Encouraging demand rise in Japan; China's new economy struggles; NZ ranks high for retirement; US jobs growth slows; eyes on Aussie Budget; UST 10y at 0.70%; oil and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.8

Encouraging demand rise in Japan; China's new economy struggles; NZ ranks high for retirement; US jobs growth slows; eyes on Aussie Budget; UST 10y at 0.70%; oil and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.8

Here's our summary of key economic events over the weekend that affect New Zealand, with news some big economies may be seeing minor improvement, but it is inconsistent.

First in Japan, a major steelmaker there is to restart an idled furnaced line in response to rising orders from the domestic car and consumer electronics industries. This is the type of positive signal Japan's economy needs.

China might be on holiday, but it is pressing the enforcement of its security laws - in Britain. It says protesters in London are breaking its laws and wants them arrested.

And in China itself, an index monitoring their "new economy" continues to fall away. While it might be the fastest-growing part of their economy, these firms are now struggling with lower investment, employment and innovation as the broad rebound from the pandemic slows in the Middle Kingdom.

Meanwhile, domestic travel is heavy this year. But it is still more than a quarter lower than the same period last year, and spending is lagging even more. (And of course, international travel is but a shadow of last year during this holiday break.)

And China has blocked frozen beef imports from Brazil after they found one shipment contaminated with coronavirus.

A new report says that New Zealand is the sixth best place to retire in, in the world, unchanged from 2019. Top is Iceland, followed by Switzerland. We were beaten out of fifth only just, by the Netherlands. Australia ranks #7, Canada #8, and the USA #16. Holding us high are the 'finances' and 'quality of life' components.

In the US, jobs growth slowed more than expected in September, coming in much less than expected. A weak extension to their bounce back of +850,000 was expected but in the end the increase posted was just +661,000. Remember, +1.5 mln jobs were created in August. That leaves the pandemic job loss since February at -11.4 mln. More layoffs turned permanent, adding to signs that the American economy faces a long slog to fully recover. And those now permanently jobless is rising faster. Their participation rate fell to a very low 61.3% indicating huge numbers have moved out of their workforce and are no longer looking for employment.

But these realities isn't showing up yet in monthly changes in consumer sentiment surveys, even if the latest one is down year-on-year by almost -14%. Sentiment is low, but not getting worse.

And cheap credit, and demand for larger SUVs and pickup trucks has driven a faster-than-expected bounce-back for the American car industry. Sales ran at 15.7 mln per year in September, up from a sales rate of an annual sales rate 15.2 mln vehicles in the year to March. Unemployment isn't affecting this market yet. New-car shoppers are putting down more money and taking advantage of very low interest rates to upsize either to bigger vehicles or vehicles with more options. It can't last if the jobs numbers worsen however.

In Australia, they are getting ready for a new Budget announcement from Canberra. Expectations are high for a tax cut, and one that will backdated to July 1. But top-end tax rates will still be 45% for earnings over AU$200,000 although those on incomes above $AU90,000 will get significant relief but to rates that are still higher than in New Zealand. They expect FBT and investment allowance rollbacks. New spending on infrastructure, FHB subsidies, and grants for manufacturers are also expected. This Budget will be announced tomorrow evening.

The latest global compilation of COVID-19 data is here. The global tally is 34,987,000 and up +558,000 in the two weekend days. The European resurgence is gathering steam again, like the one in the US. Global deaths reported now exceed 1,035,000 (+10,000) but clearly many are going unreported.

The largest number of reported cases globally are still in the US, which is up +92,000 the weekend to 7,615,000 and of course that includes the White House cluster. The number of active cases are rising at 2,568,000 so many more new cases than recoveries and they are going backwards again. Their death total is just over 214,000 and still rising at +1000 per day. At 647/million population, it is the worst western death rate bar Belgium and Spain.

In Australia, there have now been 27,136 COVID-19 cases reported, and that is only +23 more cases than on Saturday. Deaths are up to 894 (+4). Their recovery rate is still just over 91%.

