US election results clearer but no 'win' yet; US payrolls stay very weak; Canada payrolls ditto; RCEP summit near; China goes hard at Australia; UST 10y at 0.82%; oil down and gold up; NZ$1 = 67.8 USc; TWI-5 = 70.5

US election results clearer but no 'win' yet; US payrolls stay very weak; Canada payrolls ditto; RCEP summit near; China goes hard at Australia; UST 10y at 0.82%; oil down and gold up; NZ$1 = 67.8 USc; TWI-5 = 70.5
Waiorua Bay, Kapiti Island

Here's our summary of key economic events overnight that affect New Zealand, with news China is using the American election distraction to ramp up its pressure on Australia.

But first, there is still no resolution to the tight US Presidential election. Biden is gaining in Pennsylvania, Georgia and Nevada. Trump may be gaining somewhat in Arizona but not enough to win there, and holding in North Carolina. If it ends that way, Biden wins and wins the Electoral College easily, 306 to 229 and by a larger margin than Trump won in 2016. This time however it will be with a +4 mln popular vote margin. (Recall Trump lost the popular vote by -2 mln in 2016.) Trump will undoubtedly attempt to get his stacked Supreme Court to invalidate as many votes as he can, so things could drag on for weeks yet.

In the US, October non-farm payrolls rose by +638,000 and marginally more than expected. But as we noted yesterday that still leaves the net loss since February at -10 mln jobs. It is an October result that was inhibited by the end of a large number of Census-counting jobs (-147,000), ones that weren't permanent in the first place. Of the growth they did get, the weakest was in manufacturing. The current unemployment rate is 6.9% and the number of long-term unemployed (those jobless for 27 weeks or more) increased by +1.2 mln to 3.6 mln, accounting for about a third of the total unemployed. There are increasing numbers of people out of the workforce - the employment-to-population ratio dropped to 57.7%, down from 61.2% a year ago. The New Zealand equivalent is currently 66.3%. If the US had the New Zealand ratio, a massive +22.6 mln more people would be employed there.

Canada also released jobs data for October overnight and they slipped backwards marginally with lower than expected jobs growth and a slightly higher unemployment rate of 8.9%. Canada's employment-to-population ratio is 59.4%.

China is calling for a virtual summit to get the RCEP free trade agreement agreed before the end of the year. This is a big deal, one that will include Japan and South Korea along with New Zealand and Australia - but it won't include India anymore.

And China's heavy equipment and construction machinery manufacturers are posting boom-time results as the country's infrastructure splurge gets into full gear. In fact, Beijing may have overdone it and there is increasing talk of winding back stimulus programs that may not now be necessary

China's wolf-warrior diplomacy is ramping up against Australia. An editorial in a CCP newspaper says "Australia will pay tremendously for its misjudgment" by staying aligned to the US, and daring to criticise China for its security adventures and human rights abuses. Wheat farmers seem to be the next to suffer trade exclusions - and being part of the RCEP is unlikely to deter China when it is this revenge mood.

Wall Street is flat today in mid-day trade, and the S&P500 will end the week with a stellar +7.3% gain and one built as the US election results became clearer, or at least clear enough for traders to bet on the outcome. Overnight, European markets slipped by about -0.5% with Frankfurt and Paris both booking an +8% recovery, London locking in a +6% bounce back from the prior week's steep decline. Shanghai ended it's week with a +2.7% rise and shaking off the Ant IPO disaster. Hong Kong was up +6.7% for the week, and Tokyo gained +5.9% on the same basis. The Tokyo market is near a 30 year high now. The ASX200 was up +4.4% for the week and the NZX50 Capital Index gained +2.1% (although it didn't fall as much the prior week).

The latest global compilation of COVID-19 data is here. The global tally is 48,947,000 and another sharp +667,000 rise overnight. It is still grim in Russia and Western Europe with serious stress on their hospital systems (and especially in Belgium and now the UK and France). Global deaths reported now exceed 1,237,000 and up +9,000 in just one day in an accelerating shift.

The largest number of reported cases globally are still in the US, which rose a very worrying +128,000 since yesterday to 9,945,000 as the momentum in their surge rises and the US returns as the epicenter of the virus. The pandemic is now particularly sever in Midwest states. The number of active cases is surging at 3,361,000 so many more new cases more than recoveries. Their death total now exceeds 241,000 and continuing to rise by more than +1000 a day.

