Breakfast briefing: Data surprises cause double-takes

US PPI higher; China credit growth beats estimates; Singapore struggles; Aussie consumer sentiment soars; global emissions dive; UST 10y at 0.72%; oil unchanged and gold up; NZ$1 = 66.6 USc; TWI-5 = 69.8

15th Oct 20, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news of some surprising data out overnight.

But first in the US, producer price inflation has ticked up to +1.2% pa in September, twice the pace of their August rate. But that is less than CPI inflation which came in at +1.4% in the same month.

Moving over to China, their bank credit expanded at a faster pace in September, boosted by the government's continued efforts to add stimulus and stronger demand amid their further economic recovery. Chinese banks extended ¥1.9 tln of new loans in September, higher than estimates of ¥1.7 tln and significantly more than ¥1.3 tln in August.

Singapore's economy bounced back in the September quarter by very much less than expected in what can only be regarded as a disappointing result. After falling more than -13% in Q2, it gained back less than +8% of that in Q3 when analysts were expecting the result to show a much healthier recovery.

The latest update to Australian consumer sentiment has produced "an extraordinary result", surging on the back of a very positive response to the October Federal Budget, ongoing success across the nation in containing the pandemic, and the expectation that the RBA is likely to further cut interest rates at its next meeting on November 3. No-one saw this sharp improvement coming. Of course, it might be an outlier result.

The global pandemic restrictions has brought an unprecedented fall in greenhouse gas emissions in the first half of 2020, larger than during the 2008 financial crisis and even World War II. Using data including hourly electricity production, vehicle traffic from more than 400 cities worldwide, daily passenger flights and monthly production and consumption figures, this study determined that the year-on-year emissions dropped almost -9%, a shift that was the largest in modern history.

Wall Street is -0.5% lower today as recorded by the S&P500. Overnight, European markets were flat or just under. Yesterday, Shanghai traded down -0.6%, Hong Kong ended flat, and Tokyo was up +0.1%. The ASX200 ended its session down -0.3% from the prior day, but the NZX50 Capital Index was up a creditable +0.7% and adding to Tuesday's good rise.

The latest global compilation of COVID-19 data is here. The global tally is 38,304,000 and up at a faster pace of +349,000 in one day. The case growth is a real problem in Russia, the UK, Iran, France and now Italy again. Global deaths reported now exceed 1,088,000 (+5,000) but clearly many are going unreported.

The largest number of reported cases globally are still in the US, which is up +56,000 in one day to 8,109,000. The number of active cases is at 2,648,000 so as many new cases as recoveries and not making real progress yet. Their death total is over 221,000 and still rising at +1000 per day.

In Australia, there have now been 27,341 COVID-19 cases reported, and that is +24 more cases than we reported yesterday. There were twice as many new cases in NSW as Victoria yesterday. Deaths are rose to 904 (+5).

The UST 10yr yield is lower by -1 bp this morning, now at just under 0.72%. Their 2-10 rate curve is a little flatter at +58 bps, their 1-5 curve is also flatter at +17 bps, while their 3m-10 year curve is flatter too at +63 bps. The Australian Govt 10 year yield will start today down -1 bp at just on 0.83%. The China Govt 10 year yield is also marginally firmer at 3.23%. The New Zealand Govt 10 year yield is unchanged at 0.58%.

The price of gold is back up to US$1903/oz and a gain of +US$12/oz.

Oil prices are little-changed, now just over US$40.50/bbl in the US, while the international price is up a bit more to just on US$43/bbl.

The Kiwi dollar starts today little-changed at 66.6 USc. Against the Australian dollar we are firmer at 92.9 AUc and another gain of almost +½c. Against the euro we are unchanged at 56.6 euro cents. And that means our TWI-5 is also unchanged at 69.8.

The bitcoin price is marginally softer today, now at US$11,353. 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 ».

Daily exchange rates

Select chart tabs

Source: RBNZ

Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

34 Comments

by murray86 | 15th Oct 20, 7:33am 1602700428

So the impact of COVID on business, travel and electricity production meant greenhouse gas production dropped by 9%. That means that 90% of these gases comes from other sources/reasons. Currently 99% of the media talk about reducing emissions is about travel, electricity, and business. But if the almost total shutdown of these areas due to COVID only resulted in a 9% reduction, what about the other sources that account for the 90% that are not being talked about?