The UST 10yr yield is relatively firmer today, up +1 bp at 0.70%. Their 2-10 rate curve is marginally steeper at +57 bps, their 1-5 curve is also steeper at +17 bps, while their 3m-10 year curve is up at just under +63 bps. The Australian Govt 10 year yield is unchanged at 0.87%. The China Govt 10 year yield is also unchanged at 3.16%. The New Zealand Govt 10 year yield is unchanged as well at just under 0.51%.

The price of gold is just a little lower this morning at US$1899/oz and a -US$6 slip since where markets ended on Saturday.

Oil prices start the week much lower at just on US$37/bbl in the US, while the international price is down to just over US$39/bbl. These are levels more than -US$3 lower than this time last week.

The Kiwi dollar starts today holding at 66.4 USc and a full +1c higher than this time last week. Against the Australian dollar we are now at 92.7 AUc. Against the euro we little-changed at 56.7 euro cents. And that means our TWI-5 is at 69.8 and +50 bps higher than a week ago.

The bitcoin price is marginally firmer to start the week, now at US$10,613. The bitcoin rate is charted in the exchange rate set below.

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43 Comments

25
up

Best place to retire, interesting measure of essentially unearned income. I'd have thought that our only advantage was being uncrowded & we seem hell bent on ruining that.

Term deposits at BNZ at 1.05 now!!!

rolled over some money last week at Westpac, %1.5 from 6 months to 5 years.

Thought you're into Farming? correct me if wrong, not worth it TD terms. So might as well put that to ready Rabo account, at least they're not heavily into RE.

I agree I am with Rabo. Much tougher lending standards and better capital ratios.

22
up

Just in case anyone doubted the Chinese security laws, if you piss them off, anywhere in the world, you can be subject to their attempts to get you arrested and charged.

A fairly blunt, unsubtle way of seeing who they can push around at any level, who's on their side or against them and who they can bludgeon into submission. This is going to get interesting, particularly as over the last thirty years or so they have cornered a fair portion of the worlds manufacturing capability and capacity forcing the world into a degree of dependency on them.

Assange too.

16
up

Just another step along the route to where China becomes the country that nobody, anywhere, respects and likes.

14
up

A fairly blunt, unsubtle way. Does that mean that those of us that protest and contradict the persistent like utterances of Comrade X on this website forum, are on that list?

17
up

Yes, we figured that out a few weeks back. Section 38 I think it is. You, me and a few others on this forum will be on the list. If Interest uses Chinese technology, they've likely already mined the membership lists and have you marked! The Government chose not to defend Anne Marie Brady, so I hope you have a little more clout than she does!

First warning. Red fire cracker in the letterbox then?

Yes, the US has set the precedent and China can follow. But China will just take anyone it wants home and do what it wants with little if any accountability. Not pleasant. And the Americans already know that the best recruiting tool for your enemies to to treat them badly, either in war or captivity. Collateral damage during Iraq and Afghanistan created more recruits for Daesh than the US was killing.

The Chinese go after your family in China too. That seems to be the way of forcing the foreign based Chinese to toe the line...

Let's agree to put Auckland back to level 1.
8 weeks seems too long.

The best comparison to do is with New South Wales
https://www.nsw.gov.au/premier-of-nsw/premier
Gladys Berejiklian was first elected to the NSW Parliament as Member for Willoughby on 22 March 2003.
https://amp.abc.net.au/article/12480138

Auckland locked down from 4 cases, source still unknown, not a coolstore, since we have had a lift & a rubbish bin.

Talking to people in Sydney talking to people in Auckland. The August & September have been better in Sydney.
The main reason suspected, is the much better contact tracing in NSW, much better than Auckland.

Gladys runs a tight ship, rather than being the Our Lady of the Lockdown.