In Australia, they are not getting any resurgence. There have now been 27,645 COVID-19 cases reported, and that is just +12 more cases than we reported yesterday and mainly in NSW. Reported deaths are unchanged at 907.

The UST 10yr yield is up +3 bps today at 0.82%. Their 2-10 rate curve is steeper at +67 bps, their 1-5 curve is also steeper today at +24 bps, while with their 3m-10 year curve is is marginally steeper at +73 bps. The Australian Govt 10 year yield will start today up +3 bps at 0.80%. The China Govt 10 year yield is up +2 bps at 3.22% but still in its recent range. The New Zealand Govt 10 year yield is up +5 bps at 0.57%.

The price of gold has firmed again today and up by another +US$8 to US$1954/oz. For the week, that is a +3.8% gain, and since the start of 2020 the yellow metal has gained almost +30%. Silver is up proportionately more

Oil prices have fallen about -US$1.50/bbl today and are now at just over US$37/bbl in the US, while the international price is now just under US$40/bbl.

And the Kiwi dollar is firmer this morning from this time yesterday at 67.8 USc and that is a +1½c rise in a week and all down to a declining greenback. Against the Australian dollar we are also a little firmer at 93.3 AUc. Against the euro we little-changed at 57.1 euro cents. That means our TWI-5 has risen to 70.5 and still near its 2020 high.

The bitcoin price starts today at US$15,513 and another +2% higher this time yesterday but more importantly cementing in the prior days huge rise. It has risen +14% in a week and has more than doubled since the beginning of the year. The record high in US$ was US$19,343 on December 16, 2017. The bitcoin rate is charted in the exchange rate set below.

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53 Comments

24
up

NZ should investigate every Chinese investment in NZ farms, land, businesses, university deals, local body deals, and future investment policy given the Australian experience.

26
up

Too late, like many policy decisions in this country, our warning was when Crafar Farms went their way, but we didn't see what was happening. All we cared about was "We're saved!" - but in reality, it was Game Over.

We better sell to them, because they will come anyway.

26
up

Come? They're here already. A cosmetic retreat from politics this last election - one from each side - was just to step back from the limelight. Do we still wonder why a past Prime Minister just happened to sell a property, for way over the expected price at the time, to a 'friendly' buyer?
Is anyone in New Zealand going to take a stand against whatever they see as wrong in the face of the punishment Australia is/is threaten to receive? No.

Certain large countries, if not mistaken such as India, Indonesia & China.. and may be some other countries too, actually have legislation to bar foreigner to purchase their land for purpose of RE - Only those countries (including NZ), that liked the easy $ injection, allowed this to happen.
Last 2018 census the population increases to 700K from previous census of 400K... added of another 300K (around the same number of entire NZ pasifica ethnicity population/census 2018), happened during last 6yrs of Nat govt. - amazing effort, the next 6yrs I think Lab will do the same, but this time because it's the only way to plug the country financial debt hole due to Pandemic.

24
up

NZ doesn't have the intelligence nor the instinct of survival to strategically oppose China. We can't even bring ourselves to defend our homes against intruders without being castigated for it.

Keep up a false smile, but make sure we disengage from bully China as much as possible.

What would that achieve and what do you expect to find?? Maybe the Aussies have just been reminded to A) mind their own business - (their HR record isn't unblemished) and B) Don't bite the hand that feeds you

@Hook. If you play in the same sandpit, the bully will make you play their game, and their game only.
So, the closer you get to China the more demands they will make. We will be well screwed.
Idid not say to confront China, Isuggested we tiptoe away.

Do you want to start with Fisher& Paykel Appliances?

Yes. One good place to start.

And the water bottling plants...Dairy co.

When Trump losses; "Trump will undoubtedly attempt to get his stacked Supreme Court to invalidate as many votes as he can, so things could drag on for weeks yet." Apparently they will need to wrap it up by mid December. Though it will be thoroughly entertaining to watch. :)

how many cups of coffee do you have in the morning?

I prefer tea. :)

Is the Supreme court "stacked" when it has a Democrat majority? The "key economic events overnight that affect New Zealand" are suffering from a touch of TDS?

Oh yes, 'stacked' is such a nasty loaded term.

Lets all think before we post please, would a President of the USA post something like this online.

