Vaccine news bolsters markets; China's bond woes spread; China retail sales underwhelm; China's industrial production strong; UST 10y at 0.91%; oil and gold up; NZ$1 = 69 USc; TWI-5 = 71.8

Vaccine news bolsters markets; China's bond woes spread; China retail sales underwhelm; China's industrial production strong; UST 10y at 0.91%; oil and gold up; NZ$1 = 69 USc; TWI-5 = 71.8

Here's our summary of key economic events over the weekend that affect New Zealand, with news many more Chinese companies are reporting bond, liquidity and leverage stress.

But first, Wall Street is up at another new record high with a +1.0% gain so far today by the S&P500. Good trial results by another drug company with a vaccine drove this rise. It is not the near-term benefits the markets are cheering, it is that the two new vaccines represent a new more powerful way to fight pandemics. The rollout of both will be slow however. Overnight, European markets rose a similar amount. Yesterday, Shanghai closed up +1.1%, Hong Kong was up +0.9% and Tokyo ended up +2.1%. But the ASX exchange stayed frozen all day, but booked a +1.2% rise in early trade. The NZX50 Capital Index was up +0.4% at its [normal] close.

With the oil price, the NZD has risen from this global risk rally.

In the US, there has been a marked slowing in factory activity in the New York region in early November, the next regional Fed survey to report.

In China, although officials are claiming house prices have moved little between September and October, in fact the year-on-year rise in key cities like Beijing and Shanghai are up +4.2% and +4.4% respectively, and prices in Shenzhen are up +5.2% and embedding the lure of "investing in housing". Nationally the rise was +4.3% and marginally lower than September's +4.6% gain.

The woes of the Chinese bond market are spreading, with now both a regional bank, and a major aluminium producer caught in their own liquidity traps. The negative power of leverage is coming home to roost.

China's October retail sales were up +4.3% year-on-year, higher than the +3.3% September rise but still well below the expected +4.9%. They will be disappointed, especially as the Golden Week holiday was supposed to bring a surge in spending. They will be wondering whether the Singles Day/Double-11 retail event and its lead-up is just cannibalising's their consumer demand improvements.

China's electricity production was up +4.6% in October, the second month in a row growth has slipped, and more importantly, the second consecutive month production of electricity itself has retreated.

But one area China is performing well is its industrial production, up +6.9% in October from the same month a year ago, and back to its pre-pandemic growth levels. Drugs, metals and transport equipment manufacturing were all sectors that performed very well. Laggards were electronics, and mining.

Another area they will be pleased with is foreign direct investment. This rose a very healthy +6.4% in October, and well above recent trends.

In Japan, they recorded a stronger-than-expected Q3 GDP recovery, and that data was bolstered by a good month-on-month rise in industrial production (+3.9%). Export orders drove both sets of data.

The latest global compilation of COVID-19 data is here. The global tally is 54,563,000 and a +436,000 rise from yesterday. It is still grim in France, Russia, the UK, Spain and central and southern Italy with very serious stress on their hospital systems. It is even worse in Belgium. And Sweden has now toughened its pandemic response. Global deaths reported now exceed 1,320,000 and up +5,000 from yesterday.

The largest number of reported cases globally are still in the US, which rose +154,000 since this time yesterday to 11,391,000. The US remains the global epicenter of the virus. The number of active cases is surging at 4,194,000 and that level is up +100,000 in one day, so many more new cases more than recoveries. Their death total now exceeds 252,000 and continuing to rise by more than +1000 a day. The US now has a COVID death rate matching Bolivia, Mexico, Italy and the UK of 760/mln.

In Australia, they are not getting any significant resurgence. There have now been 27,750 COVID-19 cases reported, and that is +25 more cases and mainly from the new South Australia cluster. Only 86 of their cases are 'active' now (+17). Reported deaths remain unchanged at 907.

The UST 10yr yield will start today little-changed at 0.90%. Their 2-10 rate curve is little-changed at +73 bps, their 1-5 curve is marginally steeper at +30 bps, with their 3m-10 year curve also little-changed +81 bps. The Australian Govt 10 year yield is up +2 bps at 0.93%. The China Govt 10 year yield is also firmer by +1 bps at 3.30%. And the New Zealand Govt 10 year yield is also up +1 bps at 0.84%.

