China profits rise; iron ore prices stay high; Japanese retail sales slip; a Brexit deal agreed; EU and China close to a deal too; US gets its stimulus deal signed; UST 10yr at 0.94%; oil and gold hold; NZ$1 = 70.9 USc; TWI-5 = 72.6

China profits rise; iron ore prices stay high; Japanese retail sales slip; a Brexit deal agreed; EU and China close to a deal too; US gets its stimulus deal signed; UST 10yr at 0.94%; oil and gold hold; NZ$1 = 70.9 USc; TWI-5 = 72.6

Here's our summary of key economic events over the Christmas holiday break that affect New Zealand, with news of mixed signals in the year-end wrap-up-deals.

But first, Chinese industrial profits are now running better than year-ago levels in November, up +2.4% on that basis and the first time this has been the case on over a year. Interestingly, it is large listed companies (foreign or local) doing the best with local private companies making much smaller gains. SOE profits however fell -4.9% year-on-year in a worrying sign that their large core enterprises are 'taking one for the team' and disguising how their upturn is being managed.

Iron ore prices are still very high. Despite official efforts to curb 'speculation' with both Beijing and the commodity market manager issuing warnings, prices haven't yet fallen, just hesitated in their recent rising trend. Meanwhile, coal prices in China haven't seen that hesitation, and are rising sharply still. China is in the middle of a very cold period which is sharply raising demand for electricity - and leading to electricity blackouts. Natural gas prices are rising sharply too.

In Japan, their retail sales shrank -2.0% in November from October and that withered the previous year-on-year gains. Their industrial production slipped as well, according to official figures.

In Europe, there is a last-minute Brexit deal, one Brussels is very happy with. The UK has had to accept on-going fishing in their waters, the EU's shifting of the Irish border to include Northern Ireland, and acceptance of EU laws and standards in most areas where trade between them takes place. Ratification by the English parliament could be 'interesting'.

And the EU is about to wrap up a trade deal with China too.

Back in China, they have identified and jailed a doctor/blogger who reported what was actually going on in Wuhan during the depths of their pandemic crisis there. She got four years jail for "picking quarrels and provoking trouble".

In the US, their US$900 bln fiscal stimulus bill has finally been signed into law but after an egotistical delay, one that will cost may millions of struggling people and small businesses with some skipped support. But Wall Street is happy the compromise deal, for all its flaws, has been done.

Wall Street is up +0.9% in trade today (S&P500) and that is a new all-time high. Overnight European markets rose about +1% although Frankfurt was up +1.5% and London barely recorded any gain. Yesterday the very large Tokyo market rose +0.7%. Hong Kong fell -0.3%, and Shanghai turned in a flat result. Neither the ASX200 nor the NZX50 were open yesterday of course, but both will be trading today, on a limited basis anyway.

The latest global compilation of COVID-19 data is here. The global tally just keeps on rising, now at 81,009,000 and up +381,000 in one day. We are heading for 100 mln within 30 days. It is still very grim in Russia, the UK, Eastern Europe, and Indonesia. It does seem to be easing further in Europe, although not in the UK or Sweden. Global deaths reported now exceed 1,769,000 and up +7,000 since this time yesterday as death rates rise everywhere. The UK variant strain is now spreading worldwide, although only small numbers of cases are being reported so far.

But the largest number of reported cases globally are still in the US, which rose +106,000 overnight for their tally to reach 19,591,000. The US remains the global epicenter of the virus. The number of active cases is still rising and now at 7,748,000 and that level is up +32,000 in one day, so many more new cases more than recoveries. Their death total is up to 341,000. The US now has a COVID death rate of 1028/mln and approaching the disastrous UK level (1045).

In Australia, their Sydney-based community resurgence seems to be stretching out a bit. There have now been 28,337 COVID-19 cases reported, and that is +25 more cases overnight and +99 more than just before Christmas. Parts of Sydney are back in lockdown. Other states have closed their borders. Now 188 of their cases are 'active' (+3 overnight, +42 over the long weekend). Their "fast reaction" has yet to be shown to be effective and the impacts are lingering. Reported deaths are up +1 to 909.

