China's domestic economy rises, boosting yuan; India contracts, Japan struggles; US budgets blowout; Canada jobs rise; RBA eyes banks; UST 10y at 0.78%; oil unchanged and gold up; NZ$1 = 66.7 USc; TWI-5 = 69.7

China's domestic economy rises, boosting yuan; India contracts, Japan struggles; US budgets blowout; Canada jobs rise; RBA eyes banks; UST 10y at 0.78%; oil unchanged and gold up; NZ$1 = 66.7 USc; TWI-5 = 69.7

Here's our summary of key economic events over the weekend that affect New Zealand, with news China's domestic economy seems to be replacing the American one in driving international trade.

The Chinese services sector reported another solid increase in business activity in September, cementing in a fifth straight month of expansion. They seem well past the pandemic struggle. This growth was backed up by a good rise in new orders, though new export work continued to decline. Still, payrolls rose for the second month in a row amid increased capacity pressures. It is a trend many other countries will envy at this time.

Their factory sector earlier reported a good expansion too, but exports there were stronger than for services. And that is showing up in shipping freight rates which have more than doubled since May, and are now back at the historically high levels last seen in mid 2019. Fast-rising exports to the USA seem to be driving the rise.

And the recent hesitation in the iron ore price may have passed, resuming its upward climb.

The buoyant Chinese economic mood has seen their currency appreciate its most in 15 years. It is all driven by their expanding domestic economy. So now the central bank has removed some reserve rules to try and keep it from rising further.

In India, official forecasts are that the Indian economy will contract -9.5% in the current fiscal year through March 2021 as the fallout from the coronavirus pandemic severely curtails economic activity there.

In Japan, household spending fell for an 11th straight month in August and real wages have fallen for six straight months as consumers struggled to return to their pre-pandemic consumption levels.

The latest household data out of Sweden indicates that their households are in a tough spot with consumption down -3.7% year-on-year. That is similar to Norway and to Denmark. There is no evidence yet that the Swedish tolerance for its high pandemic death toll (583/million) gives it some sort of economic advantage. (Norway = 51/mln, Denmark = 115/mln.)

In Australia, the RBA's latest financial stability review is somber reading. Business failures and household financial stress will rise significantly over the coming months when loan repayment deferrals and government income supports end, they say.

And in the same report, the central bank warns trading banks about 'culture' issues when they come to "the challenging task of dealing with customers' loan repayment deferrals".

In the US, their budget deficit tripled in the fiscal year ended September. It widened to -US$3.1 tln from just under -US$1 tln a year earlier. Four years ago this Administration inherited an annual deficit of -$585 bln. This is the largest and fastest deterioration ever. As a share of GDP, the annual 2020 deficit reached -15.2%, the largest since World War II.

The latest USDA WASDE report indicates that despite rising output they expect dairy prices to rise from here on good international demand. Also their beef import forecast has been raised for this year and next, despite noting that their beef exports are likely to fall. That is because their local prices are higher and less competitive internationally.

Canada released its September jobs data over the weekend and it came in much better than expected. They reported a gain of +378,000 jobs, +344,000 of them full-time positions. Their jobless rate fell but only to +9.0%. Their participation rate was higher.

The latest global compilation of COVID-19 data is here. The global tally is 37,301,000 and up at a faster pace of +615,000 since Saturday and near a new record pace. It is being driven higher by sharp rises in the UK, Russia, Argentina and Iran. Global deaths reported now exceed 1,074,000 (+10,000) but clearly many are going unreported.

The largest number of reported cases globally are still in the US, which is up +100,000 in the past two days to 7,963,000 and at the new rising pace. The number of active cases is at 2,650,000 (+47,000) so many more new cases that recoveries and going backwards on that front. Their death total is over 219,000 and still rising at +1000 per day.

In Australia, there have now been 27,264 COVID-19 cases reported, and that is +35 more cases than we reported on Saturday with only Queensland and Tasmania not reporting new cases. Deaths are unchanged at 898.

