US retail sales slip again; US houses sell well; China captures all its private companies; EU consumer sentiment stays weak; RBA eyes bigger warchest; UST 10y at 0.67%; oil stable and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.7

US retail sales slip again; US houses sell well; China captures all its private companies; EU consumer sentiment stays weak; RBA eyes bigger warchest; UST 10y at 0.67%; oil stable and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.7

Here's our summary of key economic events overnight that affect New Zealand, with news China has co-opted all its companies, state-owned and private, as agents of it political goals.

But first, US retail sales fell last week from the prior one and extending the slippage. But at least they were just ahead of the same week a year ago.

But American home sales rose in +10% year-on-year August for the third consecutive month and to a 14 year high, fueled by good demand for homes at the top end of their market and a pickup in Northeast sales after that region's pandemic crisis has faded. The median price jumped because of the luxury twist, up +11% to US$310,600 (NZ$468,000). This has been a market that was slow to bounceback and it seems to have done so now.

China’s loan prime rates for September have remained un­changed for the fifth straight month.

And the Communist Party has moved to tighten control over private business in the country. It says the Party must strengthen its leadership over private companies, and that entrepreneurs must meet the Party's needs. The position of foreign-owned companies is unclear but probably included. All Chinese companies are now Trojan horses for the exercise of Beijing's central power. This includes Chinese companies operating outside China.

EU consumer confidence is mired in negative territory in September, showing no real signs of improving.

In Australia, their central bank says they may buy even more government debt to lower interest rates as the Aussie economy faces an uneven recovery. They are targeting their three year rate, holding it 0.25% by aggressive bond issuance and started with an AUS$84 bln warchest. But yesterday they announced it is likely to be expanded to $140 bln or 5% of the AU$2.7 tln debt market.

And Australia will be keeping an eye on the iron ore price. Thermal coal prices are down sharply along with oil and gas prices, but iron ore has been a standout. But the top seems to have been passed for iron ore with prices down sharply over the past two weeks. China's steel industry may be tiring of overpaying for this input and China may also be looking for another way to lean on Australia.

In New York, the S&P500 is up +0.7% and a relatively small bounce from yesterday's sharp retreat. They follow European markets that were generally up by about +0.3%. Yesterday Shanghai ended its session down -1.3% and Hong Kong was down -1.0%. Tokyo was closed for a holiday and has some catching up to do today when it opens. The ASX200 ended down -0.7%, but the NZX50 Capital Index ended up +0.6%.

The latest global compilation of COVID-19 data is here. The global tally is 31,410,000 and up +247,000 in one day. Global deaths now exceed 967,000.

Just under a quarter of all reported cases globally are in the US, which is up a massive 60,000 overnight to 7,059,000. The number of active cases are stable at 2,542,000 so they have as many new cases as recoveries and making no progress. Their death total is now just over 205,000 and back rising at +1000 per day.

In Australia, there have now been 26,942 COVID-19 cases reported, and that is only +30 more cases from yesterday. Deaths are up slightly at 854 (+3). Their recovery rate is now just on 90%.

The UST 10yr yield is little-changed but on the lower side at 0.66%. Their 2-10 rate curve is unchanged at +53 bps, their 1-5 curve has slipped to +14 bps, while their 3m-10 year curve is also unchanged at just under +59 bps. The Australian Govt 10 year yield is unchanged at under 0.90%. The China Govt 10 year yield is also lower at 3.12% and a small -1 bp dip. And the New Zealand Govt 10 year yield is also down -1 bp at 0.52%.

The price of gold will start today down another -US$5 at US$1906/oz. Silver is down proportionately more.

Oil prices have stayed down and are still at US$39/bbl in the US, while the international price is marginally firmer at just on US$41.50/bbl.

The Kiwi dollar starts today lower again at 66.4 USc and another -¼c slip overnight. Against the Australian dollar we are slightly firmer at 92.6 AUc. Against the euro we are softish at 56.6 euro cents. That means our TWI-5 has retreated slightly to 69.7.

The bitcoin price is up a minor +0.8% today, and now at US$10,483. 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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59 Comments

25
up

"" All Chinese companies are now Trojan horses for the exercise of Beijing's central power. This includes Chinese companies operating outside China.""
Wondering what the NZ government response will be? BAU?

17
up

Head in the sand!

Time for us to stop any more being bought by the Chinese and for us to claim back what are ours. Pay them? Why?