In detail a majority of air travel stopped, I suggest only some business's shut down, and electricity demand from domestic sources may have risen while some business decline was noted. But clearly much of the media debate is not yet pinning down the major contributors to GHGs.

by refactornz | 15th Oct 20, 7:54am 1602701682

But those sources/reasons weren't completely shutdown for an entire year. They were partly shutdown for a few months. The first lockdowns outside of China didn't start until March and they weren't coordinated worldwide. So 30-50% of that six-month period was BAU.

"...the year-on-year emissions dropped almost -9%".

by murray86 | 15th Oct 20, 7:55am 1602701712

Fair point - but does that mean, and there should be some clues coming out now, that the reduction is more than 9% if it extends out more than just two months?

by Roger Witherspoon | 15th Oct 20, 8:18am 1602703085

So, did the planet warm up or cool down? A big experiment has just taken place. The data should help throw light on whether the climatic changes we have been having are due to human activity, or not.

by keithwoodford | 15th Oct 20, 8:30am 1602703827

Roger
Some people are watching closely to see whether it can be picked up in the atmospheric CO2 data but there is always noise in that CO2 data which is based on just two sites, one of which is in NZ at Baring Head. Trying to extrapolate from that nosiy data to the even more noisy data on global temperatures requires great caution. Global temperatures last month were very high according to the satellite data but are likely to drop in coming months as the La Nina effects already evident in the Eastern Pacfic sea temperatures start to show up in global measurements.
KeithW

by linklater01 | 15th Oct 20, 11:45am 1602715507

R W,

Are you seriously questioning the scientific evidence of the anthropogenic influence on climate change/global warming?

Have you seen the Keeling Curve? Do you have an understanding of the role of trace/greenhouse gases in the atmosphere? Do you understand how solar energy reaches and leaves the earth-the electro-magnetic spectrum? Are you aware of the work of Svante Arhennius in the 1890s which built on the Stefan-Boltzman and Wein radiation laws?

by profile | 15th Oct 20, 12:05pm 1602716706

Yet after having trillions thrown at it we still don't have a good handle on climate sensitivity. "It is poorly constrained with a ‘likely’ range of 1.5–4.5 °C, which has remained nearly unchanged since the Charney report 40 years ago."
https://landshape.files.wordpress.com/2015/06/climate_sensitivity.pdf
https://www.nature.com/articles/s41558-020-0764-6

by kiwimm | 15th Oct 20, 12:58pm 1602719891

What you are also saying here is that, despite 40 years of challenging it, the result still stands. Sounds like something we should take seriously.

by SimonP | 15th Oct 20, 2:12pm 1602724339

Exactly, the equilibrium climate sensitivity > 1.5 °C for each doubling of atmospheric CO2. Why aren't we doing more to reduce net GHG emissions to zero?

by profile | 15th Oct 20, 4:01pm 1602730888

The cost benefit - money is better spent on hygiene, vaccines, real problems rather than modelled projected "problems". Having the climate 1.5 C warmer than the Little Ice Age is a good thing - unless you prefer ice skating on the Thames. Given the increasing number of papers at the lower end of the scale gives cause for optimisim - focus on pollution not CO2. It is rather arrogant to believe you can change the climate - but hey I'm not a politician.
https://landshape.files.wordpress.com/2015/06/climate_sensitivity.pdf

by keithwoodford | 15th Oct 20, 8:20am 1602703248

murray86
The link provided by David is to a very informative paper.
The year on year reduction for the aggregate months Jan to June was 8.8%. But one of the graphs shows that it peaked at well over 20% reduction around late April early May
KeithW

by murray86 | 15th Oct 20, 8:37am 1602704264

I had a quick read, and admittedly avoided the technical bits (I haven't the time to put the effort into understanding those at the moment), but the quick takeaway I get from this article is that to save the planet we cannot keep on at the current levels of economic activity.