Stand easy. The Republican party itself has had enough of Trump and are now in damage control, the troops are running for cover .Trump is gone. Yes there may be recounts but there will not be any supreme court intervention. All those judges have their eventual personal legacy at stake. Overriding the sovereignty of states, their governors is not going to happen. And yes it happened in Florida in 2000 when 000000’s votes were invalidated by the tactics of attack dog Baker, the incoming secretary of state, and the fact that the incoming president’s brother was the state governor. All the states have been on alert about that sort of intervention ever since and are prepared accordingly.

I wonder who the next global superpower will be.

US doesn't seem like forever, China will either get there through intimidation or not at all (I suspect and hope the latter)

There won't be one dominant power. America will weaken a bit more, China will strengthen a little more, Russia meh...

And the world will continue in awe of New Zealand

17
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Yeah until our banks collapse due to shrinking mortgage rates. NZ is now a nation of Estate Agents.

We're more and more attractive as days go by and if not for new immigrants then for the returning expats, there is one million expats. Maybe that's why the govt will not be relaxing the australia bubble rulez or removing quarantine limits ... ever. Unfortunately for some the housing market and construction industry will be one of the only sectors to keep the economy ticking over.

Attractive?
In the same way those millions of emigrants who left Europe for all its warmongering in the 50s and 60s to settle in the more 'attractive' South America?

Not attractive to you then? Take heart Advisor

Collectively stunned at our private debt to GDP ratio

This household debt measure is equally disturbing.

The RBNZ claims around two thirds of NZ households have no mortgage. The debt to income ratio changes dramatically when those without mortgages are excluded.

OK. But using the data sources you point out, there are 1,802,000 households in NZ as at September, and if two thirds of them have zero mortgage debt, that leaves 600,000 who do. And according to the RBNZ C22 data, households have total financial liabilities (mainly mortgages) of $239.7 bln. That means the average mortgage liability of that one third with debt is $400,000. And at a 2.5% mortgage interest rate, that means their weekly repayments are $365 on that debt.

That is hardly evidence of a "disturbing" household debt load. And don't forget, your other two thirds have zero debt load. Your point isn't proven.

The RBNZ made all of the debt to income claims I point to. Please feel free to challenge them. Furthermore, produce the nominal disposable weekly incomes of the average indebted household you cite. Then add the debt service costs to your estimated average debt principal to recalculate the RBNZ's debt to nominal disposable income assertions.

That means the average mortgage liability of that one third with debt is $400,000. And at a 2.5% mortgage interest rate, that means their weekly repayments are $365 on that debt.

OK. Let's compared the average level of debt 'subjectively' and think of it as a a kind of benchmark to what a buyer might want to pay for a home. It looks to be quite in line with a median house price value of $500,000 with say a 20% deposit and not overly excessive in dollar terms that one would pay for median priced homes in Brisbane or Perth.

Of course, $400K is not going to go far in Auckland unless you to live in a shoebox or a dump.

Some report average annual household disposable income at around $82,000. A $400,000 principal debt equates to a 4.878 DTI ratio. Is this a sustainable debt ratio in a dis-inflationary environment?

In the bond market, the bund market, actually, yields on federal German securities have been steadily sinking since late August. The 10-year constant maturity rate had gotten as “high” as -0.39% on the 31st but is now (as of this writing) back down to -0.64%, within sight of its own record lows.

What’s interesting about that trend in bunds (along with the same in schätzes and bobls) is that it has been near exactly mirrored by the exchange rate in the dollar, a plateau in US Treasury TIPS (American inflation expectations), interest rate swap spreads, and most of all global oil prices. Not strictly European doubts. Link

I don't think it is sustainable in a dis-inflationary environment Audaxes. But we're not in a dis-inflationary environment IMO.

Well, we shall see if the RBNZ follows the RBA cash rate down to a 0.10% OCR, possibly lower if some bank economists on these pages are to be believed. If so, a call for higher wages to make homes more affordable will be rejected by employers.

And let's not forget five year NZ government debt printed a 0.03% yield on Friday.

Rosenstein:

GDP in the year to September 2020 was $308.3 bln. Total private sector debt was $470.0 bln. So on this measure there is 52% more debt (most long term mortgages) than annual output. It is highish, but not extreme.

But that conveniently ignores cash deposits held in the economy. These totaled $394 bln as at September. Why only count liabilities and ignore liquid assets? On a "net" basis there is only $76 bln of "net debt" supporting the $308 bln economy and less than a 25% load. This is internationally low.