The UST 10yr yield will start today at just on 0.94%, a +1 bp rise overnight. Their 2-10 rate curve is flatter at +82 bps, their 1-5 curve is also down to +27 bps, while their 3m-10 year curve is also flatter at +85 bps. The Australian Govt 10 year yield is up +2 bps at 1.00%. The China Govt 10 year yield is down another -4 bps at 3.23%, while the New Zealand Govt 10 year yield is up +4 bps at just on 0.99%.

The price of gold is down -US$3 today to be now at US$1,876 and very similar to its pre-holiday level.

Oil prices have held at just over US$48/bbl in the US, while the international price is up to just on US$51/bbl.

And the Kiwi dollar is marginally softer at 70.9 USc although over the long weekend it did firm somewhat before falling back. Against the Australian dollar we are holding firm at 93.7 AUc. Against the euro we are little-changed at 58.1 euro cents. That means our TWI-5 is now at 72.6.

And we should note that the Chinese yuan has hit its strongest level vs the US dollar since June 2018. Against the NZD we are still mid-range over that time, so the yuan 'story' is really just one of the greenback's demise.

The bitcoin price has risen to a new higher level after a sharp burst. It is now at US$27,170 although little-changed from yesterday but holding high and a remarkable +16% above where we left it pre-Christmas. The background for the recent jump is here. The bitcoin rate is charted in the exchange rate set below.

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31 Comments

Woke up to see my Microstrategy stocks up 16% over night. I assume it is now pricing in their bitcoin reserves (worth well over a billion dollars now)

Why do you 'assume' this when it's quite obvious this is the case? What's your vehicle (exchange) for buying Microstrategy?

Because the stocks' price haven't been tracking bitcoin quite so well recently (until now). I use hatch.

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Once upon a time. A tulip bulb was exchanged for a house.

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The total area of the Imperial Palace in Tokyo, including the gardens, is just over 1 square kilometre. During the height of the 1980s Japanese property bubble, the palace grounds alone were valued to be more than the combined value of all of the real estate in the state of California (~425,000 square kilometres).
Sure, one is mostly desert and the other a city of ~40 million people, but there are still some pretty large cities in California.
That is what a speculative mania delivers.

Well we are no where near that bubble then, probably got a few more doublings to go.
I happened to watch a housing do-up show based in Denver Colorado last night. They had to pay $450k US for a tiny shitter on not much land didn’t look to be close to city centre or anything. And that show was probably a few years old. So maybe our houses aren’t so dear after all?

Watching a TV programme about Notting Hill in London. A couple were looking at paying $3650 per month rent for a pretty basic 2 bedroom flat. When talking about rents in New Zealand compared to the rest of the world I think the figures are skewed to make New Zealand look worse than it actually is.

Wondering what is the agenda behind by ANZ of showing that NZ affordability index is doubling of OZ index, why skewing it when profiting?

Fully correct, at least with steady 20% increases. And try to catch up with BTC, the house should increase marginally steady about 80-100% to 2025.

Once upon a time. A tulip bulb was exchanged for a house.

I assume this comment is in relation to Bitcoin. The tulip bubble is quite different to price discovery for BTC. I don't think BTC is in a bubble, but then again I also don't argue against the idea of the price falling, even by 50%+ (however, that is much more resistance to a falling price now).

Compare that to NZ houses where we have a PM who says that people's expectations are that house prices will rise and where our leading media rags tell us that house prices double every 7-10 years.

The idea of what constitutes a bubble or not seems to be more driven by what people believe that what they actually know.

"Top tips for budding Landlords." aka everyone pile in now!

Most banks will let you draw on the equity in your existing house (if you have one) to create a deposit for your investment purchase.

“Capital gain will come, you’re at the highest risk early on when your loan-to-value ratio is usually highest.”

https://www.stuff.co.nz/business/money/300165186/want-to-be-a-landlord-h...

China put a ban on Australian Lumber

https://getfea.com/international-markets/china-announces-new-bans-on-tim...