The price of gold has risen +US$7 this morning and now at US$1896/oz.

Oil prices are higher today and by about +$1.50/bbl so it is at US$41.50/bbl in the US, while the international price is now just over US$44/bbl.

And the Kiwi dollar is +½c firmer today to 69 USc. Against the Australian dollar we are unchanged at 94.2 AUc. Against the euro we are firmer at 58.3 euro cents. That means our TWI-5 is now up at 71.8.

The bitcoin price is +3.5% higher this morning from this time yesterday, now at US$16,578. 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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71 Comments

Citibank analyst says Bitcoin could be 300k by Dec 2021. Damn, I thought I was bullish. https://finance.yahoo.com/news/citibank-executive-says-bitcoin-could-083...

Fun. But think of all the milestones between 16K and 300K where a BTC investor would have to consider taking profit. Which tells me it will take a lot longer to get there. Every big jump will appear for it to be overvalued, unless there are events/changes in the structure of world finance that indicate it is fiat currency which is overvalued?

Ha, like property?

Outperforming gold and easier than buying a house, need to check how the IRD is taxing those gains however, anyone care to comment?

frazz
https://www.ird.govt.nz/cryptoassets
IRD say:
"In most cases, the amounts you get from selling, trading or exchanging cryptoassets are taxable (this includes when you exchange one type of cryptoasset for another).
You may have to pay tax because you’re:
- acquiring cryptoassets for the purpose of disposal (for example to sell or exchange)
- trading in cryptoassets
- using cryptoassets for a profit-making scheme."
and . .
"You need to file a tax return when you have taxable income from your cryptoasset activity."
Some good news:
IRD say you can claim losses and "If you held cryptoassets that were stolen, you may be able to claim a deduction for the loss."

Thanks Printer - so any gains made in the financial year are just lumped into income earned (that fairly straight forward I guess). Strange this does not apply to houses?

You can't live in your bitcoin.

Bitcoin does not have lawns to mow.

Yeah it does if you bought the house with the intention to sell.

In theory, anyhow.

Like other similar asset classes you can avoid tax on crypto currencies if you can demonstrate your intent to invest and hold instead of trading
In crypto that would be Hodling
However simply keeping the crypto in an offline wallet is not sufficient, you need to commit the Crypto to a staking pool to show intent
That staking pool will pay interest in some form and that income would still be taxable but after a period of Hodling to demonstrate intent you can still exit and take a capital gain or loss without any tax implication on the capital difference

Like other similar asset classes you can avoid tax on crypto currencies if you can demonstrate your intent to invest and hold instead of trading

If you have a trading account registered to a company in a haven like Caymen or BVI, there is no need to pay tax on capital gains on crypto in NZ.

Just like anything, it's up to the individual to get their tax arrangements in order.

Unless the centre of management is in NZ in which case that Cayman or BVI company would be considered NZ resident for tax purposes.

Very simple. You pay tax on all your profit. Good luck calculating that however with defi etc

I dont even know what defi is?

You're not the only one! https://cryptoslate.com/not-mainstream-one-of-bitcoins-biggest-bulls-doe...

Defi is about turning your crypto into passive income via various financial transactions - lending, borrowing, liquidity pooling etc. The leading Defi coin (YFI) went from $3 to $40k in 8 weeks (per token). Its been quite nice for me, until last night I have been pooling my ETH and BTC and earning Uni tokens every day - a nice passive income stream.

When you say that the NZX 50 capital index was up....
I thought that the NZX 50 includes dividends (as opposed to all other international indices) and I have always been confused about when the dividend quantities are added to the index. Daily? Or is this index just the stock index numbers excluding dividends?

NZX50 assumes the dividends are reinvested

"Gross Total Return (TR) versions reinvest regular cash dividends at the close on the ex-date
without consideration for withholding taxes. Specifically for the S&P/NZX Indices, S&P Dow
Jones Indices also calculates Gross with Imputation indices that reinvest the regular, as reported
dividend on the ex-date,"
https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp...'s%20preeminent%20benchmark%20index.