The UST 10yr yield is at 0.78% this morning and little-changed from where we left it Saturday. Their 2-10 rate curve is firm at +62 bps, their 1-5 curve is also firm at +21 bps, while their 3m-10 year curve is little-changed at +68 bps. The Australian Govt 10 year yield will start this week at 0.86%. The China Govt 10 year yield is marginally lower at 3.20%. The New Zealand Govt 10 year yield is unchanged at 0.55%.

The price of gold is up another +US$6 this morning from the New York Saturday price and now at US$1931/oz.

Oil prices start today little-changed, now just over US$40.50/bbl in the US, while the international price is down a bit more to just over US$42.50/bbl.

The Kiwi dollar starts today holding its higher level of 66.7 USc and a three-week high. Against the Australian dollar we are at 92.1 AUc. Against the euro we are at 56.4 euro cents. And that means our TWI-5 is still at 69.7 and where it was at the start of last week.

The bitcoin price is higher yet again today, now at US$11,407 and +3.1% higher than this time on Saturday. The bitcoin rate is charted in the exchange rate set below.

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50 Comments

What is mentioned in article about Housing Market in Australia also reflects NZ housing market :

Will job looses crash house prices? Will end of mortagee holiday crash house price? | 2020 Housing Market Predictions

https://youtu.be/hrRlbSj35No

Will the government extends mortage holiday and introduce other tools / money to ensure that house price keeps moving up (Seems only way to avoid or should say delay the inevitable) OR despite all efforts, economy fundamentals will take control and market may correct even if not crash despite out of the way support by reserve bank and Government.

Comments / view welcome.

Currently are witnessing booming stock and housing market. Must remember that even earlier expectation was that consequence of panademic will be felt once various subsidies and waivers come to an end (still some months to go).

So real test will be early to middle next year but have doubts as the speed of movement across asset class in this uncertain time has surprised everyone so is wait and watch if the momentum sustains or fizzle out.

Important to keep lookout on unemployment data and number of people taking income relief (as they too are unemployed). Also many middle class who may be unemployed but not under unemployment data as have some savings / deposits, hence not entitled to receive unemployment benefit (which may not know unless as have some other way to find out) and also many who may be working reduced hours.

It is true that only thing moving in this uncertain time is share and housing market so on surface everything seems to be fine and point of discussion now in NZ is only house price and how everyone is jumping into it - not only FHB but also existing house owners to buy investment property using equity of existing house so is boom BOOM all around - In a bubble cycle , we are at Euphoria level but hard to say if it is a bubble or hyper bubble, will only know in future.

The knack with a bubble is to make it so big that if it blows we all go down together. The only option is to somehow limp along and pray for the gods of inflation to turn up and not the gods of the marketplace.

'One of the most dangerous forces currently threatening U.S. economic, financial, and public health is the intentional demolition of warning signs that would otherwise enhance survival.
3) Investors should be careful to avoid the misconception that easy money always supports the market. The fact is that market outcomes are conditional on whether investor psychology is inclined toward speculation or toward risk aversion. This is best inferred directly from the uniformity or divergence of market internals. Despite the fact that the Fed eased the whole way down during the 2000-2002 and 2007-2009 collapses, investors have come to believe that Fed easing always supports stock prices. That’s the wrong lesson, and the re-education of investors is likely to be excruciating.

https://www.hussmanfunds.com/comment/mc200518/

Agree at the moment is towards speculation and is a matter of time before it changes.

Much incense has been burned in Shinto Shrines over many decades, hoping for said Inflation to arrive.
If it was 1970, it would. The World was smaller in every way; younger and still needed actual human labour to perform most jobs.
50 years on, and the financial and social landscapes have changed, and yet we desperately hope that the Savior of 1970 comes riding to our rescue.
The "Leaders" of today were educated in the times when Inflation destroyed what savings their parents' had, but that somehow rescued the World.
That isn't going to happen this time; it won't happen today. Too many things have moved on. All, except the blind thinking of those who want to burn more incense on the failed alter of Quantitative Easing.

