The RCEP is signed; China's bond market tested; China at odds with Australia; BNPL in regulator sights; US sentiment falls; US deficit doubles; UST 10y at 0.90%; oil down and gold unchanged; NZ$1 = 68.5 USc; TWI-5 = 71.4

The RCEP is signed; China's bond market tested; China at odds with Australia; BNPL in regulator sights; US sentiment falls; US deficit doubles; UST 10y at 0.90%; oil down and gold unchanged; NZ$1 = 68.5 USc; TWI-5 = 71.4

Here's our summary of key economic events over the weekend that affect New Zealand, with news the world's largest multilateral trade deal has now been signed.

The RCEP, a 15 country trade deal covering a third of global GDP and 2.2 bln people was signed yesterday and is now in force, and New Zealand was one of the signatories. New Zealand exported over $36 bln of goods to RCEP countries and nearly $12 bln of services in 2019. It eliminated 92% of tariffs on traded goods, and eased services trade as well. It is much shallower than the TPP and avoids the pesky environmental, labour and IP protections the TPP does. Therefore China has been active in leading its adoption and it is a big win for them. Still, it is a major trade achievement, especially in the face of Trumpism.

Interestingly, because it involves China and not the US, protesters have been silent on this deal despite there being more to worry about on labour laws, IP, and the environment.

In China, there is drama in their corporate bond market with ripple effects spilling over into other markets. A State-owned coal miner has defaulted on a ¥1 bln bond triggering official investigations and wiping out equity market gains in Shanghai. Regulators have increasing said they will allow companies to fail if their financial situation is untenable. But this is a test of that policy - and many expect the regulators to revert to old habits, cave in and bail out this failure, again. State-owned companies probably can't be allowed to fail by Beijing given the optics of omni-control. All eyes are on Beijing. On that basis, vulture funds are buying up this debt aggressively.

Meanwhile, China's Foreign Ministry has unloaded on Australia in official comments in Beijing yesterday. They are worth reading. China is not backing away from tackling Australia for "repeatedly [having] spoken and acted out of turn on issues concerning China's core interests". And they see it is up to Australia to reverse their positions.

In Australia, ASIC is signaling it will release a report soon on the "harms we continue to see" in the BuyNow, PayLater sector, an unregulated corner exploiting credit regulation.

American consumer sentiment fell rather sharply in early November as consumers judged future economic prospects less favourably, while their assessments of current economic conditions remained largely unchanged. The closeness of the presidential election as well as the resurgence in covid infections and deaths were responsible for the early November decline.

Also going south was the US monthly budget deficit which at -US284 bln for the month, widened the annual result to -US$3.3 tln in the year to October, easily a new high. That is a massive -15.5% of 2020 nominal GDP. It was twice as large on October 2020 as October 2019. It is just another huge challenge the incoming Biden Administration will face.

The latest global compilation of COVID-19 data is here. The global tally is 54,127,000 and a surge of +1,082,000 rise in the past two days. It is still grim in France, Russia, the UK, Spain and central and southern Italy with very serious stress on their hospital systems. And the death rate is rising. Global deaths reported now exceed 1,315,000 and up +17,000 from when we last checked on Saturday.

The largest number of reported cases globally are still in the US, which rose +345,000 since this time Saturday to 11,237,000. The US remains the global epicenter of the virus. The number of active cases is surging at 4,094,000 and that level is up +180,000 in two days, so many more new cases more than recoveries. Their death total now exceeds 251,000 and continuing to rise by more than +1000 a day. The US now has a COVID death rate matching Bolivia, Mexico and the UK of 758/mln.

In Australia, they are not getting any significant resurgence. There have now been 27,725 COVID-19 cases reported, and that is+22 more cases over the weekend. Only 69 of their cases are 'active' now. Reported deaths remain unchanged at 907.

The UST 10yr yield will start today marginally up at 0.90%. Their 2-10 rate curve is little-changed at +72 bps, their 1-5 curve is unchanged at +28 bps, and their 3m-10 year curve is also little-changed +81 bps. The Australian Govt 10 year yield is unchanged at 0.91%. The China Govt 10 year yield is also unchanged at 3.29%. And the New Zealand Govt 10 year yield is stable at 0.83%.

The price of gold has changed little over the weekend and now at US$1889/oz.

Oil prices are lower again today and by about -$0.50/bbl so it is at US$40/bbl in the US, while the international price is now just under US$43/bbl. 

