US public debt prospects toxic; US inflation rises, Canada's household debt falls; China's grain imports surge; China's debt levels also toxic; UST 10y at 0.67%; oil and gold down; NZ$1 = 66.5 USc; TWI-5 = 69.6

US public debt prospects toxic; US inflation rises, Canada's household debt falls; China's grain imports surge; China's debt levels also toxic; UST 10y at 0.67%; oil and gold down; NZ$1 = 66.5 USc; TWI-5 = 69.6
The Bridge to Nowhere, built 1935/36. Mangapurua Valley, Whanganui National Park. Photo by Roger Harris

Here's our summary of key economic events overnight that affect New Zealand, with news American underlying financial stability is wobbly.

In the US, the monthly budget statement from the US Treasury revealed another huge -US$200 bln deficit in August, taking the twelve month total to a new record high of just on -$3 tln. Given that the annual rate of GDP is now just under nominal $19.5 tln, that is a Federal deficit of -15.4% of GDP, a staggering level. And that takes the total of US debt held by the public (ie: excluding interagency debt) to over US$20.8 tln. So the annual new deficit added almost 17% to that load in one year. And the US Administration not only did nothing to deal with this load, it actually made it worse. Even at tiny interest rates, the interest cost load amounts to $537 bln per year in 2020. If rates ever rise, this cost will be toxic, and a rise to an average interest rate of 3% will consume more of their tax revenues than their Defense Department, and nearly half of their enormous DHHS (welfare) budget.

American core inflation rose a bit more than expected in August, now up +1.7% in a year. Not included in that core inflation reading is food that was up +4.1% and petrol that was down almost -17%. But included are two items in demand in a pandemic and recession; medical care is up +5.3% and used cars are up +4.0%. So it is more expensive to buy a car to look fo a job, but cheaper to drive around in the search. Don't get sick, however.

The US Department of Agriculture report for September (WASDE) notes that China's demand for grains, especially wheat, if on track for record imports, especially from Australia and Canada. That would be China's highest level of imports since the 1995/96 season. The USDA also raised it forecast for beef prices on Chinese demand. And they have slightly lowered their milk price forecast.

In Canada, household debt burdens are falling and fast. Households are paying down debt as uncertainty over employment rises.

In China, their economy is taking on much more debt. New yuan loans rose in August at their fastest pace in nearly three years, adding almost +NZ$800 bln in just one month.

In Indonesia, their capital Jakarta will be locked down with 11 mln people restricted to their homes for at least two weeks, as the pandemic bites fiercely there. Hospitals are swamped. Seaborne escapes to Australia will worry Canberra.

We should also note that prices for wool at New Zealand sales continue to fall to new record levels. Wool is now an animal welfare cost and no longer an income source.

Wall Street opened today with some renewed enthusiasm, but it has faded somewhat to be unchanged for the day in afternoon trade. But it is heading for a -2.6% loss for the week, reducing its market cap by -US$725 bln in seven days. Overnight, European markets were also flat, generally up about +0.1%. Yesterday, Shanghai and Hong Kong each closed up +0.8% and Tokyo gained another +0.7% on the day. For the week, Shanghai was down -2.8%, Hong Kong lost a marginal -0.8%, and Tokyo posted a gain of +0.9%. The ASX200 ended with a -1.1% weekly retreat, its fourth in a row, and the NZX50 Capital Index was down -0.7% for the week with most of that happening on Friday.

The latest global compilation of COVID-19 data is here. The global tally is 28,273,000 and up +312,000 in a day. Global deaths now exceed 911,000.

Just under a quarter of all reported cases globally are in the US, which is up +48,000 to 6,609,000 and a never-ending large rise. Their death total is now 196,800 which is up more than +1000 in a day (594/mln).

In Australia, there have now been 26,565 COVID-19 cases reported, and that is only +52 more cases overnight as the Victorian emergency is eases and the NSW cases stay at about +10. Deaths however have now topped 797 (+9). Their recovery rate is up over 87% now.

The UST 10yr yield is down another -2 bps and now just under 0.67% and down -5 bps in a week. Their 2-10 rate curve is unchanged at +55 bps, their 1-5 curve is at +13 bps, while their 3m-10 year curve is now just under +60 bps. The Australian Govt 10 year yield is down -2 bps at 0.90%. The China Govt 10 year yield is up +4 bps at 3.15%. The New Zealand Govt 10 year yield is now at 0.61% and that is -1 bps down since this time yesterday and little-changed in a week.