All, except the blind thinking of those who want to burn more incense on the failed alter of Quantitative Easing.

Central bankers and governments have, obviously, obliged this new “V” format without, equally obviously, addressing its very obvious shortcomings. Stimulus was already supposed have worked once, keeping that first “V” on track, it didn’t work so new “stimulus” will allegedly guarantee instead what is really a second shot at a lesser “V.”

Here we are yet again staring in the face of another outbreak of QE2 syndrome. The first one, whatever form of stimulus, didn’t work so we’re told to celebrate how it didn’t by welcoming the same ineffective idea done twice (or more). It’s not rational, it’s rationalizing. And it might work well in certain markets, like Western equities, but for workers and the labor market pretty much everywhere it’s a repugnant and harmful sideshow.

For one thing, these central bankers have no idea how QE’s supposed to work, either! I’m not making this up. I already wrote about Bill Dudley’s 2014 testimony to that effect.

Here’s a recent study published by the Federal Reserve about the Fed’s infatuation with the Effective Lower Bound (ELB) and thus QE’s role in circumventing it especially when this ELB is down close to the ZLB (Zero Lower Bound). Published at the end of August concurrent with the updated inflation targeting nonsense, author Michael Kiley sums QE up this way:

" Within the DSGE model, QE stabilizes markets through relaxation of financial constraints facing financial intermediaries, in a manner akin to the mechanisms that appear to have motivated Federal Reserve actions."

Catch that? That second clause is a doozy, a true beauty of a dodge. How does QE work? What Kiley is saying is that they don’t really know, but QE just fixes whatever is wrong; “in a manner akin to the mechanisms that appear to have motivated Federal Reserve actions.”

In his words, something happens in financial markets unleashing “financial constraints” on financial intermediaries, provoking the Federal Reserve to respond with QE, and whatever that something is QE just magically focuses on “the mechanisms” that have gone wrong and takes care of them freeing up the financial intermediaries to keep feeding credit to productive economic investment (the macro association DSGE models associate with financial markets and intermediaries).

That’s some serious deus ex machina right here. Link

Like alcoholics who attempt to fix their problems with another bottle of vodka....we'll deal with the real issues tomorrow.

The moment the government runs a “deficit,” there is absolute certainty that at least one other sector – households, corporations, or foreign countries – will run a “surplus,” in which the income of that sector will exceed its consumption of U.S. goods and services and net real investment (e.g. homes, buildings, capital equipment). The structure of the aid package affects which sector accrues this “surplus” (which in equilibrium, must ultimately be invested in the very government liabilities that created it).
Hmmmm... No 2nd stimulus? Time to admit both parties want to destroy the average American

Went to an open home in Wellington yesterday. I've never seen so many people at an open home, and I've been attending them since 2015. All sorts, from 90 year olds to a group of 20 year olds discussing who would have which bedroom. This was a premium house too, over $1 mil. The party is still going for sellers at least.

Wellington is a fairly big place
Was the open home in
. the central city, or
. outskirts of the outermost suburb, or
. somewhere in between
. a desirable suburb, or not

House about100m2. Land about 400m2. Desirable suburb yes. Fairly central Wellington.

Does the suburb have a name?

Wadestown.

'In Australia, the RBA's latest financial stability review is somber reading. Business failures and household financial stress will rise significantly over the coming months when loan repayment deferrals and government income supports end, they say.'

Richard not only experts but even government is aware that worst is yet to come but think that now government and reserve bank have created a monster which will be hard for them also to control and more they try to control by extending subsidies and defferal more damage they are creating for future.

Not just Australia though. Central banks and governments across the world have been working in unison to create this monster debt cycle deliberately. They have not allowed normal business cycles to happen to the point where trillions of dollars in handouts are needed to cope with the financial consequences of the pandemic. This will end and there will be some very tough financial decisions that both businesses and families will need to make. Looking at the Eastern suburbs property market there seem to be many more higher end $2.5m plus properties coming on the market and not so much at the middle and lower end. Are the sellers moving up or cashing in?

