Days to the General Election: 19
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Dairy prices up; US retail and factories down; WTO rebukes the US; China retail and factories up; RBA sees Aussie recovery; UST 10y at 0.68%; oil prices up but gold unchanged; NZ$1 = 67.2 USc; TWI-5 = 70.1

Dairy prices up; US retail and factories down; WTO rebukes the US; China retail and factories up; RBA sees Aussie recovery; UST 10y at 0.68%; oil prices up but gold unchanged; NZ$1 = 67.2 USc; TWI-5 = 70.1

Here's our summary of key economic events overnight that affect New Zealand, with news Chinese data is still standing out in a world of declines.

But first up today is the overnight dairy auction and that brought the good news of higher prices, ending a string of four declines. Overall prices were up +3.6% in US dollar terms and up +4.3% in New Zealand dollar terms. However this only brings prices back to the average level since March in US dollar terms, and are only a very minor recovery in New Zealand dollar terms. Of note were the +7.2% rise in cheese prices and the +8.4% rise in SMP. WMP however only rose +3.2% this time.

In the US, retail sales are on the downward slope again, falling -1.2% year-on-year after clawing back to almost level pegging earlier in August and the first part of September. But the toll of rising joblessness and the end of make-up spending is bringing the expected impact.

American industrial production is going backwards too, down -7.7% on a year-on-year basis to August and that was a steeper decline than the -7.4% in July.

But not every region is easing; the latest Fed factory survey for New York State is more upbeat.

Canadian factory sales also declined -6.9% on a year-on-year basis, despite recovering from the recent trough.

Overnight the WTO ruled that the US tariffs on Chinese goods break their commitments on trade. However, it is a rebuke that will have no practical consequence for Washington.

China has reported that its industrial production rose +5.6% in August compared with the same month in 2019. Electricity production grew +6.8% which was impressive and verifies the factory output claims. That is in stark contrast to most other countries.

China also says its retail sales grew, and that was better than the no-change expected.

And as a consequence, the Chinese yuan has hit a 16 month high.

The US National Academy of Sciences has published findings of clear satellite evidence that two huge ice sheets are starting to shear off, and move into the oceans. They include so much material that they could account for as much as a +3m rise in ocean levels, the study warned. (Research link currently behind paywall.)

In Australia, the RBA minutes were published yesterday and they noted that "the downturn had not been as severe as earlier expected and a recovery was under way in most of Australia".

Separately, the Australian Competition Tribunal found that their competition regulator, the ACCC, failed to show that using BNPL products to buy solar panels would result in any consumer harm. It is being hailed as a big win for the BNPL sector.

And Westpac economists said global demand for commodities can be split into two camps - that which is predominately linked to Chinese industrialisation and hence largely determined by Chinese demand, and that which is more linked to the global industrial cycle and global demand more broadly. Iron ore is a standout for the former group, while coal is the defining commodity for the later.

And if you read some media in Australia (mainly the Murdoch press) you would think that Daniel Andrews, the premier of Victoria, was the devil incarnate. But actually, Victorians support his tough and long lockdowns, and by an overwhelming margin (70:24:6).

On Wall Street today, the S&P500 is up +0.7% in afternoon trade. Overnight, European markets closed with minor gains of about +0.3%. Yesterday, Shanghai ended the day up +0.9%, Hong Kong was also up +0.5%, and Tokyo rose +0.4% on the day. The ASX200 ended flat and the NZX50 Capital Index fell -0.2%.

The latest global compilation of COVID-19 data is here. The global tally is 29,386,000 and up +272,000 in one day. Global deaths now exceed 931,000 (+5,000).

Just under a quarter of all reported cases globally are in the US, which is up +42,000 to 6,765,000. Their death total is now 199,600 and still rising at about +1000 a day (and now 602/mln).

In Australia, there have now been 26,738 COVID-19 cases reported, and that is only +46 more cases from yesterday and only from Victoria and NSW. Deaths however are unchanged at 816. Their recovery rate is up over 88% now.