The VIX volatility index is a little lower over the past week, and the Fear & Greed index we track is also little changed at about 'neutral'.

The price of gold is lower today, down -US$15 to US$1941/oz. But that is virtually unchanged in a week. Silver has also recorded little change from this time last week.

Oil prices are lower again today, now just under US$37.50/bbl in the US while the international price is down to just under US$40/bbl. There were no changes to the US rig count this week, still at a record low level however.

The Kiwi dollar is marginally softer today and now at 66.5 USc. Against the Australian dollar we are also marginally softer at 91.5 AUc. Against the euro we are unchanged at 56.2 euro cents. But we have risen above 52 British pence, and that is the highest in two months. That means our TWI-5 has dipped just slightly to 69.6.

The bitcoin price is little-changed today, at US$10,321. But that is up +2.8% for the week. 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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44 Comments

Any significance in the "Bridge to Nowhere" photo?
It had a lot to do with the collapse of the local economy.
Farming - not housing. :)

Edit: Clearly the following commentators don't have an understanding of the background to the "Bridge to Nowhere".
The bridge was built in 1931 to service a farming area established in the Upper Wanganui River region following WW1. The difficult nature of the area meant that the farming failed and all that was left remaining was the bridge.
Given the uncertainty and risks related to the current economy the choice of photo is quite poignant.
The comment related to "farming and not housing" in no way referred to the current state of farmers but rather a satirical observation of the cause of the economic failure at that time.
Some seem to be a little tetchy.

26
up

Disappointing to see people happy that productive industries that form the backbone of our current economy are suffering while the speculative bubbles inflate a bit more with poor social outcomes. I would question your morality, but I suppose its all good because you and your lot are doing just fine as part of the government supported housing market. Maybe spare a thought for all the young people who have unstable unemployment and whose prospects of buying a house are further out of reach by the month. And the poor farmers who are killing themselves as they struggle through the pandemic and climate crises.

26
up

It's sick that's what it is. But it stems all the way from the top, from our 'leaders'.
We have a parallel universe economy going on, property investors/speculators are creaming it while much of the productive economy is doing it really hard.
Sick.

And they were the lucky ones who could keep working during lock down. While Parker did dream up his unbelievable stupid plan to thank us for all the good work we have been doing and do. So over it and care only less.

Blobbles - I don't know how much exposure you have to the rural sector but it is doing just find. NZ's terms of trade are at record levels as the rest of the world demands our products from cherries, to beef, to wine, to hops , to venison, to milk powder, to seafood, to avocados, to kiwifruit, you name it prices are good excluding wool so what's your point ? The lift in house prices is currently driven by falling interest rates along with equities, in Auckland at least they have been flat for 3 years. In that time the population has increased around 3% and building costs up 5%+/annum so all predictable.

Ask Andrewj if it's doing 'just fine'.

Fritz - I don't know what Andrew is involved in not all sectors of any industry do well at the same time. Blobbles statement that the preductive Economy is in a really bad way is simply incorrect. Market prices for our goods are good winter was mild with average rainfall in most regions, provincial NZ is doing just fine.

Agree,but we ain't seen nothing yet, 400k on wage subsidy still, reckon half them will end up unemployed. Presume all those borrowing big time are very secure in there jobs. We making 6 redundant next week, they have no idea it's coming, but we right sizing for what's about to hit. This probably be replicated across NZ I suspect. Think Xmas is going to be bleak for a lot of people.

Exactly.
I thought the wage subsidy finished?

And that is the problem. We try to be nice but we not honest. Hope that six people don't know you are FMC. Governments that borrowed so much they never can be honest. Because when inflation numbers rise they cannot afford any interest payments. But that's normal now. Probably it is time to go to not normal times. O

blobbles
Come on; it was a light hearted comment about the relevance of the bridge along with a little dig. Bit testy this morning?
You clearly do not know the background of the Bridge to Nowhere and hence the comment. The surrounding farming community established after World War 1 failed hence to the reference to a historic farming failure - it was not reference to the current farming sector but you seem oblivious to this.

tks pn8. enjoy history & enjoyed learning your info. also your analogy is understood & fine with me.