A fascinating part of this picture is the Greens perspective. James Shaw discussed on RNZ this morning and he wants a wealth tax, but makes absolutely no noise about how the RBNZ and therefore the Government keeps feeding the housing ponzi. He talks about an efficient, high tech economy which are admirable aspirations, but while out of touch with population and market demographics, his pathway to it is just rubbish.

Politicans of all breed wants the ponzi to continue and it will only be external shock that will be catalyst to burst the bubble.

If once in a lifetime crisis is not that catalyst than nothing can be and at the moment seems unlikely but no one knows where all this will end so is wait and watch.

The Greenns are a joke. If they didn't have the super young new voters they would get close to 5%. After one term those voters realize that the Greens are a waste of space and enter the real world.

What do you mean by 'real world'?

Like labour - 'lets tax everyone'

Or National - 'let not tax everyone but we'll build some roads (funded with what?)'

Or Act - 'give the people guns and they shall be happy'

The 'real world' you describe appears to be as much in lala land as what you think is a joke. What happens if the 'real world' you describe, 'sux'?

ACT should just stop beating around the bush and change its name to 'Republican party - NZ Chapter'.

The party's principles very much align with Trump's GOP: tax cuts for the rich, welfare for the wealthy, guns for everyone, more defence spending, privatising public assets (prisons), interest on student loans, repeal environmental regulations, dissolve unions, deregulate hate speech, etc.

Except he wants to implement mandatory masks (although not for himself it would see, evident by his most recent interview with Jack Tame) and the covid card (big brother?) which are not very libertarian policies are they???

The real world where the young voters see that the Greens couldnt organize a piss up in a brewery and they have to start bring in money to pay their bills.

https://www.zerohedge.com/medical/white-house-doctor-says-trump-no-longe...

Still going to spread the Pandemic, by his inept Handling...of the virus. By far the greatest killer of 2020, with no care, no responsibility.

Sort of like testing a new car model to determine it is safe, which you do so after ascertaining that the seat belts function. We won't worry about the brakes, or crash testing, or a safe fuel system etc.

To be honest Andrew this is how vaccines science has always worked, through obfuscation. I looked at the science 30 years ago and there were people about like Kendrick picking it apart then. But I've had to suffer fools that say if you are anti vax that you are anti science when they've just assumed science backed them up and never read it. I though interest.co had a more discerning type of reader, but it hasn't proven so.

This is an excellent article that all should read when deciding when to get a Covid vaccine.
If the death rate for 20 year-olds is only 3 in 10000 then vaccine may have worse side effects that we will only know long after millions are vaccinated.

After reading this article it makes you wonder what they are even trying to accomplish with a vaccine? By the sounds of it the vaccine will stop people people who are having only mild symptoms have even "milder" symptoms. How do you even measure this when so many people are asymptomatic or suffer very mildly anyway. Further these vaccines don't stop infections & people for passing on the virus. So the virus will still spread

The issue at hand is the death rate in the elderly. 1% for 60-70 year olds. 2.5% for 70-80 year olds. 10% for 80+ year olds. How is the vaccine going to help these people? Why isn't this what is being targeted by the vaccine trials or is this too hard? Seams like these pharma companies are going to milk COVID19 for a quick buck & then shrug their shoulders as the elderly are still dying in large numbers.

Here is a summary of vaccines, gives less emotive view also with est release dates. https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tra...

China hair exports booming out of Xinjiang. Those evil capitalists.
"In September, US Customs and Border Protection announced a Withhold Release Order (WRO) on any incoming shipments of hair from the Lop County Hair Product Industrial Park in southern Xinjiang. That followed two earlier WROs on companies registered within the same area, including the June seizure of 13 tons of human hair worth $800,000 from Lop County Meixin Hair Products -- which is now subject to a criminal investigation by the US Immigration and Customs Enforcement (ICE) -- and a previous order in May blocking imports from Hetian Haolin Hair Accessories.