And the Kiwi dollar is unchanged today to 68.5 USc but it is up more than +65 bps from this time last week. Recall it was up +1½c the prior week. Against the Australian dollar we are also soft at 94.2 AUc. Against the euro we are little-changed at 57.9 euro cents. That means our TWI-5 is now at 71.4.

The bitcoin price is -1.4% lower this morning from this time Saturday, now at US$16,018. That makes the weekly gain more than +US700 and that was on top of the prior week's almost +US$2000 huge jump. 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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64 Comments

Has the RCEP deal been transparent?
“ We're seeing a huge secret agreement being negotiated where we don't know what the risks are and from the economic modelling that we've seen there's very little economic benefit to be gained.
"So we don't know why the government continues to do secret deals that are against our national interests."
https://www.rnz.co.nz/news/national/430670/opposition-as-nz-joins-world-...

12
up

It's been talked about for a few years, obviously we are all to stupid to handle the details.

https://www.foei.org/news/secret-rcep-fails-transparency

As it has been being worked on for eight years, the impacts of COVID are almost certainly not going to be considered in its structure. And one of the biggest lessons from COVID is the need for nations to be able to be resilient and self sufficient to some degree. I am curious as to how this agreement achieves this, if it does at all?

It doesn't.

And it proves that Labour are out to lunch - no idea what they've done, methinks. Babes in the woods.

The only saving grace is that globalism is already on the way out. China came to the party just as the punch-bowl was running dry.

And we are punch drunk?

There's no show without punch

Me thinks the punch has been spiked!

You're right. The deal supposedly raises our economic productivity with better access to export markets in other participating nations, mainly for our education and primary sectors . Sigh, more of the same bulk exports and people import then. I doubt quantity of these exports was an economic issue in the first place!

Also, MFAT is naïve enough to believe NZ is well-positioned to sell "R&D services" to other member states. Surely, South Korea and Japan outspending us by 3-4x as a % of GDP are desperate for our help in this space.

According to Australian news there is no change to tariffs, so there is nothing in the deal for agricultural producers.

Its pretty simple. If you dont like the the Chinese, dont buy their product, RCEP agreement or no. If you want to buy just NZ made then narrow your choice of products by about 95% and expect to pay 3-5 times the price. Simple choice. Have at it. Personally I think the vast majority of Chinese products are absolute garbage. I expect people who bitch and moan have a crap load of Chinese products in their house....put your money where your mouth is. No one is forcing you to buy chinese. I like their restaurants :)

Good morning New Zealand. Over the weekend I signed up to become a supporter of interest.co.nz and may I say the search features in the comment section is an absolute delight to work with. So to anyone out there reading this without being a supporter of interest.co.nz do yourself a favour and treat yourself to an early Christmas present and sign up in the link above. It's well worth it.

Cheers, sf

I'm a financial member too. What search features are you talking about?

Hi Davo, thanks for your question. It's not a search feature as such, it's just how the comments that are new to the thread are highlighted in blue and it says at the top of the thread how many new comments there are. I'm used to scrolling through the comment section looking at time stamps, so it feels like a "search feature" for me haha I hope you enjoy your day.

Cheers sf

I'm pretty sure that works the same way for everyone who's registered. No subscription here, I've only made a one time donation, but I still see the new comments highlighted.

*hangs head in shame*. I'll be quiet now...

Still very laudable to be a regular financial supporter!

Haha no shame in being wrong (despite what some people here like to think). It's actually a great feature, I think it was introduced early this year.

Are they against our public interest.

11
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"interestingly, because it involves China and not the US, protesters have been silent on this deal" LOL

Yes indeed. This viewpoint is completely submerged in personal bias.

18
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Our opinions are being curated? Surely, not? I mean we all love China, dislike Trump, think the Democrats are lovely honest people, COVID 19 ocurred naturally, climate change is man made and the EU is perfect. Anything else is a wild baseless conspiracy.

Uninterested - agreed. RW - you lump things together which do not belong. CC is indeed man-made.

"Interestingly, because it involves China and not the US, protesters have been silent on this deal despite there being more to worry about on labour laws, IP, and the environment"

.......is wrong on many levels - the secrecy is the story and the secrecy is what the MSM should have been addressing.

I'm not a conspiracy theorist, just enjoy entertaining alternatives to whatever is fashionable, seems to be an inherited trait, my father was worse. You may well be right about climate change, I just don't believe it is as certain as you do. I grew up in the English midlands, have visited the abbeys of Northern England which had extensive vineyards during the middle ages and have even, on occasion visited London, where the river froze during the 1700s. We are nowhere near either of those extremes. So my viewpoint is entirely based on places I know and the recent climate changes there. Plus, the last ice age was only 10,000 years ago, apparently. Now an ice age really is scary.