Well as a farmer I certainly have no intention of killing myself. In fact we are ticking along very nicely, thank you very much.

The loss and withdrawal of business & economic opportunity to Australia.
As predicted last month like Victoria has economic activity transferred to other states, so to is NZ.

Rugby sees NZ beaten by NSW.
Last month NZ was beaten by SA in students.
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12357552
Trade Minister Birmingham, a senator from South Australia, told the ABC: "South Australia has shown an exceptional ability to manage [quarantine hotels]... [and] is a good market to do this in because there's excess capacity … in quarantine."

NZ hair trigger use of lockdown, police action in contact tracing like the Dan's Victoria, compares poorly, to NSW, QLD, SA & WA.

Now, with rugby setting the scene, what sporting code would select a second best NZ as host?

This morning another travel front is opening up.
https://i.stuff.co.nz/business/farming/122741361/this-just-cannot-happen...

This just cannot happen': $9.5 billion at risk as horticulture sector struggles to fill $25-an-hour jobs

In Other News from Auckland, employers extending visia'ed workers needing language skills, get told by immigration, forget your one here are 5 people without those skills, but you can use Google translator.

Here is Dr Campbell, running an analysis and review of Australia, State by State.

https://youtu.be/w4rogMS4EGc
Several of the State and their premier prime ministers proving to run very effective quarantine, contact tracing & testing systems.
Better numbers than New Zealand.
The poor performing, poorly managed and administered State is Victoria.

government policy to help people at the time that was a waste of time and money in the end?

Even at tiny interest rates, the interest cost load amounts to $537 bln per year in 2020. If rates ever rise, this cost will be toxic, and a rise to an average interest rate of 3% will consume more of their tax revenues than their Defense Department, and nearly half of their enormous DHHS (welfare) budget.

Bloomberg finds time to relate justification: America’s $20 Trillion Debt Pile Is Getting Cheaper as It Grows

The U.S. government is paying less as it borrows more, one reason investors appear more comfortable than Congress about funding another leg of stimulus.

Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office.

Over the next few years, servicing the national debt will be cheaper than any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office.

No official confirmation Federal Reserve monetary policy actions are about to turn poor economic growth and associated disinflation around anytime soon.

Nasdaq closes lower to end its worst week since March as tech continues to struggle

Big Tech was also down sharply week to date. Facebook and Amazon each lost more than 5% this week. Apple and Netflix slid 7.4% and 6.6%, respectively. Alphabet and Microsoft were both down more than 4% week to date. Tesla, meanwhile, plunged 10.9% this week. At the S&P 500 sector level, tech fell 4.4% week to date for its biggest one-week loss since March.

So a big debt problem worldwide that central bankers are trying to solve by issuing even more debt. Meanwhile, back in NZ our houses have increased by 10% thereby forcing new buyers to take on ever increasing amounts of debt. Many Existing mortgage holders are taking mortgage holidays as indeed are many renters. Is anyone connecting the dots to see the bigger picture?

11
up

Borrow and Keep on borrowing is the New Mantra.

People who are on high debt seems to be getting the best out of panademic and worst hit are the conservative savers/investors.

2020s decade will belong to high risk takers supported by reserve bank and protected by government.

Don't you think the day of reckoning is due in the next few years?

Was due years ago.

Yeah, it's overdue. We have bought a little more time.

and a bit more time to increase Personal and debt levels..... then there’s even more desperation when it goes belly up,

By dint of the ever decreasing interest rates it seemed to have been sending a progressive message that NZrs were being encouraged to borrow to spend. That being in the face of decades of bemoaning by our fiscal authorities that NZrs had a dismal savings record by international standards and an unhealthy obsession with property as the prime investment. Now in the midst of CV19 is it any wonder NZrs are confused, don’t know what is going to happen next and therefore the age old surety of property is the only light shining.

Whereas that ever decreasing interest rate should have been sending exactly the opposite signal, that the serviceability (and therefore stability) is declining....thats the perversity of the system.

10
up

No problems here, just keep stuffing our heads deeper into the sand.

