to stick to the reported statistics.

extract: The US economy is expected to have added 1.4 million jobs in August. The country is expected to have recovered another 1.4 million jobs in August, after adding 1.76 million in July.Over 40 million Americans lost their jobs between March and April, and less than half of those have returned to work. According to the US Labor Department, roughly 27 million people are still receiving some form of unemployment insurance
https://www.fxstreet.com/analysis/nonfarm-payrolls-preview-feds-policy-s...

Revisions to ASX indexes as from 21 September
Auckland International Airport joins the ASX200 index
Fisher and Paykel joins the ASX100 index

Which means the index funds have to buy them according to their new weightings