Your first step should be Universal Homes. Check out the role they're playing in adding new supply to the Auckland market. They tend to be quite nice houses, if a little small (most new ones are these days) for the money they're asking. Their staff are helpful and I've had a couple of offers fail to progress with them, but I would have been very happy as an owner.

Then go and look up who owns Universal Homes.

Like what, Fisher&Paykel Appliances?

Well... multiple Chinese media here in NZ have been helping the Party to censor different voices in the local ethnic Chinese community, which is a validation of freedom of speech. Yet the authority did nothing. You have a cue.

New Zealand’s response: “Yeah,nah, she’ll be right”

10
up

We should start a list of Chinese companies already owned and dominating NZ.
- Wastemanagement
- EnviroWaste
Plenty of ones owned through share on NZX as well

People need to be a bit specific when talking about "Chinese". Hong Kong's Li Ka-shing owns WasteManagement, and he keeps his wealth in the UK. In fact, he is someone who does not go well with the Chinese authority.

11
up

Chinese abuses in Xinjiang and Hong Kong
Chinese aggression in Taiwan strait, South China Sea and North Indian borders
Chinese cyber warfare almost everywhere
Chinese covid virus everywhere

NZ's response to all this... "Head in the sand" and BAU.

Should NZ grow a pair like Australia and be more vocal?

22
up

CCP control includes their Universities which has implications for all NZ & Australian Universities who have close partnerships with Chinese universities. Issues of IP transfer, co-taught programmes and academic freedom, compliance with CCP control and dogma, and soft power access to NZ institutions.
What is the NZ Govt doing about this risk?

CCP control through Chinese universities is certainly not new. Having to been to quite a few of them, the leaders and preferred researchers are almost always CCP members.

ICYMI: The Australian government has announced a far-reaching inquiry into Chinese Communist Party infiltration, with fears we’re being “plundered”. https://www.news.com.au/finance/economy/australian-economy/australian-un...

11
up

“All Chinese companies are now Trojan horses for the exercise of Beijing's central power. This includes Chinese companies operating outside China.” Ever was it thus...

29
up

And Trump is the only Western leader prepared to publicly call out China’s government.

23
up

Even if incoherently. But yes, he is, and the media miss that point in spades

Everyone thought China would take the right turn, even if it took some time.

17
up

Scott Morrison is also standing up to China. I suspect this is with the support of Trump.

Whilst in the meantime importing tons of Chinese manufactured goods at the Trump Organisation - you have to be an idiot not to see Trump is doing nothing more than wolf whistling to "his" people who can't or won't see through his hypocrisy. He basically fawned all over Xi and lay down in front of him for a pat like the runty dog that he is. chyna, chyna, chyna

Yes Trump even expressed approval of China's re-educational camps, so you can't trust Trump to do anything over China. It's just a distraction from his incompetence's on how he handled the pandemic with over 200,000 dead Americans so far.
Business Insider article: Trump told China's president that building concentration camps for millions of Uighur Muslims was 'exactly the right thing to do,' former adviser says. https://www.businessinsider.com.au/trump-china-detention-camp-xinjiang-2...

And Australia has also started very recently.

Thanks to @Snowden
(x-keyscore / prism) and @Wikileaks
(vault 7) the world knows about the "COLLECT IT ALL" mass surveillance attitude of US Empire.

Of course China, Russia and many other countries are now in a digital arms race to catch up with NSA / CIA.

You are all victims. Link

NZ used to be a heaven for Money Laundering, may be, still is though new laws have been introduced including Trust account.

13
up

Universities in NZ of major concern as they have blundered in to so many research arrangements with CCP controlled Chinese universities. Only a GCSB forensic audit of relationships will do; the universities will just nod their heads and say all is fine.

11
up

Other NZ public institutions have also been entering into knowledge transfer arrangements which go well beyond simply selling services or product. There seems to be no transparent ethical consideration of how much access NZ is allowing and how much intellectual and political freedom we are potentially surrendering. Fortunately Australia and their media is now waking up to this danger.
Funding is readily available if it gives some form of access and influence.

Our 'ludicrous' house prices will take a hit at some point:

https://i.stuff.co.nz/national/politics/122845115/tick-tick-podcast-the-...