Thanks, so it does incl dividends every day they are paid out.
Not how I would have calculated it...

The regular NZX50 which is normally quoted does include dividends. In the breakfast briefing, they seem to be explicitly referring to the NZX50 capital index which does not include dividends and is better to compare to most international indices which tend not to include dividends.

https://www.marketwatch.com/investing/index/nz50cp?countrycode=xx

I believe the 'justification' for including dividends is that dividend returns have tended to be higher in NZ than other countries, so it was felt that a capital index missed out of a lot of the real returns. Both have their place but always be sure you're comparing apples with apples.

I think it's good that the dividend-inclusive option is readily available. It's not necessarily easy to get elsewhere in the world.

That is why we report the NZX50 Capital Index, and not the NZX50. 

Yesterday, the NZX50 Capital Index ended at 5354.49, whereas the NZX50 Index ended at 12,744.92.

The NZX50 Index is a gross index and assumes dividends are reinvested and is not comparable to all other major stock exchange indexes. The NZX50 Capital Index is comparable (but not widely mentioned in the general press). We have always been clear to report the NZX50 Capital Index, so that the change is on a consistent basis as the other equity indexes we report.

Okey dicky dokey

"Another area they will be pleased with is foreign direct investment"

Could you clarify, is that China investing in foreign companies, or foreign companies investing in China?

Foreign companies investing in China. Inbound investment into China.

Looks like the source of COVID-19 might not be China, with reports of it possibly coming from Italy, existing in wastewater there possibly from September: https://www.stuff.co.nz/world/europe/123414756/covid19-virus-antibodies-...

That may mean it only became airborne in China after spreading around a bit. I also find it fascinating that experts are saying they don't know why it's becoming less deadly... isn't that what a lot of these viruses do? The reason is that if they kill their hosts too fast, they limit their time to spread. Hence viruses tend to get less deadly over time, the strains that are more deadly get wiped out quickly while the ones that take a while for symptoms to show plus are more easily spread become the dominant strain.

I wouldn't jump to that conclusion, have old blood samples in China been tested?

Yeah, no conclusions yet, let scientists do their thing, we will have more definitive answers in a year I am sure.

Australia gets at least 10 virus cases a day
Yet we are told it’s all fine
Clearly it’s not

Given ratio of populations that is equivalent to 2 cases in NZ. Are we fine?

and how many are dying? If they measure daily cases of common cold and seasonal flu I wonder what those numbers would look like.

...and who is dying? So deadly you can out live average life expectancy by five years.
"The median age of deaths is 86 years"
https://www.health.gov.au/resources/publications/coronavirus-covid-19-at...

So once you retire your life is worthless and it doesn't matter if you die early?

The victims are dying late not early.
It's a frail/unhealthy thing - the 48% increased mortality risk if you are obese is another example.

So you are saying Covid is causing these people to die later than they would otherwise? Very odd, could you elaborate further?

How's your Sweden herd protection theory going profile? You are quiet these days...

Big jump in infections in Swedeland. No herd immunity. Though deaths still pretty low. They supplement their food with Vitamin D which may be why deaths are so low compared to other parts of Europe. Seems to be good evidence that Vitamin D is helpful as a prophylaxis.

How many of those are at the border v community spread?

This is the key thing. Really they should be reported separately. The number of border cases is much less important, though not totally unimportant given that MIQ isn't airtight anywhere it seems.

If you click on the link to the ozzie health website, it does break out community and managed isolation, but only the 7 day figures, not the daily one.

17 locally acquired in the last 7 days vs 66 overseas

Yeah the breakdown is available, but the headline figure is often a combination.

Bitcoin has only ever spent 10 days or so above this range ever. And we are closing on the 2018 high of $17,300 (passed on 8 Jan 2020). But I don't see it breaking 20k this year. More likely a sharp rejection. I'll have to think whether I sell my stocks for BTC when that happens.

I bet we are all saying "If only I bought a few when they were $0.01 in 2010!". A $1000 gamble back then would net you about $200m now! That poor guy that paid for 2 pizzas with 10,000 of them...

