US retail sales flat; China's exports rise, imports surge; German sentiment reverses; WTO rules against Boeing; WTO sees weak trade recovery; UST 10y at 0.73%; oil up and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.8

US retail sales flat; China's exports rise, imports surge; German sentiment reverses; WTO rules against Boeing; WTO sees weak trade recovery; UST 10y at 0.73%; oil up and gold down; NZ$1 = 66.4 USc; TWI-5 = 69.8

Here's our summary of key economic events overnight that affect New Zealand, with news those in China's trade orbit are doing well, those not less so.

But first in the US, retail sales were flat again last week, with a year-on-year gain of just +1.2% and lower than the prior week's +2.1% gain on the same basis.

And there is no stirring of overall consumer price inflation in the US either, still running at +1.7%. But food is up +3.9% pa, medical care is up +4.9%, and used cars are up a very sharp +10%. The overall CPI is held back by sharp falls in petrol (-15%) and fuel oil (-27%). American consumers expect inflation to rise +3% in the coming year.

China's exports rose almost +10% on a year-on-year basis in September which was as expected. But their imports surged more than +13% on that same basis and far more than expected. In fact, no increase was expected. This has resulted in a much smaller trade surplus even though both exports and imports were at record highs. China's domestic demand is helping revive international trade.

China's whole September surplus was +US$37 bln, of which almost US$31 bln was with the USA. China ran a -US$375 mln monthly deficit with New Zealand (or a NZ$570 mln monthly surplus for us). With Australia, China ran a -US$5.2 bln monthly deficit in September. And interestingly, it ran a massive -US$15.8 bln deficit with Taiwan, a country they are threatening to invade.

Vehicle sales in China rose at a faster rate in September, up an impressive +12.8% compared with the same month a year ago and are now running at 24.8 mln per year making this the world's largest car market and well ahead of the US (15.7 mln pa). China's sales of "new energy vehicles" (NEVs) jumped +67%.

In Germany, economic sentiment reversed in a widely-watched October survey. It was a sharp retreat and reversed some strong recent gains, triggered by renewed pessimism over Europe's fast-rising second pandemic wave. It took equity markets lower with it.

And the WTO has ruled that American subsidies for Boeing justify the EU imposing US$4 bln in countervailing tariffs. At the same time Boeing reported large falls in orders and deliveries from its order books.

The WTO has also said 2020 will get a -9.2% decline in total world trade, to be followed by a +7.2 rise in 2021. That will only take global trade levels back to 2017 levels however. By that standard, New Zealand has been trading very much better than these global averages.

Wall Street is -0.4% lower today as recorded by the S&P500. Overnight, European markets fell about -0.6%. Yesterday, Shanghai traded flat, Hong Kong didn't trade due to a typhoon shutdown, and Tokyo was up +0.2%. The ASX200 ended its session up +1.0% from the prior day, and the NZX50 Capital Index was up +0.8%.

The latest global compilation of COVID-19 data is here. The global tally is 37,955,000 and up at a faster pace of +340,000 in one day. The European second wave is particularly tough on the UK, France and Russia. Italy is being hit too. Global deaths reported now exceed 1,083,000 (+5,000) but clearly many are going unreported.

The largest number of reported cases globally are still in the US, which is up 51,000 in one day to 8,053,000. The number of active cases is at 2,633,000 so as many new cases as recoveries and not making real progress yet. Their death total is over 220,000 and still rising at +1000 per day.

In Australia, there have now been 27,317 COVID-19 cases reported, and that is +31 more cases than we reported yesterday. The are creeping up in Victoria and NSW again. Deaths are unchanged at 899 (+1).

The UST 10yr yield is lower by -5 bps this morning, now at 0.73%. Their 2-10 rate curve is noticeably flatter at +59 bps, their 1-5 curve is also flatter at +18 bps, while their 3m-10 year curve is flatter still at +64 bps. The Australian Govt 10 year yield will start today -2 bps at just under 0.84%. The China Govt 10 year yield is marginally firmer at 3.22%. The New Zealand Govt 10 year yield is up +1 bp at 0.59%.

The price of gold is down -US$31 or -1.6% this morning and now at US$1891/oz. Silver is down -4.4%.