"Gladys runs a tight ship". That would be the Ruby Princess?!
https://www.rnz.co.nz/news/world/423573/ruby-princess-cruise-ship-inquir...
Manchurian Dan isn't going to take the chance of a third outbreak.

so do you want level 1 NZ or the restrictions NSW are having to live with?
me i prefer level 1 NZ
https://www.nsw.gov.au/covid-19/what-you-can-and-cant-do-under-rules

you got several things going on.
1. The Level3 lockdown and police road blocks on Bombay Hills. NSW didn't carve up the State.

2. NZ level 1, seems to cost 1/3 more than NSW level 1.

3. The wild card here is unemployment & under employment post wage support and business able to re organise.

Looks like one of our positives in isolation came from Australia, tested +ve on 30/9 @ 12 days, so maybe more rife in Aus than admitted

they did not name the state, which in itself is not good, because was it VIC or NSW or OLD

Fonterra had demonstrated its commitment to the development of the Chinese dairy industry.
"We've worked closely with local players, sharing our expertise in farming techniques and animal husbandry, and contributed to the growth of the industry," Fonterra sells China farms for $555m to pay down debt

https://www.nzherald.co.nz/nz/news/headlines.cfm?c_id=1
How to cut your own commercial throat:
Show China how to do something you already do well, and then leave, and let them become your competitor.

The sale is very good news.

Really?
Wouldn't 'very really good news' be a New Zealand company buying back the Crafar Farms from China?

agreed, it lost money every year, did not achieve anything apart from training locals how we diary farm

13
up

Fonterra have been doing this for years with China, South America and the US. Unbelievably short sighted. I really struggle to believe that they've paid their CEOs millions per year to sell (or did they just give it away?) their trade secrets in the name of the short term dollar. I also struggle to understand why anyone would call their Board competent and capable.

About 11 years ago I was introduced to the son of a friend who identified himself as a dairy farmer. We had been talking politics for a while when he asked me why the CEO of Fonterra wa being paid $5 mil per year. I confirmed he was a dairy farmer, and then asked him why he was asking me that question. I pointed out to him that the CEO of Fonterra was an employee of farmers, so I should be asking him that question not the other way around. I don't think he was very happy.

So we can soon fly to Sydney & visit family - but the return is slightly problematical.
Maybe pick up a short term contract there, stay for a few months, & wait for clear borders back in NZ.

if you go by the NSW MAP of active cases, it is problematic, they only a hand full of active cases but they are all over the place but we have seen from NZ if it gets into certain populations in NZ it spreads like wild fire.
i think the answer for returnees is testing, home isolation, ankle bracelets ( to make sure you stay home) then it becomes a worthwhile trip
https://www.nsw.gov.au/covid-19/find-facts-about-covid-19#map-of-nsw-cov...,

And China has blocked frozen beef imports from Brazil after they found one shipment contaminated with coronavirus.

Very interesting that this (and the earlier reported finds in frozen chicken exports from Brazil) seems to get so little MSM attention. I'd have thought the implications would be huge, not just for Brazil but for every exporter of frozen food products the world over. Couldn't find anything on the WHO site about it, but perhaps my search missed something.

Looks like fake news to me.

In the early reports I seem to remember one that said you can't catch it from these. I doubted the accuracy of the statement at the time as i thought there wouldn't have been enough time to thoroughly test all possibilities. In this instance i think China is being wise being this cautious, until there is some solid evidence of the risk. There is still so much we don't know about this virus so far.

DP sorry.

13
up

Just heard Auckland University to fire 400 people.

If it is true it does reaffirm that consequence of lockdown/panademic will follow soon which till now has been masked by various subsidies and stimulus, so worse to come and everyone must be cautious as entering uncertain time now.

Where did you hear that?

Certainly I believe they will be looking to reduce HC by about that figure, but since they're currently running a voluntary redundancy round I'd be very surprised if they're announcing the non-voluntary variety right now.

ps. There hasn't been much in the way of subsidies or stimulus for the unis. They had been holding on in the hope that early 2021 might be more normal, but that now seems highly unlikely and they have to make the 2021 budgets accordingly.