The burn is of 100 million barrels a day, and that's just the oil; coal is similar.

The salient point is that that carbon was in-ground BEFORE we evolved; our ecological fit is to a world where it was locked away below. We're not the first organism to shit in it's own nest, but we are the first to claim to be sapient enough note the trend to do something about it.

But it's only a claim - we don't appear to actually BE that sapient.

Yep - some are wise - some are otherwise

I don't disagree with you there. Societies expand and contract, often the contraction is faster. To me the dominant life form is trees, they like carbon dioxide, grow faster and are more resilient when there is more of it. What's more, they don't need us.

Come to think of it, oil and coal are but dead trees buried long ago. I like trees.

Coal is, oil is not.

Ooops, yes indeed. My levity in finding unexpected cyclicality got the better of me. Just goes to show, sometimes when yer think yer knows the answer, something turns up to put you right.

RW,

There was a time when I thought you were a reasonable person, but it turns out that you were just hiding your conspiracy theory beliefs. re English vineyards for example: have you done any fact checking on this? I doubt it, as you would have found that there are many more now than there were in the Middle Ages. You can check this through the Domesday Book and the English Wine Soc. That's just one small but relevant example. in fact, wine is quite a good indicator of climate change. There are continuous records for over 600 years in France and these clearly show the effect of climate change on the harvest dates.

13
up

It's not cool to protest against China.
Weird, ey.
Once upon a time there was a decent anti Chinese movement, on things like Tibet.
China has won the charm war, clearly.

Charles Hugh Smith always worth a read. A bit of the labour vs capital analysis. Top 0.1% grew 15x faster since 1970 and decoupling from the gold standard.
https://www.oftwominds.com/blognov20/great-reset11-20.html

This article is far too balanced? Lol
“ Those now bleating about how dangerous his current assertions of election fraud are should remember they were the ones who smashed that particular glass house with their own volley of stones back in 2016”

Trump achieved power on the promise of "draining the swamp"

That was powerful imagery.
He also claimed he was so wealthy he would not be beholden to anyone
And that's all he said.
It was left up to the populace to apply their own beliefs and expectations

He claims to have drained the swamp

People want to believe that the swamp can be drained and that their country can stop declining. Both the US and the EU are circling the drain. Their governmental and financial overhead is too high.

oops

RW not sure all people want to drain the swamp. The Democrat voters certainly didn’t, they voted for Biden a swamp dweller and corporate lackey.

I guess if the choice is life governed from the swamp, or a race to extinction, a slight majority of those motivated to vote chose a life?

Except he didn't - what he did do though was expose just how toxic those inhabitants of the swamp really are - to the whole world! And not just the pollies, the lawyers too! Giuliani is as bad or worse than Trump and he was the mayor of New York! Makes you think what he did to get there?

That was the public, gobsmacked at how vacuous the electorate turned out to be. The chorus wasn't led by the sitting president.

Yes but Obama did not sit in the White house refusing to concede like a little angry numpty.

Interesting article but what is the solution? Go back to gold standard? Seems unlikely...

The Chinese Century is Happening.
Expect more NIOs and a new BitYuan ?
If this takes off, what will be the future of Nasdaq/NYSE.
Shanghai, here comes the world calling ?

12
up

Are we getting into bed with countries that will just swallow is up? We are but minnows in a fish pond.

Financialisation has already swallowed us - time to find a means to feed it.

YeP, watch out for open borders and the sale of our key assets. Trade free of tariffs and limited regulation yes but not the free access to our Country and given so cheaply.

Asian Borrowers Close In on Record for Dollar Bond Issuance

Issuers from Asia ex-Japan have sold over $323 billion of notes in the U.S. currency so far this year, compared with $326 billion for all of 2019 -- the current all-time high, according to data compiled by Bloomberg. Chinese borrowers led the charge last week following an initial lull after the U.S. election.

Australian banks have been dollar lenders via FX swaps for sometime.

I hope everyone got fit over the lockdown.
" Obesity, defined as a body mass index greater than 30, raises the risk of dying of Covid-19 by 48%."
https://www.thetimes.co.uk/edition/news/dame-sally-davies-obesity-scourg...

It's quite sad that this point isn't really reinforced more. The govt should really be doing all it can to encourage people to lose weight so that when COVID inevitability spreads round our country our people will be in the best position possible to fight the virus. It's a shame that obesity is so clouded in "political correctness" that its association with a higher hospilation rate & mortality with regards to COVID19 are ignored by the powers to be.