The two companies did not respond to CNN’s request for comment, but the Information Office of the Xinjiang Uyghur Autonomous Region faxed a response to CNN regarding the earlier WROs, expressing “severe condemnation” about the “barbaric act” against “private enterprises” that “provide opportunities for local ethnic minority people to achieve employment and help people get rid of poverty.”
https://edition.cnn.com/interactive/2020/10/asia/black-gold-hair-product...

This sorry tale strikes a parallel with the dire circumstances of the ill fated Fantine, Les Miserables. Sell anything that your body can offer.

Big news, news form WHO.
Lockdowns (after your first to establish systems). Lockdowns are terrible, they especially hurt poor & disadvantaged, low income and children.
Spectator: Irish goings on.
https://youtu.be/x8oH7cBxgwE

https://www.washingtonexaminer.com/news/who-official-urges-world-leaders...

“We in the World Health Organization do not advocate lockdowns as the primary means of control of this virus,” Dr. David Nabarro said to The Spectator’s Andrew Neil. “The only time we believe a lockdown is justified is to buy you time to reorganize, regroup, rebalance your resources, protect your health workers who are exhausted, but by and large, we’d rather not do it.”

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up

WHO is a confused entity like reserve bank which may soon be replaced or change the way they think and operate once their experiments are over and outcome is for all to face.

18
up

Yeah, I hate not being allowed to leave my house.

To be honest it's now been 6 months since New Zealanders have been allowed to venture further than the letterbox. The other day when I felt particularly delirious with cabin fever I even imagined NZ had hosted an international rugby game, with people allowed to watch in the crowd!

These current restrictions are totally unbearable and unreasonable. Most days I feel like I'm living in a prison state! I'm thinking of starting my own Anne Frank diary to document how oppressive life is in NZ so future generations will know our struggle.

Because I can't do anything anymore apart from stay at home I find myself spending all my free time dreaming about Sweden, with their total freedom, low mortality rates, booming economic growth, and extremely far-right government... Just lost in the dream..

Plutocracy
an elite or ruling class whose power derives from their wealth.
"officials were drawn from the new plutocracy"

Pluto, love your thoughts, you are an inspiration, especially to the groups and individuals called out by WHO.

funny WHO just claimed they have been misreported again
Speaking to Today, Dr Margaret Harris from the WHO insisted the advice has been misreported, and Dr Nabarro was only stating lockdowns should be used as a last resort when governments have large levels of transmission.
Dr Harris from WHO said the organisation said lockdowns can be 'problematic'.
"It is not a backflip, it is not a change in advice," Dr Harris said.
"What it is a bit of misreporting that has gone on, over the weekend.
"Lockdowns are basically mass quarantines and governments have got to the stage where they have got to the stage where they have huge transmission going on and is not it not clear exactly where the chains of transmission are, it is a thing that governments have resorted to."
Dr Harris added that the WHO has preferred measures such as strong contract tracing, hand-washing, and mask wearing "from the start" to avoid lockdowns.
She said these measures are most successful when multiple approaches are adopted.
"We say don't just do one thing. Don't just rely on your border closure or your mass quarantine, do absolutely everything you can," Dr Harris said
People lay on the grass at St Kilda beach on October 03, 2020 in Melbourne, Australia. Coronavirus restrictions eased slightly across Melbourne from Monday 28 September as Victoria enters into its second step in the government's roadmap to reopening. The overnight curfew no longer applies. Up to five people from no more than two households are able to gather outside. (Getty)
A woman lays on the grass at St Kilda beach on October 03, 2020 in Melbourne, Australia. (Getty)
"Where we are seeing a failure, or we are seeing a rise in cases, people have focused just one thing and this is where lockdowns can be problematic.
"When people come out of lockdowns they think, 'OK, it is over, we don't have to do all of the other things any more' and in fact it is all the other things that really work."
The health expert praised Australia's tough border stance and hotel quarantine programs.
Returning overseas travellers walk towards waiting buses at Sydney Airport to take them to quarantine hotels.
"You are doing a good job. Keep at it," she said.
"What we are seeing that really works is strong quarantine and strong monitoring at borders.
"If you are looking at, really following everybody who comes in, really putting them in quarantine, really making sure that happens, then we are certainly seeing that is what prevents transmission."
https://9now.nine.com.au/today/coronavirus-who-insists-decision-to-advis...