China bans overeating, not a bad idea

https://www.upi.com/Top_News/World-News/2020/12/23/China-targets-overeat...

China buys lots or grain from USA

China's January-November 2020 imports of corn from the United States totaled 3.285 mmt, a more than 10-fold increase from the 2019 total and the largest total since 2013. While efforts to meet purchase commitments from the U.S. in the Phase One agreement

https://dimsums.blogspot.com/2020/?m=0

You wouldn't want to be in northern China without heating or electricity at this time of year. Food shortages don't help the situation. I'm wondering how long until they realise they need a new leader.

China is in the middle of a very cold period which is sharply raising demand for electricity - and leading to electricity blackouts. Natural gas prices are rising sharply too.

Natgas Plunges 10% On "Extremely Bearish" Warmer January Forecast
Gas supplies to China to be 59.7-80.6% above contract at year-end — Gazprom

Also this - shame I can't buy this stock on my usual platforms https://cryptobriefing.com/greenpro-stock-price-leaps-by-103-with-bitcoi...

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David Chaston

Compliments are due on your publication of 3 differing views on the property crisis from 3 contributors

Keith Woodford
Susan St John
Brendon Harre

It is vital to have a cross-section of alternate views
Thanks from me anyway

Well said Iconoclost

Agree.

And the EU is about to wrap up a trade deal with China too.

Is Europe tired of yielding to US extraterritorial sanction demands that impose severe domestic costs?

I thought the FireEye breach was probably the most important event of recent days. Our own government haven't indicated the extent of their exposure have they? Almost certainly our Government have many of the same problems and issues.

https://www.bloomberg.com/news/articles/2020-12-15/fireeye-stumbled-acro...

Here’s what we know: Orion is a network management product from a company named SolarWinds, with over 300,000 customers worldwide. Sometime before March, hackers working for the Russian SVR – previously known as the KGB – hacked into SolarWinds and slipped a backdoor into an Orion software update. (We don’t know how, but last year the company’s update server was protected by the password “solarwinds123” – something that speaks to a lack of security culture.) Users who downloaded and installed that corrupted update between March and June unwittingly gave SVR hackers access to their networks. Link

Sounds akin to: "Security costs money, let's not bother."

As I watch the Ardern Government descend into a self-induced-coma arising from investors doing a Martingale in the property market I ask who were the brains behind the Ardern-Robinson $100 billion QE, and where are the elders of NZ. A recent comment underlined the propensity of our Government's to ignore the wisdom of our elders, so who are they and where are they? Who are NZ's top elder statesmen, statespeople, leaders

Example - probably the best of the current crop
https://www.kerrymcdonald.co.nz/speeches-articles
His last article was in August 2018
Paradise lost! Two Decades of Shocking Failure in Political Leadership
Has he given up?

Listen to the Silence

When you own everything why would you want to change the status quo? If I cannot get on a cruise this year another beach property, art, boat, ...bloody hell might as well some of these bit coin thingies..

Those that owned everything, still find it difficult to avoid their gruesome terminal health conditions.. should they decide to visit. (cricket sound)

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I ask who were the brains behind the Ardern-Robinson $100 billion QE

H.L. Mencken observed that, “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”

NZX 50 indicating up by 1.75% today. It's gone up about 5% in one week. The mini crash caused by A2 Milk is long forgotten. Seems like people are piling in to shares, property, bitcoin...

A2M is perhaps forgotten by the public. China is already producing its own brands and milk products with A2 beta casein protein. They have a better handle on distribution.

People have been piling into shares and property all year. Most people are not piling into BTC. Only a minority are.

Yip, the sea fully receding massively back to the ocean central, surpassing the low tide mark even.. exposing a fertile playground beach front for so many to play and enjoy! time to increase the investment commitment but to be safe split those capital investment into shares, property & btc. And watch your investment grow handsomely for it. - Happy investing in 2021everyone, do it quickly before the negative OCR !

Betting on a major recession or societal collapse is quite a long shot. Yeah, I'm going to sit here and put my money in the bank earning less than one percent. That'll make me rich!