Oil prices are up by about +US$1.50 today, now just under US$40.50/bbl in the US, while the international price is up a bit less to just on US$42.50/bbl. OPEC is watching a rebound in US crude production with some concern.

The Kiwi dollar starts today marginally lower at 66.4 USc. Against the Australian dollar we are firmer at 92.5 AUc and a gain of +½c. Against the euro we are also firmer at 56.6 euro cents. And that means our TWI-5 is slightly higher at 69.8.

The bitcoin price is a little softer today, now at US$11,401 and -1.4% lower than this time yesterday. 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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52 Comments

10
up

"The global Covid19) tally is 37,955,000 and up at a faster pace of +340,000 in one day."
It's taking its toll, or maybe it's just Trickle Down Economics at their best.
Email from my sister in Melbourne this morning - she's now jobless after 18 years as an architect at the same firm. Her eldest son and his Taiwanese wife (he went there to learn Mandarin to 'be ready' for the new age in Aussie - thought ahead); both at Telstra; FHBers last year have both been now made redundant in the latest round of cutbacks. They're going to rent out their Melbourne place (good luck with that!) and go to Taiwan to establish a life there. Her second son, in London, and his Bulgarian girlfriend - PR and Advertising are now both jobless and returning home to establish a new life - in Bulgaria.
Looking at the state of the World today, No 2 son is going to be the survivor out of this mess!

It's got a ways to go too. Stuff articleHERE talks about a chap in Nevada who caught it twice, and the second time around was worse than the first. Yes I get it that it is only one case, but the article states that there are increasing numbers like this chap, and that the virus is mutating sufficiently fast that the immune system is not recognising other variants. So we need a robust vaccine with a proven efficacy.

Perhaps we could test the herd immunity theories out on the superman of the hour (Trump)? Let him go out into the crowd and cuddle and kiss his supporters.

But then again Taiwan? What an enigma. Thunderous threatening chest beating from the mainland but nonetheless, happily trading to Taiwan’s advantage. An invasion unlikely and impossible, as per any high density urban, without millions of civilian casualties, and Taiwan has many missiles to retaliate. Sooner or later though, China has to either make less noise or do something specific.

Foxglove,
China is highly unlikely to do anthing unless Taiwan declares independence. As Chairman Mao said to Heny Kissinger, China is happy to leave the Taiwanese capitalist troublemakers to the US to deal with for the next 200 years. And that was only 50 years ago he said that. In any case, China does not have the miitary capacity to invade Taiwan. But if Taiwan did declare itself independent, then China would feel obliged to do something. It would have to be something less than an invasion but it would fracture world relations. As it currently stands, all countries that have diplomatic relations with China accept in words if not in deeds that Taiwan is part of China. Taiwan has itself always agreed to there being only 'One China', but has also always claimed to be the legitimate ruler of that 'One China'. There are no simple solutions or they would have been found a long time ago.
KeithW

Understood, concur. Thing is we both had to resort to saying “do something” and that is the quandary for China, being exactly what rather than why. Taiwan, heavily defended, counter strike ability, an island surrounded by treacherous seasonal seas, no surprise attack possible, a tough nut. In terms of the vast number civilian casualties it would be a crime against humanity.

11
up

This is NOT a political statement.
Interesting observation that those countries that put their economies first are the countries where increasing fear ( I have family in the UK ) is now causing their economies to suffer with increasing unemployment and reduced consumer spending and those countries who put people before economics are recovering quicker.

Profile will reject this comment ...

16
up

He's not up yet apparently. Probably just finishing his breakfast of bleach and hydroxychloroquine on Weetbix.

Anyone living here that rejects it should put their money where their mouth is and go live in one of those other countries.

Where they get the worst of both worlds.

Agree Wilco.
But putting it another way, if/when Covid gets into New Zealand the economic havoc will be major.
Or -while I am not hedging my bets here, I supported the lockdown and it was based on what we knew then.
In a couple of years we will know more and other paths such as Sweden's might have to be considered.

"if/when Covid gets into New Zealand" I thought it had twice already?

Good point frazz. Should have said "if/when Covid lets rip in New Zealand ...."

Sweden's path? Good luck breaking up all the multi generational households in south Auckland and forcing them to live alone.
For starters, how long will it take to build enough homes?