The UST 10yr yield is marginally firmer at just on 0.68%. Their 2-10 rate curve is unchanged at +54 bps, their 1-5 curve is at +14 bps, while their 3m-10 year curve is now just over +59 bps. The Australian Govt 10 year yield is down -3 bps at 0.92%. The China Govt 10 year yield is also down -3 bps at 3.14%. However, the New Zealand Govt 10 year yield is still unchanged at 0.61%.

The price of gold will start today at US$1954/oz which is unchanged.

Oil prices will start today at just under US$38.50/bbl in the US while the international price is now just over US$40.50/bbl. These levels are +US$1 higher than yesterday.

The Kiwi dollar will start today at 67.2 USc and marginally higher from this time yesterday. Against the Australian dollar we are unchanged at 92 AUc. Against the euro we are also a little firmer at 56.7 euro cents. That means our TWI-5 is now at 70.1.

The bitcoin price is also a little higher today, now at US$10,793. 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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55 Comments

11
up

Rising inflation and high economic growth worked during the decades after the Second World War in bringing down debt levels in highly indebted countries, such as the US, but it won’t work this time, said Tharman Shanmugaratnam, a Senior Minister in the Singapore Cabinet, Chairman of the Monetary Authority of Singapore (Singapore’s central bank), and Deputy Chairman of the Government of Singapore Investment Corporation (Singapore’s sovereign wealth fund).
“I think the big issue in the next decade is how to ensure that debts are sustainable,” he said. “First, it’s obvious that you can’t just keep increasing your debts. I don’t believe that the new high levels of debt that many countries are now moving towards are going to be sustainable without imposing a significant cost on growth as well as on equity within their societies.”

The question of “equity” is how these costs are being distributed over society. In other words, who’s going to get slammed by those costs, and who benefits.

“It’s not like the post-war period,” he said. “In fact, after the Second World War, many of the advanced countries started at very high levels of debt – the United States, the UK, many European countries – but they brought it down dramatically over 30 years. How did they do it? Rapid growth and inflation. And both of those are not possible anymore.”

“Rapid growth is no longer possible; these are now aging societies; productivity growth is much lower than before,” he said.

https://wolfstreet.com/2020/09/15/why-the-hoped-for-solution-to-out-of-c...

When I worked in a trading bank in the 1960s a company that did not seasonly returned to credit was known as a hard core debt. That was an element that the bank would not accommodate fo long. When I worked in a large corporate in the 1990s it never got out of debt. “Negatively geared” was a handy sort of euphemism in those days. In fact it was able to “kite fly” the debt between a series of international banks. Germany, Hong Kong, Switzerland for instance. The world is following suit.

Isn't that an accounting practice? A friend of mine, years ago, told me his accountant was advising him of the fact that debt 'was good', and in fact that it helped to avoid tax. This stemmed from him telling me how well he was doing in a business I had helped him set up. I challenged his view and showed him some pretty basic calculations and suggested he go back and query his accountant. I do know banks 'sell' debt to business's using 'accountant speak'. It is even taught at universities that debt in business results in other, external oversight of the business that is a good thing to have. My view is not at all. Debt gives someone else ownership without the risks.

Sure was, still is. Just going back to my earlier example to relieve the hard core debt the bank’s first option was to insist on re-capitalising. That was resultantly why such as the Brierley Group was able to make hay while the sun shone, raiding and pillaging all of that lovely equity stored up in well run concerns.

And the rest of the Brierley story? Where is it now? Where did it all go?

A close friend was a member of a "Share Buying Club" She bought in to Brierley with $50,000. At one point it had appreciated to $200,000. She was elated. So elated she got her mother to buy into the Brierley dream. One year later they had both lost the lot. Or most of it

What everyone already knew has now been said out loud.... The new dogma won’t work. There are solutions... but they...don’t involve the ever so convenient printing press....borrowing and printing money forever... aren’t going to work..

You don't say.

Guess this means the political debate in NZ will be noticeably quiet on high immigration volumes. No politician will be willing to front up and say "but we, Treasury and the Reserve Bank have no plan beyond more debt and high-volume immigration".

At least that's one thing all parties can agree on

True, haha. Winston might mention it but only in a strictly populist manner and with only the promise of words without action.