What does that mean? Without a technological solution, I think it means we have too many people already. For the number of people on this planet, we cannot give them a comfortable and safe lifestyle without destroying the environment. That discussion is actively avoided by those in power.

by scarfie | 15th Oct 20, 8:51am 1602705082

Look at this another way, to save itself the planet will force current economic activity to stop. Way I read it is that declining interest rates are sign this trend has been in place some decades.

by Andrewj | 15th Oct 20, 9:06am 1602706000

airlines still getting crushed
https://wolfstreet.com/2020/10/14/airlines-toxic-mix-still-crushed-tick…

by scarfie | 15th Oct 20, 9:22am 1602706966

Well I'm down on two business trips so far. NZ has lost income from this, as have I in the tens of $K. All business class fares to a similar value.

by Mrs The Point | 15th Oct 20, 10:54am 1602712457

I read Morningstars accumulate recommendation for AIR and a price target of $2.00. Seems hard to believe that it is undervalued?

by Masher | 15th Oct 20, 9:34am 1602707640

The best long term approach is for people to stop breeding to the extent that they do.

If you're one that cares about the environment, but then are a parent to say 3+ children, science says you're a hypocritical moron.

https://www.independent.co.uk/environment/children-carbon-footprint-cli…

by Beanie | 15th Oct 20, 11:00am 1602712821

It seems that less breeding will be a consequence of higher house prices as couples put off having children due to not being able to afford them. So a win for the planet.

by profile | 15th Oct 20, 11:22am 1602714173

Fretting about population is so 1960's.
"That's a pretty big thing; most of the world is transitioning into natural population decline," researcher Prof Christopher Murray told the BBC.
"I think it's incredibly hard to think this through and recognise how big a thing this is; it's extraordinary, we'll have to reorganise societies."
https://www.rnz.co.nz/news/world/421284/fertility-rate-jaw-dropping-glo…

by Ptolemy | 15th Oct 20, 9:35am 1602707700

I think it might be overstating that air travel almost completely shutdown. It didn't (it didn't even in NZ for April). I think globally, flights are down about 45% on 2019.

Still a lot of planes in the air - look at this live feed.
https://www.flightradar24.com/-15.11,-49.82/2

I would doubt electricity production is down by anywhere near 40%

by MortgageBelt | 15th Oct 20, 11:21am 1602714078

Planes & kiwis start flying to Sydney tomorrow with no quarantining when landing.

by Andrewj | 15th Oct 20, 8:24am 1602703485

Hugh Hendry on the need for chaos
https://www.youtube.com/watch?v=XYCPId1-rW0&feature=youtu.be

by bw | 15th Oct 20, 8:44am 1602704669

Hendry is like one of those Hedge Funds that short a stock because the fundamentals don't support the price. They are right. But the stock still rises in the face of artificially sustained efforts to encourage the opposite.
He loudly proclaimed back in 2008 that "There will be no Inflation!!" and authorities are still fighting to create or sustain it this very day.
Was he right? Yes. And being right, did the market prices do as he expected; as they should have behaved? No.
Sounds familiar!

by Believer1980 | 15th Oct 20, 8:59am 1602705591

what do you call inflation in asset prices? CPI is a very poor metric for inflation in modern days as all increase in money supply from US is met by increased production of consumer goods in China. This means that increasing money supply does not translate into CPI increase. Instead it will inflate asset prices (stocks, real estate etc) that Chinese do not produce in the US (or NZ).

by scarfie | 15th Oct 20, 9:16am 1602706569

That is called a credit fueled asset bubble.

However you are correct to draw attention to overall inflation, & components of it.

by Advisor | 15th Oct 20, 8:48am 1602704934

Finland seems to have done a good job so far in protecting their economy and citizens against COVID.