Should we be more suspicious of economic data coming out of China?

https://thesoundingline.com/leland-miller-chinese-economic-recovery-wors...

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Think the rest of the planet is now rather suspicious of everything coming out of China. not without reason.

In regards to Sweden, I'd suggest the place to look is at the Level of Govt support for the economy and not household spending levels.,
NZ Govt has been very supportive of our economy, which does not mean that our economy has been robust in the face of the covid lockdown strategies, or that we are better off than Sweden .... Just means we have borrowed a truckload of money

I wonder which country has international tourism comprise a better share of their economy? Probably Sweden...

And here's something that I'd overlooked!

"The nationalisation of the banks via the RBA. This has already begun via the Term Funding Facility (TFF) which is refinancing relatively expensive private debt with free printed money"

It's the same here, with the RBNZ's TLF.
Nationalisation has begun....It's not just Air NZ, but all strategically important utilities - and banks, are probably No 1.

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The banks should be nationalised, since currently they are making risk-free profits lending against property which is being state supported. Cut out the middle man if we're going to be that bold, save 4 or 5 billion in profits going offshore each year.

This is what I don't get - we appear to be slipping into a form of socialism/communism (state buying risk/debt of companies, even if not equity) but the capitalists love it because its maintaining their wealth. The world has gone a bit mad but neither side appears to be complaining which I find completely bizarre.

Agree on the banks, if 'we the people' carry their risk, yet we don't get rewarded for that - how is that fair? Every citizen in NZ should get paid ANZ, Westpac...dividends if/when they return to doing so because they have saved those companies from insolvency. This system has so many moral issues right now I just don't understand how its sustainable in its current form. But people appear to be too busy in their little bubbles of self interest, FOMO and greed to see the bigger picture.

Taxpayer sharing business losses during tough times = capitalism

Taxpayer sharing business profits during good times = socialism!

Yeah its nuts - I don't understand why the average citizen in the western world allows it. I guess they can't see/don't understand what is happening?

I believe so too. Also, a sensible government would ensure that public agencies procure services from its state-owned enterprises wherever possible to keep taxpayer money in circulation within government coffers and the local economy, not ours.
Conversely, NZ Taxpayer Union has been slamming the left of centre parties on their election promise to award contracts to local companies as much as possible.

Even in the world's freest economy, Singapore, most large government procurement contracts are held by companies that are majority-owned by Temasek.

Interesting happenings across the ditch. Much the same as here it seems.

https://www.youtube.com/watch?v=NbgagcrBxPU

RBA warning

https://youtu.be/79MyRVIyd4A

Spending is required but the idea to borrow borrow and spend is not sound wisdom ( One has to decide what percentage of family income can and should one borrow) . If printing and distribution of free and cheap money is the solution than why is RBA nervous ?

Government is borrowing like never before and now incentivising people to borrow more and spend. Creating an economy based on very high debt. Where will all this end specially in uncertain time is a question mark.

Law of diminishing return - from here on reducing further interest rate will not go as far but may end up in disaster as low or no interest rate will be the new norm. Japan got away ( if can say so) as it had manufacturing and other industries to support.

Sitting on ticking time bomb, it seems.

Kiwi must be kind to our major economic source of wealth, OZ facing austerity more likely in 2021 - the NZ govt.- RBNZ assisted with 5mill teams shall pull up our big cuz from economic doldrum by focusing all our efforts - let's do this, let's keep on moving folks - ensure to use all our monetary strength means to help our OZ Banks.