I think Auckland University did got 50 million grant or something. They still have voluntary redundancy but may be not many opted in this scenario so the university decided to do as only employees who were as it is planing to retire now or may be next year used voluntary redundancy option.

As soon as lockdown was announced they had removed all contract staff and now planing to remove 400 and I think have about 5000 employees and if removing 400 will be approx 8%.

For university and other education institution who were dependent on international student, this year revenue was not impacted much as most must have enrolled and paid by February and do not think anyone of them refunded as offered online but for next year not sure will see many new international student.

Next in line people who are losing jobs is in Travel and Tourism Sector, hospitality and than followed by retail for sure as wage subsidy ends. Income relief data which one can apply till 12th October will give true indicator of job loss as all those who will be losing job after wage subsidy has ended will be opting for it to get $490 per well for 12 weeks.

Important will be to see, how the economy stands early next year. Should be bad unless more QE as now the only way to support stock and house price in NZ is by injecting more and more in the market otherwise may lead to disaster.

I'm not aware of any $50m grant. Are you sure?

The voluntary redundancy scheme is running now, so they won't yet know how much uptake there will be. Hence why I doubt the timing -- but who knows?

The rest I agree with.

10
up

The Australians have been going through this for the past few months. The realisation that our universities are not set up for local students or people who wish to upskill from their current roles is coming hard and fast. Offering degree-level study during business hours and in-person only was already primitive pre-Covid19 and totally unjustifiable in the aftermath.

it does show you how over the decades our universities have changed from training and upskilling locals first and foremost to an export industry

The export/foreign dependence aspect is indisputable. But one should also be careful not to conflate it with the universities offering vocational training. Admittedly this has not been helped by the polytechs deciding to rebrand themselves as "universities".

Industry partnering (and funding) with universities on R&D initiatives is abysmally low in NZ for a 'developed' economy. Successive governments have been killing two birds with one stone by turning institutions into migration agencies: propping up our false economy and not having to fund institutions.

Also, over the last few decades we've taken away wage and career incentives from our workforce to train and upskill themselves by offshoring hi-value sectors and increasing our reliance on bulk export of commodities, tourism and education.

The approx figures mentioned are in Herald last week.

Overseas student charged $37 000 per year so institution gets $37,000 per overseas student (less what is paid to education agents as commission for finding students).

NZ student pays $6,500 per year that govt adds $11,500 so institution gets $18,000 per NZ student.

Note: its been in everyone's interest to rev up the overseas agents (& they have).

Yes. And add to that the numbers of (funded) domestic students are capped.

In the US, jobs growth slowed more than expected in September, coming in much less than expected.

Keynes has been proved right right here in America when he pointed out deflationary pressures absolutely wreck employment.

Still about 11 million jobs in the hole, huge hole, both surveys, this is no time for the labor market to be slowing down like it sure seems to be.

More concerning still, back to the CPS, as we’ve flagged all along its total hours. For the month of September 2020, the BLS index for total labor hours worked was an astounding 7.6% less than the index value for hours worked during September 2019. Not only was that a substantially larger decline than August, this far into reopening and that much negative puts this current labor market on pace with the very worst months of the Great “Recession”; September’s figure would’ve been the second worst had it shown up during 2008-09.

I believe that’s a function of a couple things: 1. The economy was in rough shape to begin this thing, just look hours above; 2. GFC2 immediately put every business in it on the liquidity defensive. Recoveries require risk-taking, which is why Keynes and all his followers have spent volumes studying and coming up with (ineffective) ways to reignite “animal spirits.”

Trump nor Biden, what would make anyone take risks on more labor in September now October 2020? Is it all the QE, the sixth time the Fed’s done it? People say I’m too negative, but neither of these surveys suggest I’m near an extreme. That’s the Labor Force. Link