Economy consequences of panademic have yet tomake an impact as till now have been covered by massive stimulus and the govt n reserve bank who have been printing and distributing money too does not know what the consequence will be and are only hoping for the best.

As of now one thing is evident that economy is distorted and may be all this printing may help if everything gets back to normal asap and damage is controlled otherwise will need another stimulus to avoid collapse and to delay the inevitable, with hope.

Wage subsidy has ended in NZ and now many will opt for Income protection available for 12 weeks so am expecting number of people opting for income protection jumps in October and that data will give clear understanding of unemployment in NZ (Many small and medium businesses were not laying of and supporting staff with wage subsidy specially in hospitality, tourism, education and retail in many region) . If unemployement is maintained below 8% as predecited by treasury than NZ will come out of recession very fast and housing market will not see the fall that many are expecting now and if the unemployment data is in double digit than it will be mayhem and another for housing market will be in April when the mortage defferal ends.

Also to watch out for liquidation number as many small and medium may opt for it.

For now housing market is too hot and is at all time high in terms of sentiment as well as price.

Will the bubble bust seems unlikely from what we see now but is also true that normally bubble burst when is least expected and euphoria is at Peak.

US experienced 15-20% unemployment. At that level in NZ, RBNZ modelling predicted property prices could fall by 50%. So if companies start those layoffs they’ve been talking about, but been holding off due to the government assistance, I’ll be more inclined to watch this space.

I don't buy Treasury's forecasts. Like all government departments, they are heavily politicised - 'free and frank as advice' is a load of BS. It is very much 'Yes Minister'. No doubt they have been coerced into painting a rosier picture just before an election.

12
up

So the chief economist of the bank with the biggest exposure to NZ property market thinks house prices are ludicrous - if that’s not worth holding onto your hat for, I don’t know what else would be.

But of course they’ll give you the debt to buy another rental but will happily shaft you if this fragile system (labelled as ‘resilient’ by investors to help them sleep) implodes. If it were so resilient, why the panic (by in particular central banks) when a new strain of the flu appears? It’s because it’s very fragile and could easily implode.

Zollner is the best of a bad bunch.

She’s bright, quick mind & Communicator with original insight.

Judging by the price the average USA house must be absolute c$#@. NZ houses are worth 50% more. We are so lucky.

13
up

I thought last night's leadership debate was a right yawn. Shallow from both leaders. Uninspiring.

And if there was one comment that showed Collins up for childishness it was:
".. Collins replied, "Well, give it back then." - when Ardern alluded to the fact that those of secure means don't need a tax cut.

Earthling - take me to your leader

Here - I'll spell that for you

Of course it was, because both have close to identical policies and close to identical results. Voting for either of them will ensure we have more of the same for the next term, probably right when we don't need more of the same.

11
up

How is the OIO feeling.
Time to start the good character, national interest tests & review existing mandates.

All Chinese companies are now Trojan horses for the exercise of Beijing's central power. This includes Chinese companies operating outside China.

Is there a hi-tech button I can push that will tell how much NZ land is foreign owned

In Australia, their central bank says they may buy even more government debt to lower interest rates as the Aussie economy faces an uneven recovery.

The pandemic has resulted in a historic decline in output in the Australian and global economy. Graph 1 shows the GDP outcomes for a range of economies. It is a truly daunting picture in terms of the size and the synchronised nature of the declines.

What explains the large variation in outcomes across countries? Part of the explanation is the nature and management of the virus' impact.

Johnson turns out to be the epitome of the commentariat who, by training and experience, are peculiarly ill-equipped to deal with the coronavirus pandemic. He overpromises and underdelivers on everything from the world-beating test and trace system, that has just seized up, to the proposed “moonshot” to test everybody in the country by Christmas.Link

An article explaining QE: https://alhambrapartners.com/2020/09/21/ok-bank-reserves-lets-do-this-on...

Jeff is very critical of it at the start and I think justifies his criticism of it by the end.
The main takeaway being: QE is not inflationary and does not encourage bank lending.
My other takeaway: QE gives banks the liquidity to allow them to "de-risk" their portfolios slowing a recovery and creating a deflationary force.

tim52,
If you look closely at the example from Alhambra, you will see that when the transactions are complete, the Treasury has acquired cash which it did not previously have. And there lies the power (and the dangers) of QE. Assets and liabilities across the system remain unchanged, but the Treasury, and hence the Government, has acquired the 'cash' that it needs but previously did not have to go about its new business. If that new business draws on otherwise unused labour resources then it may not be inflationary, with new cash balanced by new production, but if that new business competes for resources (labour and goods) already being utilised then it will eventually be inflationary, albeit with delays, with more money now chasing the same amount of goods.
KeithW

If you look closely at the example from Alhambra, you will see that when the transactions are complete, the Treasury has acquired cash which it did not previously have. And there lies the power (and the dangers) of QE.