System check.
Its good that kpi's are shown.
The results not good.

https://www.rnz.co.nz/news/national/426138/covid-19-close-contacts-not-g...

Testing
But it was interesting to see that not enough people were being tested within two days of getting symptoms (42 percent against a target of 80 percent).

Test Notification
However, it was taking too long to notify people of a positive test result, with only 57 percent getting told within a day rather than meeting the target of 80 percent.

Contacting a contact
It was still behind its target of having 80 percent of a case's close contacts isolated within four days of the case's first symptoms, but had improved significantly - from 37 percent to 70 percent.

Are you our local equivalent of the Murdoch owned media?

12
up

The link is from noted extreme right-wing outlet Radio New Zealand, so you're definitely correct to not address the substance of the issue in any way.

It's not the source of the information, but the peculiar spin Henry manages to impart to every post.

11
up

I don't see how directly quoting the article is "spin"? Or does it not fit your narrative?

Your one liners are such joyous occasions OB.

He delivers grammatically infused Stone Cold Stunners.

He sticks up for Labour like his pension depend on them.

He's directly quoted the article itself. Other than saying it's 'not good', I can't see what sort of 'spin' is at play here to the point where you'd overlook the actual points being raised. Not all commentary is partisan just because it isn't lavish praise.

The main issue with time to test is that cases are not getting tested until later in their symptoms so their contacts are not contained fast enough. Not sure how we improve this. The delay in getting positive results out does need to improve.

i see singapore are now handing out there own covid card, its time our government got onboard
https://www.bbc.com/news/business-53216450
Singapore has started to hand out Bluetooth-enabled contact tracing devices as part of its measures to slow the spread of the coronavirus.
The so-called TraceTogether tokens are an alternative to the government's contact tracing smartphone app.

From before. Here is the short CNA report, demonstrating use and interaction with isolation, quarantine staff in Singapore.
https://youtu.be/644etzfS4Rk

It relies on compliance
It is reported Singaporean's are a compliant society
What level of compliance would you estimate would be achieved in South Auckland

The are a strict society. I have friends living there. If you don't comply, you are dealt with. If you're an expat and you don't comply, don't expect to stick around.

Ah, Singapore.
Disneyland with the death penalty.

It's a dictatorship...

Singaporean said it is a fine country. Step out of line in any way, there is a fine. Do some research please. Dictatorships neither have nor need elections every few years.

Going back to Reid, he next makes an interesting observation, one which fuses debt and demographics trends together into one fatalistic amalgamation that virtually assures the world is doomed:

"one reason is that the developed world has seen a kind of debt pyramid scheme in recent decades that came to an end around the turn of the 2010 decade. Before that there had been a long multi-decade trend of an expanding number of workers in the population in absolute terms and relative to the old. As such accumulated debt was less of an issue as there was always a bigger group in the demographic chain to pay off the debts of the previous and current generation."
https://www.zerohedge.com/markets/one-bank-spots-demographic-trigger-lau...

Aye a debt pyramid scheme alright. Except the pyramid in this case is inverted and getting the wobbles.

Precisely.
2011 - the World turned old as the postwar generation got past productivity; hadn't replicated itself as its forbears had ( to sustain productivity) and needed to draw down on its savings.
Inflation of any kind is going to push savers into more saving, not more spending.
And here we are, nearly a decade after what we KNEW was going to happen - still pretending it's going to be business as usual.
It isn't. It's too late for that.

"2011 - the World turned old as the postwar generation got past productivity;"

Nothing to do with old foggies
Everything to do with the end of easy abundant resources ... we had to tap China /iNdia coal (and debt financed shale) to stop the wobbles
Labour is a miniscal part of growth

I'll disagree with you on that.
My parents both came from families with 8 children each. They are all dead now; all those consumers of all sorts of things, gone.
I have one sibling and one offspring of my own and many of my cohort are dying off now.
Whilst the Pyramid of children was expanding, consumption was a given - no matter where it was 'tapped' from. But now, that's all in reverse.
At an age when my father's parents had 8 children (30!) my daughter has none, and in all likelihood, never will.
2011 is probably an arbitrary point in time ( 1946 + 65) but Western; Developed World society is in rapid demographic decline and the rest will follow.