America has 34% of the worlds obese population, yet make up only 4% of the worlds total population.

23
up

so good old Labour -- protested and marched against the TPP -- but sign something with none of the climate and Labour protections the TPP had - at the same time as house prices rocket far faster than the previous governments -- How on Earth do they convince people they are fighting for equality and - like one new public holiday will make up for a 40% house price rise in three years --

They simply create greater inequality every time they get power -epic failure

Labour are just so much more convincing. They project their belief that they know what to do and it's very convincing. National appear a bit clueless because they know the problems are actually rather complex and it is easy for government to make things worse. I found this particularly shocking:

By the end of August 20,385 eligible households were on the waitlist for state or social housing, with over 18,000 ranked as “priority A” – the most needy.

This compared to 19,438 the month before and 13,167 in August 2019. The waitlist has more than trebled since 2017.
https://www.stuff.co.nz/national/politics/300144823/public-housing-waitl...

But they don't do they? And to be fair none of the other parties are willing to do anything substantive to fix the housing crisis. and as Orr puts it, despite their stress testing of the banks, because they did nothing, a collapse of the housing market could well result in the collapse of the banks (any one, some or all). Our leaders have led us down the garden path to the strong possibility of a very dire outcome, yet they remain unwilling to do anything other than continue to feed the monster they created!

Agent 86 how do you do comparisons?

Seems fingering the govt for epic failure then imagining "another government" would do no better is crazy.
There is no "another government", we only get one at a time.
- possibly you could reference various State govts in Australia, but thats a stretch...

None of the other parties are in power.
# compared to what?

Henry are you even reading the same page? Where in my statement is the words "another government"?

Try thinking Henry and stop trolling.

And to be fair none of the other parties are willing to do anything substantive to fix the housing crisis.

If you want your words....
There is your "another government".

Some of the credit for the current house building boom should go to Nick Smith for his roll back of some of the RMA (trampling on the sacred RMA some would say) with "Special Housing Areas", ie areas where houses can be actually built. The councils seem to have got more house building friendly too.
The "ban" on foreign ownership probably helped too, even if it is only partly effective. Closing the borders should really make a difference.

It is all very messy though. Messed up on every level.

Agreed Roger, and now hard to fix and getting harder by the day. What would it take to fix it? Total collapse? Incresing more of the power players are starting to quake somewhat at the issue and it's consequences. It's not looking good!

Looks like the MoH has accepted the Auckland contract tracers have been incompetent.
Otherwise this is truly sarcastic & Orwellian.

Today:
Investigations continue to identify the epidemiological link between Case A and Case D, who have the same genome sequence. This tells us that Case D, the shop assistant from A-Z Collections, most likely contracted the virus from Case A, the New Zealand Defence Force worker at the Auckland quarantine facility. The investigation is now focused on identifying the exposure event that links the two people, if possible.

Our thanks go to all the people involved in this cluster, including the cases, who have been highly supportive of efforts to identify and trace close contacts and limit any further spread.

https://i.stuff.co.nz/national/300159622/live-one-new-covid19-case-in-is...

Friday
“Due to the language barrier (my first language is Mandarin, this statement will be translated to English), the staff made many errors in recording my previous whereabouts, actions, and contacts.

“It was reported in the news that I was still asked to go to work by my boss after I became sick – this is false, and I was very upset to hear this,” the statement said.

https://i.stuff.co.nz/national/health/coronavirus/300158205/covid19-shop...

One of the key elements of the agreement is mutual recognition of qualifications and licences - relevant to education, healthcare, engineering, accounting and legal services. So basically employers can now recognise overseas trained workers as being "qualified" and can hire them without them completing recertification or retraining to NZ standards. It will also allow overseas companies to bring in overseas workers to work on contracts, like construction projects. It wont be long before all our houses, roads, and commercial buildings will be built by Chinese companies employing Chinese workers. Good luck to anyone currently working in the above sectors like teachers, nurses, builders - you're about to be replaced.

"It will also allow overseas companies to bring in overseas workers to work on contracts, like construction projects. "
I hope you are only partially correct on this and that there will still be some other form of visa control / entry limitation backstop.
This is probably the key feature that has slipped under the radar of most commentators.

So we sign the RCEP and then a press report comes out re China finding coronavirus among NZ beef exports??
https://www.stuff.co.nz/business/123404510/reports-china-found-coronavir...