Surely nothing more than financing deficit spending?

Narrative from Alhambra for the first three diagrams :

The federal government, as it always does, wishes to sell marketable debt to the public. It conducts an auction. These happen regularly, meaning the real world is obviously more complicated, but our simple example here will more than suffice for illustrative purposes. The Treasury Department creates a bill, bond, or note depending upon various factors put together from conversations with primary dealers like Bank A as to both public as well as bank appetite and to what terms the debt offerings might reasonably satisfy them.

The UST becomes a liability for the government and after auction it is now in the hands of Bank A (above).At the same time, Bank A has created a checkable deposit balance for the Treasury Department (in reality, adds to the one which has existed since the primary dealer became a primary dealer). Against this bank liability, the government now has the same amount in cash (above).

Notice who actually creates what sort of monetary form, keeping in mind there are many more that make up the zoo – no bank reserves are required, nor were they ever necessary. That’s why up until 2008, there really weren’t any (nor were there much by way of checkable deposits, again the zoo).

Auduxes,
The deficit is financed by the bond. The key issue is what then happens to that bond. Does it stay in the market, or does it get purchased by the Central Bank. If it stays in the non government financial market, then the Treasury has more cash but the banking system has less reserves than prior to bond issuance. If the bond is purchasd by the Central Bank, then the Treasury has its 'cash' to spend but the private financial system (banks and other financial institutions) are back to their situation prior to bond issuance. But that is only for starters, as the new finance now available to Treasury works its way through the system. In assessing th overall impact, it is important to not only focus on the asset swap between the Cntral Bank and the banking system; that is only one part of the overall story.
KeithW
KeithW

If it stays in the non government financial market, then the Treasury has more cash but the banking system has less reserves than prior to bond issuance.

What are you talking about in respect of reserves,
Re Alhambra:

Notice who actually creates what sort of monetary form, keeping in mind there are many more that make up the zoo – no bank reserves are required, nor were they ever necessary. That’s why up until 2008, there really weren’t any (nor were there much by way of checkable deposits, again the zoo)

Re RBA:

Deposits and money are primarily born of credit
Measures of money grew strongly over March and April this year, reflecting growth in deposits at authorised deposit-taking institutions (ADIs; Graph D.1). Deposit and money growth are typically driven by new lending by the banking sector. Lending creates deposits as the funds made available to a borrower find their way into a deposit somewhere in the banking system, either as a deposit in the borrower’s account, or in another account when the borrower uses those funds to make a purchase.[1]

Banks’ holdings of Australian Government Securities have also risen recently, alongside an increase in Australian Government borrowing, which has contributed to the rise in bank deposits. However, the process of deposit creation is slightly different when the banking sector purchases debt issued by the Australian Government, since the Reserve Bank is the banker for the Commonwealth of Australia. When the Australian Government borrows from the banking sector, it holds the borrowed funds as a deposit at the Reserve Bank until the funds are spent. As the Australian Government spends these funds in the economy, such as in the form of JobKeeper payments to businesses, it adds to deposits held by businesses and, subsequently, to deposits of the household sector through employees of those businesses. Link

First of all the empirical evidence for QE being inflationary would be a strong negative correlation.
I am no qualified expert on any of the following:
The issue becomes, does QE produce a net increase in M2(or greater) or increase the money supply to consumers or business?

Do banks and credit create the majority of "money" or does it come though government spending. Does the temporary increase in government supplied money (there is also a liability on the Treasury balance sheet, they need to repay the bond to the RBNZ) cancel out the lack of credit supplied to the consumer and business from tighter credit conditions and lack of confidence in the economy.

Considering the circumstances QE is used in I don't think extra government money is ever enough to create inflation (it's get sucked up maintaining and paying off liabilities) compared to the decrease in credit growth. Inflation from currency debasement (actual government printing) is not the desirable inflation.