Yes, anyone claiming to know the best path -- even now -- is full of it.
Our whole lockdown procedure might not have been the best option, when we look back in the fullness of time, but it definitely wasn't the worst.
I didn't vote Labour but I do appreciate that they were decisive in an uncertain situation (even if that decisiveness would have been better a week or two earlier...)

I just hope those FHB here are reading this, it's insane the amount that is being borrowed, is any job safe, I doubt it, being made redundant early in my working career with one child and my wife at home has mad be very cautious ever since and I always played it safe on the finance front, but that fear does not seem to exist even in Covid in NZ now.

It exists. Current FHB here. We relocated to chch earlier this year in order to not have a 1m mortgage in Akld. We both have permanent jobs but are still not taking things for granted. At the end of the day though, you either pay rent or buy.

Good move, and welcome. Chch has, thanks to a certain Brownlee, fairly much a plateau'ed housing market in the mid-range. The RMA got thrown under the bus post-quakes, TLA's promptly competed for new builds, insurance money at replacement value funded a good proportion of those builds, and Ms Market worked her magic.

Are the EU being a little disingenuous over Boeing subsidies? My take on it is that the Government is subsidising the company to stop it imploding, at least in part so it can keep producing its weapon systems, under pressure from the storm of COVID and Max 8 issues. To be fair Boeing has some serious issues internally that need to be sorted. But I don't think the subsidies are about them making their products cheaper, just about keeping them going until they get their issues sorted. Or am I being too naive?

It will be impossible to separate the two potential objectives behind subsidizing a local business most of the times. The subsidizing government always has a "strategic importance" pitch and then there is the real beating down the competition pitch (rarely sang by the subsidizer). The European countries, including the UK, use the same logic for subsidizing their agri products (i.e. food security is of strategic importance) to detriment of NZ competitive abilities.

The Boeing subsidies started long before the Max 8 and covid hit the ground

Did they? Boeing has a quite lucrative military market, but on their civil side I doubt it.

2011 a separate WTO panel partially backs the EU and rules against aid for Boeing worth at least $5.3 billion.

https://www.reuters.com/article/instant-article/idUKKBN1WH198

The problems at Boeing can be summed up by something Steve Jobs said years ago - "The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they're the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company."

Jobs was certainly clever and understood the facts of business. He was focused on the products selling themselves.

Is the NZ economy running on artificial stimulus atm, or are our exports and activity outside of tourism & education keeping the economy running fine?
How many job losses in NZ since March due to CoronaVirus?

MB - Our terms of trade are at a record level, out trade with the rest of the world rolls on just fine !

We must be incurring a significant service trade deficit with India.

We're not selling them tourism and education services in return for all the IT services we consume.

since we are a food basket for the world, our exports have been wanted more than ever.
it is a shame they fall so many times into foreign ownership

NZ is so far in a good position to benefit from China's economic shine.

keep it up.

As I read it X China is is now importing more than it exports ....yes keep that up...we take cash, credit card, bitcoin, hurry now

frazz,
It is all paid for in USD and EURO using the reserves of beteen two and three trillion USD equivalent (combined USD and EURO) they have built up. They are in a strong position to withstand a trade deficit should they decide to let it continue.
KeithW

22
up

I come from a strong National party background. National had a strong base of people who were pro freedom of choice anti welfare high taxes etc. Labour had the unions and teachers etc.

I met with friends yesterday who were strong National background like me. None of their family is voting National, but many friends who were strong Labour and not voting Labour either.

We are losing the center, and being spun off to the periphery by parties that no long know their base voter. For years they took for granted that farmers,lawyers accountants etc., would vote for them either way so lets focus on that %10 or %5 of swing voters we need to get over the threshold.

Well I've got news for the main parties, we are all swing voters today. One of the main reasons is the main parties arrogance shows through on issues like immigration, where they believe they know best and the rest of us are idiots. By the way I'm voting for a party on the fringe.

Having voted National-ACT myself last election, I totally agree with your comment.

JC's stance on climate change and her insistence on stimulus over reform forced me to switch camps.

I still have minority interest in a business I helped grow for a bit and you'd be surprised that Labour's policies are far more favourable to our sector than National's, particularly R&D tax credit, apprenticeship and housing programmes.

Having voted National-ACT myself last election

ACT and David Seymour are a pack of clowns. They are what I call 'libertarian lite.' Basically, they like the sound of the philosophical underpinnings but have little idea of how to apply it in a central govt context. Recently, Seymour was talking about the necessity of balanced budgets now showing he obviously has no sense of economics.

