Here's our summary of key economic events overnight that affect New Zealand, with news China's broad gains are growing.
But first, the overnight dairy auction was another positive one, the third in a row, but the gain was only +1.25% in USD terms and a lesser 0.84% in NZD terms. There were outsized rises for cheddar cheese (+4.2%) and butter (+6.0%) but the powders only rose modestly - up +1.2% for SMP and just +0.5% for WMP. Volumes offered and sold were an unremarkable 31,700 and the lowest since August although that general level has been offered at these auctions for five months and it is +25% higher than this time last year. Prices achieved are very similar to a year ago even if they have been much lower in between.
US retail sales fell -2.2% last week from the prior although that is in the shadow of the Thanksgiving/CyberMonday events. They are holding on to minor year-on-year gains however.
US industrial production data also fell, although not quite by as much as was expected in November from October. But it is down -5.5% year-on-year and for an economy as large as the US, that is a lot.
Confirming that is the latest regional Fed survey, this one for the giant Northeast region. The recovery there is tailing off noticeably now.
In Congress, a slimmed-down support program appears to be gaining support, but it is now very late for any extension in pandemic benefits to be passed.
In Canada, housing starts were stronger in November than expected, and very much higher than a year ago.
In China, retail sales rose +5.0% in November from the same month a year ago, and excluding cars, the rise was +4.2%. Both are below what was expected and suggest a slight slowing in their economy, just at a time that most were assuming a faster momentum.
Chinese industrial production however was up a full +7.0% in November and this was the expansion expected. It was their metals sector that drove these gains, supported by their pharmaceuticals industry. Local agriculture and food manufacturing were laggard sectors, emphasising their food security issue. (Our sheep, beef and dairy sectors focused on supplying China might not be directly on their radar if we fall foul of Beijing's favour.)
China's electricity production was up +6.8% and pretty much confirming the industry expansion.
Foreign direct investment in China isn't slowing, but it isn't increasing either. It was +6.3% higher in November than a year ago.
In Europe, they are about to unveil new rules to "overhaul" the digital market, including how the tech giants operate. A pair of laws - the Digital Services and Digital Markets Acts - are designed to halt the spread of harmful content and improve competition.
In New York, the S&P500 is up +1.0% in its opening session today, buoyed by the stimulus extension proposal. Overnight, European markets were very mixed; up +1.1% in Frankfurt but down another -0.3% in London, with the others in between. Yesterday, the large Tokyo market closed its Monday session down -0.2%. Hong Kong fell -0.7%, and Shanghai slipped -0.1%. The ASX200 fell -0.4% on the day while the NZX50 Capital Index ended its Tuesday session down -0.5%.
The latest global compilation of COVID-19 data is here. The 'news' is all about vaccine rollouts but the global tally just keeps on rising, now 73,071,000 and +654,000 more overnight. At this rate, we will top 100 mln by mid January. It is still very grim in Russia, the UK, Eastern Europe, Brazil, Turkey and Indonesia. It does seem to be easing further in Europe generally although not in the UK, Sweden, or Germany. Global deaths reported now exceed 1,627,000 and up +12,000 in one day as death rates spike everywhere.
But the largest number of reported cases globally are still in the US, which rose +212,000 in one day to 16,977,000. The US remains the global epicenter of the virus. The number of active cases is surging and now at 6,784,000 and that level is up +61,000 on a day, so many more new cases more than recoveries. Their death total now exceeds 308,000, up more than +2000 in a day. The US now has a COVID death rate of 930/mln, and now well above that in Argentina and approaching the disastrous UK level (954). Broader shutdowns in the US are going to be needed in the short-term even as they roll out their vaccination program.
In Australia, they are not getting any resurgence. There have now been 28,047 COVID-19 cases reported, and that is just +8 more cases overnight. Now 47 of their cases are 'active' (-7). Reported deaths are also unchanged at 908.
The UST 10yr yield will start today at just over 0.91%. Their 2-10 rate curve is holding at +78 bps, their 1-5 curve is marginally firmer at +28 bps, while their 3m-10 year curve is also firmer at +84 bps. The Australian Govt 10 year yield will start today up +2 bps at 0.99%. The China Govt 10 year yield is down -1 bp at just on 3.32%, while the New Zealand Govt 10 year yield is up +3 bps at 0.875%.
The price of gold is back up today, up +US$21 to US$1847/oz. Silver prices have recovered too.
Oil prices are higher, up +US$1 now just on US$47.50/bbl in the US, while the international price is now just over US$50.50/bbl.