We will also have fruit going to rot on unpruned trees thanks to a decade of under investment in fruit picking/pruning technology and the use of imported slave... sorry... cheap labour. Answer to that is call fruit picking jobs "highly skilled" at $25 an hour so they can come in with Labour's next dumb plan.

Encouraging all the newly unemployed to pick fruit might work, might have to pay them well though to beat the pandemic wage subsidy.

I think they are connecting the dots but view the alternative as being far worse. For example a deflationary collapse leading to depression with mass unemployment, social unrest.

It is one very large experiment with a range of entirely unpalatable outcomes.

Central banks will keep rates low, but what if inflation rises (as seems already in food etc)? Will that cause banks to raise mortgage rates anyway, even if OCR stays around zero? Genuine question.

They just take something out of inflation basket and tell you there is no inflation, happening for last decades. Governments cannot afford the interest payments over all the debt they clocked up. We keep going for sometime yet, problems will become massive when one of the big central banks stop printing.

Cannot be paid...will not be paid

Not bad short doco explaining link between human overshoot and the rise in virus threats.

https://youtu.be/Y-KfJ20Vnxw

Thanks

Interesting stats on FB media use/spend this election;

https://www.newsroom.co.nz/a-quarter-of-nationals-fb-ad-spend-chasing-li...

$1.50 per additional 'like' for Collins' spend. That's a bit embarrassing.

Mr Fahey migrated from New Zealand as a child and moved to Sydney's south-west. He was elected as Camden MP in 1984 and became federal Macarthur MP in 1996.

https://www.smh.com.au/national/former-nsw-premier-john-fahey-dies-age-7...

"He was decent, loyal, honest and patriotic. A man of great faith and a loving family man. He embodied the best of Australia."

An ideological need to make sure Kate 's comment wasn't the last in the thread, HT?

:)

Eaxctly.. another random post by H

Take a look at the Survry.

https://www2.deloitte.com/nz/en/pages/public-sector/topics/2020-election...

https://www2.deloitte.com/content/dam/Deloitte/nz/Documents/public-secto...

Question one:
Post COVID-19, do you consider the Government has a coordinated plan of action focused on raising New Zealand’s economic performance?

Respondents:
YES 19%
NO 65%
not sure 16%

Labour: Yes. Our strong health response gives us an economic head start; the ability to move from responding to COVID-19, to recovering and rebuilding, well ahead of other countries.

- Let's put Labour the COL down as a Not Sure/Don't Know.

Interesting history of the Bridge to Nowhere over the Mangapurua Stream (photo above)

The Bridge to Nowhere is a concrete road bridge spanning the Mangapurua Stream in Whanganui National Park, North Island, New Zealand. It has no roads leading to it, but it is a popular tourist attraction, accessible by mountain bike or tramping on a variety of different tracks, or by boat or kayak, followed by a 45-minute (one way) walk along maintained bush trails

https://en.wikipedia.org/wiki/Bridge_to_Nowhere_(New_Zealand)

Sloppy journalism by Jack Tame & his crew.

https://www.tvnz.co.nz/one-news/new-zealand/not-lockdowns-controversial-...
- watch the video.

A central point Jack relies on, it a point the supports other subjective assertions. It was data rating, ranking NZ to everywhere, the data published in Forbes from a now nothing source.

Having published - and publicised - the Deep Knowledge survey, Forbes might be regretting it now.

Investigative reporter Simone Weinglass described the Deep Knowledge Group as “a rabbit hole of weirdness”.

https://www.rnz.co.nz/national/programmes/mediawatch/audio/2018763421/a-...

As an aside, want to see Gold Standard Contact Tracing & Testing: (hint, its not Auckland).
NSW: https://youtu.be/3eUeDQY6FmY

P.S.. Lockdowns are not part of contact tracing & testing systems.

Would prefer Cary Grant playing Walter Burns than Jack Tame playing whatever it is he thinks it is.

US debt was toxic BEFORE the pandemic due to trump never caring about debt. He already added in the vicinity of 4 trillion in his first 3 yeras..pretty good for someone who got elected to bring DOWN the debt. He has lived his whole life on other peoples money, only instead of his investors footing the bill for his scams it will be American taxpayers this time.
Was all sad the day he got elected in the same manner Hitler got elected, by scam propaganda. Certainly pity the uneducated fools who will vote for him again.