The drop off in money velocity is also a challenge: https://fred.stlouisfed.org/series/M2V

tim52,
See my comment above to Audaxes. I agree that changing velocity of circulation is relevant
Keith

Hi Keith
I agree there are lots of dangers with QE but I really can see a strong argument for inflation being on of them, up until it starts to be perceived as printing. For example, it starts to be rolled over and exponentially increased. All the free government borrowed money now is going to have to come out as taxes to pay the QEed bonds at the RBNZ a lot within 10 years and then rolled over into the private market. If the low rates cause the housing market and therefore housing credit creation to take off, the money generated there will inflate things around it and maybe help our inflation figure but that remains to be seen.

If you have the time you can watch the start of this this its about the US QE (starts to get more relevant at 10 min): https://www.youtube.com/watch?v=B4xcCO9v-Os

The problem with the government spending so far is that is to financial relief to help the public cover their liabilities while their was no income. I would not think much of this money was left over after replacing income lost in the lock-down, that is it could be considered stimulus. I don't consider this an inflation risk (,the money that not spent must have been somewhere (velocity issue) and I guess there might be some extra money for inflation there). Then this money also has to come out of circulation as taxes or austerity eventually (deflationary). I think excessive government spending by its self can cause inflation but there very little evidence that adding QE to this makes the inflation worse.

Tim52
It is highly unlikely the QE'd bonds at the RB will ever be repaid. As long as they stay there any interest is paid by one arm of Govt to another arm of Govt
However, it is possible they could be sold back into the private market by the RB as an exercise in quantitative tightening when inflation finally takes off. And it will eventually do so. It is just a question of when. More likely is that the RB will simply let the inflation run, using the justification of their mandate in relation to unemployment.
KeithW

The RBNZ have purchased bonds that mature in two and a half years, and also look like they are preparing for about 5 years of Z/NIRP. I don't think the government is going to ask the RBNZ to forgive these first bonds, that's irreversible damage to confidence in our currency and bonds. They could easily roll the debt over and QE it again. Who's saying the RBNZ will do this?

The real danger of QE is their wont be enough inflation and the economy never achieves it's previous GDP growth rate. Look at the European, Japanese and US CPI they can't average 2%, no matter what they try. QE is long term poison to the economy but inflation is not the symptom. One day we will get back to inflation but not with current central bank policy at least untill something really breaks. Yesterday our bank economists informed us they are pushing the RBNZ to follow (some of) the polices of BOJ and ECB, today we got conformation the RBNZ will do this, look at their numbers after they started QE. I don't expect different results.

tim52,
The bonds can be rolled over without further QE occurring. If the bonds were repaid (from Treasury to the RB, and with Treasury funding this either from taxes or from new bond issuance on the open market) then quantitative tightening would automatically occur. But then if the RB purchased those new bonds then it would neutralise that quantitative tightening. If QE does not lead to inflation, then the MMT theorists would say that a fiscal deficit plus QE in combination has been a success. I expect it will eventually lead to an inflation blowout.
KeithW
KeithW

Too funny.

Now add this to D Parker farming by consent, Wellington consents much harsher than Regional Council requirements.

Now COL will pay for the farm plan, pay who?
Keen to please the payer plan authors....
This is like thinking a bank funded valuation of your house is for you....

https://www.rnz.co.nz/news/election-2020/426719/jacinda-ardern-labour-pa...

# trojan Horse.

For history buffs, this type of thinking doesn't work out well.
https://en.m.wikipedia.org/wiki/Kulak

http://www.encyclopediaofukraine.com/display.asp?linkpath=pages%5CK%5CU%...

So most farmers have a farm plan??? Bollocks. Fonterra is going to take years yet to get all 10,000 farms with farm plans - lack of human capacity to deliver is the constraint. So where are all these 'advisors' who are going to materialise to get 35,000+ plans done? Oh.... thats right the farmers will do them............
Edit: As the article says, Farm plans cost between $5-10,000 to get done. The govt is expecting to add even more to what farmers already have covered, and the govt is budgeting on......$1428 ($50m divided by 35,000 farms)

Sounds better than the environmental plan that we currently did for the farm. That was all about holding the status quo on the farm by box ticking and the use of buzz words and phrases. What I wanted was a plan to move forward that fixed any sticking points with councils etc.

Nothing happens in China without the CCCP say so,virtualling meaning that all companies owned by Chinese interests have been prisoners of the CCCP for decades.This is nothing new.