There is an army of willing developing worlders willing to fill the demographic hole

And an army of politicians willing to funnel as many into NZ as possible in order to prop up nominal GDP by which they are measured too often.

yet world population is on an exponential growth ... plenty more consumers where they came from

trouble is they need resources to plunder to be viable comsumers

the point I was responding to above was the claim that the number of consumers had decreased ... clearly false
From here youre right - the population boom will be replaced by population die off

No, that's not true. The only place that really still applies is parts of Africa and the Middle East, and maximum world population is continually being revised down.

Whether it will happen quickly enough to save the planet is another matter.

Reid's reference to "..debts of the previous ... generation." points to excessive generalisations he makes. As a boomer, we were raised not to take on debt unless we could pay for it. Children, in someways was viewed as "debt". We didn't have children unless we could afford to support them. Indeed in the early 80's interest rates for debt went to 20 - 30%, (my mortgage of the time was at 23% or thereabouts), so there were strong lessons in affordability for everyone. So the debts he refers to for the most part will come from later generations who when some semblance of sanity returned in the late 80's and 90's had a serious case of FOMO. And those who did miss out then blamed the earlier generations (boomers) for that. As a boomer however I could claim to have missed out too, as I did nothing other than slave to stay ahead of the mortgage payments we had, although i knew many who had diversified into the share market and then lost most if not all in the '87 crash.

Can governments afford the debts they are piling up to stabilise economies?
https://www.ft.com/content/53cb3f6a-895d-11ea-a109-483c62d17528

they can at 0% interest
is just that its no longer capitalism

but the low interest rate is capitalised into the asset, we are not better off.

of course we arent - its just one more step down the leverage the hell of everything and anything

Gee that is long way from 80,000. Shoot that messenger!
"Hard, Not Early: Putting the New Zealand Covid-19 Response in Context
...The cross-country evidence shows that restrictions imposed after the inflection point in infections is reached are ineffective in reducing total deaths. Even restrictions imposed earlier have just a modest effect; if Sweden’s more relaxed restrictions had been used, an extra 310 Covid-19 deaths are predicted for New Zealand – far fewer than the thousands of deaths predicted for New Zealand by some mathematical models."
https://ideas.repec.org/p/wai/econwp/20-08.html

Profile, this is for you.
Adds historical context

https://youtu.be/OQ4bfsElVNs
Naill Ferguson. The good Ferguson.
The Q&A part is good too.

Just thinking then about the tragedy at White Island how a quantified number of survivors suddenly overwhelmed hospital facilities. Same thing as per the terrorist survivors in Christchurch. Just thinking about an open ended influx of CV19 admissions and the ramifications for all those “ordinary” patients, cardiac,oncology,accidents when the help is otherwise occupied. Just thinking, that’s all.

Chalk and cheese

Just think about all those countries/county's that didn't have a policy of sending Covid ill to resthomes - and didn't have their hospitals overrun.

Watch for this one in our pages, accompanied of course by "No, we don't need to act or live within our means or embrace user-pays."

Extinction Denial to be the Next Anti-Science Conspiracy Theory

https://news.mongabay.com/2020/09/biologists-warn-of-extinction-denial-a...

Ray Dalio warns of threat to USD as reserve currency:

https://www.bloomberg.com/news/articles/2020-09-15/ray-dalio-warns-of-th...

Apart from the inevitable spoilers (HT, Profile) a great series of posts.

We seem to be watching multiple end games unravelling. One wonders whether this is what happened to Tikal etc (Diamond,Wright) in their end-times. Too many false narratives held too-fiercely by too many reluctant to change? Will the Cloud go the way of the Long Count?

Interesting article few days ago.. NZ would have similar fate!
https://www.smh.com.au/world/asia/australia-s-race-against-china-s-rare-...

Today Winston Peters interviewed draws attention to the fact that Central Otago orchardists want to bring in 7000 seasonal workers while just down the road in Queenstown there are 7000 unemployed restaurant and hospo workers

Maybe the Queenstown workers' visas have expired?

Days to the General Election: 19
See Party Policies here. Party Lists here.