Briefly considered a party vote for ACT. Very briefly. To me their list looks insipid. They needed to create a strike force with some proven personalities, give the government something to think about. Hasn’t happened and if they didn’t know that then they can’t know what they are about.

Three weeks ago it seemed like everyone was voting "Jacinda" but I am hoping that your comments are true and that both major parties see their votes eroded in this election. We have been let down badly by both teams. I don't like them making major law changes/conscience votes e.g. abortion without referring to their constituents. It reflects how out of touch politicians have become in this country. We need them to be accountable.

The 2 referendums are also a joke. When has parliament ever followed referendums in the last 30 years? So many broken promises.

Great coment Andrewj. Good description of the modern swing voter and me.
As for me as a grumpy but responsible citizen I feel obliged to line up and vote. It's hard to vote unreservedly for any of them. But I have.and it's not the big ones in the centre.

National and Labour membership has been decimated, like in the UK. With Mrs Thatcher as PM the Conservatives had nearly 2.4 million members, today they struggle to get to 200k.

This has led to the super donor and undue influence in policy by wealthy privileged individuals, away from broad base popular support with strong membership funding.

"It's hard to vote unreservedly for any of them."
- Story of my voting life!!!

Funny then how 80% of the electorate votes for one of the main parties, and the greens are the only minor party to survive

@The Person. Act ?

Act have polled at less than 1% for how long?

They got 0.5% at the last election. 18 years ago in 2002 was the last time they broke 5%

Act are a wing of the national party, without national gifting them one of their seats they would have been gone from parliament long ago. They will go back into the margin of error once Luxon replaces Collins as leader of the opposition

Similiar here. National all my life, Labour last election (foreign ownership/house spruiking and enviro reasons - they still dont get it). This time it might be labour, but just to get rid of the encumbent useless MP who has had a safe seat/holiday for years....or i will just vote once as a list to TOP.

Unfortunately Labour / National et al try and appeal to the lowest common denominator which is base emotion rather than rational though.

Very funny worth watching: Eric Trump HUMILIATES himself on air, leaves host baffled. https://www.youtube.com/watch?v=a0VDAQx1X8o

Still no cure for stupid though hey Eric...

American consumers expect inflation to rise +3% in the coming year.

Median inflation expectations in September remained unchanged at 3.0% at the one-year horizon and decreased 0.3 percentage point returning to its July level of 2.7% at the three-year horizon.

5-Year, 5-Year Forward Inflation Expectation Rate Last 1.9%

And then there’s this…oh boy:

"The Federal Reserve is determined to push inflation higher from levels it considers dangerously low. For that to happen, it must first convince everyone that prices will accelerate in the coming years."

Yep, and Bernanke’s folks had their last chance to do this in early 2013. And they blew it, big time, by focusing on QE’s presumed magical signaling effects instead of looking into the more relevant technical money problems that have plagued the world’s reserve currency system (eurodollar, not dollar) since August 2007. The entire global economy, especially its EM’s, not coincidentally has remained stuck – since 2013.

To convince anyone outside of the financial media and NYSE’s computerized trading platforms that prices will accelerate in coming years, in sharp contrast to these last seven and a half (thirteen, really), bigger QE’s like those in 2020 just won’t do it. They just won’t.

A key reason why is the utter nonsense paragraph which follows the one cited above:

"One big problem is that the measures that bond traders and strategists rely on for longer-run inflation expectations can often give conflicting and confusing signals. No one can agree on how best to use or decipher them, with even the Fed seemingly reticent to narrow it down." Link

#ECB Balance sheet hit a fresh All-Time high as Lagarde keeps printing press rumbling. Total assets rose by another €20.6bn to €6,727.7bn on QE. ECB Balance sheet now equal to 66% of Eurozone GDP vs BoJ's 136%, Fed's 36% and BoE's 35%.Link

Chinesse mindset RBNZ advsior has been sucessfull in inflating FOMO.

very bad but sad.

"The unknown migrant voter"
Why immigration is out-of-bounds - not to be touched or interfered with
Excellent piece in newsroom.co.nz
Won't see this anywhere else
https://www.newsroom.co.nz/the-migrant-voter-unknown