That would be nice. But I'm pretty happy to have got many of my buys in the $3k range - so that is a 450% return. And yes as printer8 will note, I even have some buys in the 12k area, but that is okay one. Some altcoins still giving similar gains - I already mentioned YFI above that went from $3 to $40k in 8 weeks

If you had any brains at all in 2010, you were mining them yourself, not buying them! We mined ours with a USB adapter back then!

..just make sure you bail before central banks release their own crypto and govts deem BTC to be illegal.

BTC is decentralised. If it was easy to ban Trump would have done it.
Banning it now would have further 'unintended consequences' ;)

Indeed, though it's not entirely clear what those might be. Govts may not be able to ban/control the cryptos themselves, but if they were able to severely restrict their convertibility in and out of fiat currencies, that would be a very different situation for most people.

Don’t matter how easy in practice, just making it an illegal activity will end any chance of it becoming mainstream use. crypto enthusiasts fail to acknowledge this as a likely move by world govts, nor recognise that will end the bullish values being claimed.

Where is the indication that there is any "ban" coming? If they were going to ban cryptos, why wait until they are a billion dollar, tax revenue generating industry? Why have governments published guidance on how to tax cryptos, if they were going to ban? It's been over a decade and no sign of a ban. No hint of a ban.
No coiners are scared of cryptos, that's fine, be scared and don't get involved but just stop building your fantasy about a ban. It's very silly.

Thats funny Rastus...who would swap fiat for a centralized bank crypto? They are both as good as each other but backed by stuff all except trust.

In this COVID shitshow, whoever has the bug under control will enjoy the recovery and growth first (good on NZ!). No matter how the political wheel spins, China is the winner for now.

and the signing of the RCEP !!!

The 15 nations including China ALL are the winners.

Xing have you ever encountered a situation in which China is not the winner in your eyes?

Yep, China made a huge mistake on one-child policy. Wait for another 20 years, you will see the full impact.

Sorry -- didn't mean you!

Cullen states the obvious?

I'm amazed how little coverage this is getting, especially with all the hype aorund BTC lately, but theres a good chance that gold bug and crypto advocate Judy Shelton will be confirmed to the Federal Reserve this week.

Described as radical by some, she in is in favour of some form of pegged digial currency.

https://www.npr.org/2020/11/16/934553035/controversial-fed-nominee-set-t...

https://www.washingtonpost.com/opinions/a-senate-confirmation-vote-on-ju...

The fed is working on its own crypto. China is even further advanced. Btc hasn’t a hope in hell.

Keep digging Rastus
BTC: The new reserve asset?
How do the cognoscenti explain it? The U.S. dollar is falling; bond yields are almost non-existent; and gold is underperforming. Liquidity-flush firms have fewer places to put their cash — so they are turning to cryptocurrency. “We are seeing a new trend emerge where corporations are using Bitcoin as a reserve asset for part or majority of their treasury,” pronounced Anthony Pompliano in his Oct. 15 newsletter. Saifedean Ammous, economist and author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, told Cointelegraph:

"Liquidity-flush firms have fewer places to put their cash — so they are turning to cryptocurrency."

Think about that for a minute
Growth is dead
Cash has no home
So they "invest" in a digital binary nothing much which is restricted in number hoping to sell to a greater fool down the line
Not far removed from a roulette red or black strategy
Sounds like we are in real trouble

Greater fool? Like Druckenmiller?

Maybe he means Paul Tudor Jones. or Chamath Palihapitiya. Or Micro Strategy. Or Jack Dorsey. Or even Square?

BTC is a completely different animal to CBDCs.

how ironic the GOP controlled senate has stalled the HR2722 SAFE Act - and how many of the GOP run states have these machines

"Global CV deaths are up 5'000 worldwide from yesterday" This has been a very steady number for months despite the number of cases skyrocketing. It seems the measures to combat CV are taken because of the number of cases, shouldn't these measures and their economic cost be in response to CV deaths instead of cases?

It's rising, following cases with a 2 week delay as usual.
Click on 'worldwide' here: https://www.google.com/search?q=covid+deaths&oq=covid+deaths

Fake news. The 7-day moving average of global daily deaths has gone from 5274 per day on 17/10/2020 to 8813 on 17/11/2020. Looks like a big spike to any reasonable person.