Despite going hard early on regions that witnessed high infection rates (including their national capital region), their economy only suffered a -4.5% setback in Q2, much less than every other country in the region, including Sweden.

https://www.ft.com/content/61dccfaa-0871-48a2-80ac-dbe6d5b5b5f8

by profile | 15th Oct 20, 11:31am 1602714665

"...why has the virus seemed to be so much less virulent in the Far East, where it emerged, than on its subsequent travels to the rest of the world? No country in the Far East has suffered remotely as high an infection or death rate as have Europe and America. It is easy to point at South Korea’s rapid introduction of test and trace or China’s rapid and draconian lockdowns. Yet neither, for example, can explain the experience in Japan, which neither had a lockdown nor much in the way of test and trace."
https://www.telegraph.co.uk/politics/2020/10/12/chinas-triumph-against-…

by keithwoodford | 15th Oct 20, 12:12pm 1602717142

Profile,
Japan did not have a lockdown but they did have a state of emergency and behviours were broadly equivalent to our Level 3. Schools were closed, sporting events cancelled and people wore masks from the outset. But Japan is not yet 'out of the woods' in regard to risk as winter approaches and currently there are several hundred new cases per day with consequent potential for exponential growth.
KeithW

by Andrewj | 15th Oct 20, 9:44am 1602708263

Mail lady dropped in today, her van was loaded with parcels she has become a courier. Told me that covid has made a huge difference and that next van will have to be bigger.
My daughter has started buying a lot of food online, perhaps we can finally break the supermarket duopoly.

by Audaxes | 15th Oct 20, 10:26am 1602710799

The original “V” narrative was simple and straightforward. The economy was turned off by governments prioritizing modeled simulations of something like the Black Death, but it would be easy enough to turn it right back on especially with the aid of so much “stimulus” being added in every possible way. Monetary, fiscal, you name it.

Piece of cake. Legitimizing the choice of overreacting to disease projections.

The very fact the “V” has already shifted is itself a big clue. A cakewalk it hasn’t been. On the contrary, what’s left of the original “V” has been transformed recently instead into hopes for more “stimulus” – without ever squaring how more of the same which hasn’t produced the intended results would suddenly become effective.

As we’ve noted almost every month since March, Germany’s ZEW survey showed how that country’s business sector had really, really taken to the original narrative. They really bought it (only figuratively, unfortunately for the ECB). In fact, ZEW sentiment in September was the highest it had been in 20 years.

It is therefore noteworthy that in October consistent with the “V” undergoing this disappointing transmutation the same German sentiment index tumbled by more than twenty points from its cocaine-like high last month. While overall the number remains ridiculously elevated, a monthly decline of this size is in danger of placing Germany’s infatuation with “stimulus” into the same category as some (all) of the other times disappointment with it has followed.Link

by profile | 15th Oct 20, 11:20am 1602714010

Plan B? "...SARS took place 18 years ago, we still don’t have a vaccine for SARS,” he told parliament.

“I don’t wish to depress him but we must be realistic about this, there is a good chance of a vaccine but it cannot be taken for granted.”
https://www.reuters.com/article/us-health-coronavirus-britain-vaccine-i…

by kiwimm | 15th Oct 20, 1:16pm 1602720975

That's because SARS was eradicated through good testing, quarantining and contact tracing. There hasn't been a case since 2003. Better to focus our medical vaccine effort elsewhere.

Corollary: Do the testing, quarantining and contact tracing well (like NZ) then you don't need a vaccine.

by sharetrader | 15th Oct 20, 1:23pm 1602721391

We now have vaccines to prevent more than 20 life-threatening diseases, helping people of all ages live longer, healthier lives. Immunization currently prevents 2-3 million deaths every year from diseases like diphtheria, tetanus, pertussis, influenza and measles.
‘Against all odds’: The inside story of how scientists across three continents produced an Ebola vaccine
as well as that we now have treatments for things like HIV , so even if we dont get a vaccine, we are finding ways to treat it and methods to mitigate its spread, we are starting to see things like sniffer dogs and quick testing, that will become a new normal at most airports around the world.
https://time.com/5898049/covid-19-sniffing-dogs/
https://www.statnews.com/2020/01/07/inside-story-scientists-produced-wo…

by Henry_Tull | 15th Oct 20, 11:59am 1602716370

As the weekend fast approaches
Here is a fascinating discussion around the fear all have been subject to this year.

https://youtu.be/552u7yqT-YM

The big question is why has the NZ response to the pandemic, been so different to that of the earthquakes, resilence and sense of community.

Its fair to say the NZ covid response has been just a administrative, middle management one. Abscence of leadership.

By purely following on, the whole show is costing 50% more than it should, and with a Phil T calibre solution as to how to get us out if this hole.