And the Kiwi dollar is marginally firmer at 70.9 USc. Against the Australian dollar we have had a further softening to just under 93.8 AUc. Against the euro we are unchanged at 58.3 euro cents. That means our TWI-5 is little-changed at 72.6.
The bitcoin price has risen from this time yesterday, up +1.2% and now at US$19,363. The bitcoin rate is charted in the exchange rate set below.
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17 Comments
Fresh from
https://i.stuff.co.nz/business/farming/123672766/freshwater-reforms-exp…
David Parker’s seemingly odd decision to request the Revenue portfolio from the Prime Minister when she appointed her new Cabinet now makes sense. The Briefings to Incoming Ministers released yesterday, show that work is well underway on the development of an environmental tax regime which would be launched with a consultation document next year.
Continue reading at https://www.politik.co.nz/2020/12/16/david-parkers-big-oppurtunity/ | Politik
Well you know I am very much inclined towards accounting for the environment in business, or not letting destruction go uncosted. However I also believe you can fix a problem when the underlying narrative that cause it is still in place. Thus you can't screw farmers/producers on both sides of the equation or farms just fall into corporate hands and make the problem worse.
It is a general problem with governance, no coherence across policies. There isn't intellect to drive it. Same from all sides.
Well, a pure per-kg leached Nitrate tax, while ostensibly aimed at dairy, is gonna hit hort and vege growers hard as well. With effects on supermarket prices as the impost is passed on, and guess what sector pays the highest percentage of their after-tax income for That?
Been tweaking my idea for a 'structured reset' of local housing; a deliberate intervention by both RBNZ AND Government through tax and land reform that would meaningfully drop houses. I had thought that there was no moral obligation to bail out investors facing negative equity and that owner-occupiers should be insured up to a recent valuation as we did in Christchurch - given the current situation is a national disaster, this seemed fair.
But it's dawned on me that I've missed a trick with this approach. Investor stock that investors want to sell down would represent a massive opportunity for HNZ to either buy functional rental stock or the land underneath it to redevelop. If we offered investors the chance to sell to HNZ for the value of their debt held - effectively they'd walk away with nothing their debts would be settled - we could lock in a huge upswing in our state housing available. You'd have plenty of out-of-work property managers on hand who could be brought in to manage additional stock.
It would require guts, but I would wager it's a far better use of printed money and a huge saving in future social costs; plus it would let us wind back the clock on house prices to the extent that we deemed necessary.
I can already hear the screams of anguish GV! What, no capital gain, no asset, no requirement income?!
It is an interesting thought, but you'd possibly capture more FHBs than investors, as the debt to the FHB owner occupiers would seem crippling, but a sensible investor would not likely see it that way.
I do agree that there is no moral obligation to bail out investors, but we are already doing that through the Accomodation Supplement.
I agree, Murray, you'd capture a huge swathe of FHBs, but a structured climb-down from the current status quo is going to be far cheaper in the medium to long term than an external shock. As for investors - giving them the chance to walk away whilst bolstering housing stocks may give us the opportunity to wind back an accommodation supplement altogether.
I agree that a structural climb down is much, much better than a crash, but i personally think that to some degree we could try to shield FHBs a little. I am not quite sure how that could be done, but I am loathe to let the young suffer because of the greed of others., and some form of Government support to ensure they do not lose all in the event of a crash or other rapid wind back in value would be warranted as the Government is at least in part culpable for the current state of affairs. But there would need to be some strict rules around qualifying criteria to prevent this being rorted.
Agreed. It would have to be a sudden and sweeping announcement, I think, using a recent-ish historical value to stop people from gaming the system. The ins and the outs of keeping it equitable would have to include renters as well, although I'm not sure how that would best be done.
What would be any investors incentive to sell at a price where they "just settle their debt"? They are there to make money, not just break even. ergo there would be very little uptake I would say.
Economics is the study of the individual, as it is the cumulative decisions of the individuals that make up the market. So if the the individual has no economic incentive to do the deal, as great as the dreams may be the program will be unlikely to work.
Because the underlying asset could well end up being worth much less than the debt they hold against it. The idea that house prices should forever increase and never be allowed to drop is because we've underwritten risk, first with taxpayer money and secondly with ongoing decreases in our standards of living. And once we get prices down, the full suite of tools should be used to make sure they can never get above a sensible DTI again.
I know it's hard to imagine a situation where banks just start calling in investor mortgages, but if we do it on our terms then it will be a lot less painful than doing it because we don't have a choice. Letting investors off the hook with a debt swap is probably going to be a hell of lot more charitable than some others would be.
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