And still we are ignoring all the other non-liquid assets in the economy, even though we have accounted for all the liabilities. Doesn't seem top-heavy to me. Nor "stunning".

Cash deposits are invariably owned by the debt free who have no liability to liquidate the liabilities of those who are not. I certainly fall into this category.

So the country is basically insolvent? I.e. if we rounded everyone up in a room and instructed all those with cash deposits to collectively pay down our debts, the "money" would be "destroyed" and all that would be left is a $76 billion IOU with no means to pay???

Too true. It must be noted bank liabilities (Deposits/IOUs) cannot be directly offset against bank debtors' IOUs.

But from the point of view of the bank, it has acquired the security without giving up any cash; the counterpart, in its balance-sheet, is an increase in its liabilities. There is expansion, from its point of view, on each side of its balance-sheet. But from the point of view of the rest of the economy, the bank has ‘created’ money. This is not to be denied. - Hicks (1989, 58)

`

David:

OK great. But don't run stories on the low productivity of NZ if you're going to measure the wealth of NZ on cash deposits and our ability to borrow.

It might be NZ, we’ll probably have a few hundred million people by then.

15
up

That made me laugh, thank you. Unfortunately, there is a generation of top corporate and bureaucratic types who think NZ would be better off with a population of 50 million. I came here to get away from an over-crowded island and all the silly little rules that come with that.

The USA will go the way of the USSR. Can't keep up the ridiculous military spend much longer.

the AUS should never bite its feeding hand so hard and so often.

NZ set an example that the AUS should follow.

Reverse that.

As far as I know, China is importing food from Australia, not the other way around.

This reflects how crazy housing market is in Auckland

https://www.nzherald.co.nz/business/property-developers-door-knocking-au...

Mr Orr enjoying the party.

Unsurprisingly the Midwest is having a breakout, the numpty president which half of them support told them the virus was nothing to be scared of. Herd immunity is looking a long way off, plus didn't the president say there would be a vaccine by now?

Let's hope Biden has flipped the election and its all above board so the Supreme Court has nothing to decide, both for the health of people in America and for the health of their democracy.

I thought the stock marker was going down 20% this week kiwilad? That's the problem making predictions, be prepared to accept you don't know WTF is going on (probably none of us do).

Recall Biden stated he would do only one term? Problems then in 2024. The Democrats have no strong candidate presently, Harris perhaps if she does not become controversial and Biden’s government proves to be popular and improves America’s lot. As for the Republicans, all those that tilted against Trump will re-emerge plus Romney. And as for Trump depending on his vulnerabilities re tax etc and state of mind over the next four years he might run again and if he doesn’t get the GOP ticket, then as an independent, which will put the GOP into the same quandary of a split vote as feared in 2016. Never a dull moment.

If thats so about trump running again then he will already be polishing his many conspiracy theories and conjuring some more up... aarrrgh

In the US, October non-farm payrolls rose by +638,000 and marginally more than expected. But as we noted yesterday that still leaves the net loss since February at -10 mln jobs.

A few hundred thousand jobs added back each month just won’t get it done. This is October data and we’re already in November. The big drop was half a calendar ago. Ten million (in just private payrolls) is an unthinkably enormous deficit, still far greater than what the economy suffered the first time there was a labor market “L” (top to bottom, January 2008 to March 2010, ADP estimates 8.6 million private payrolls shed).

And 2020 includes the combination of massive “stimulus” being doled out in every form imaginable – real (federal government) as well as imaginary (Federal Reserve).

We’ve already proposed an explanation given what might otherwise seem competing factors: “stimulus”-laden GDP rocketing back higher versus what you see above in a far more subdued labor market. Companies in the private economy clearly are suffering more than government-fueled GDP indicates. Link

No 'Win' yet ... but I guarantee this fool won't be celebrating his 5 million usd bet *ever*... was it legal for ego-driven Trump to bet on himself

Mystery Brit gambles $5M on Trump win in record-setting bet
https://www.google.com/amp/s/nypost.com/2020/11/03/mystery-brit-gambles-...

Would have been better off dumping it all on rat poision.

well now that the chances of trump have gone basically to zero, infinitely better :P
Stack those sats :)

With he man/child gone it will be an easier country to deal with and work in NZ's favour . Maybe handle China carefully or pay a high price as Australia is , better to have China on side .