Japan and Europe struggling; US and China rising; Australia benefits from their gains; the travel-to-consumer-goods shift causes inflation stress; UST 10yr at 1.09%; oil soft and gold firm; NZ$1 = 71.8 USc; TWI-5 = 73.2

Japan and Europe struggling; US and China rising; Australia benefits from their gains; the travel-to-consumer-goods shift causes inflation stress; UST 10yr at 1.09%; oil soft and gold firm; NZ$1 = 71.8 USc; TWI-5 = 73.2

Here's our summary of key economic events over the weekend that affect New Zealand, with news the world's economies are in quite variable shape. And fortunately, New Zealand is in the group doing quite well at present.

In Japan, their January PMIs aren't showing any real improvement even if there are some positives. They recorded a faster deterioration in business activity in January. Demand weakened further as new business inflows contracted for the twelfth successive month, weighed down by a further fall in export sales. That said, new orders in manufacturing recorded an expansion for the first time in two years.

Things are also not positive for EU or UK businesses in January. In the EU business activity fell at an accelerated rate as companies continued to struggle amid the pandemic restrictions. The rate of factory output growth weakened to the slowest since the recovery began and the service sector saw output fall at the second-fastest rate since May. Even by those dour standards, it is worse in the UK.

However, the internationally benchmarked PMI for Australia recorded a continuing healthy expansion.

And the Aussie rural sector is having a bumper season, especially for wheat and beef. They have been aided on the price front by growing season struggles in other parts of the world. Meanwhile, China's attempt to pressure them with trade restrictions seems to be coming to nought.

But the Aussie retail sales data for December was actually disappointing, down -4.2% pa on a seasonally-adjusted basis from November. However, despite that dip it is still more than +9% higher than for December 2019. Like New Zealand, these retail gains are coming from the closed borders with the locals unable to holiday overseas - that spending is happening locally now. It is a global effect; NZ$85 bln is being redirected this way from travel services to consumer goods - which is the real reason behind the recovery in many factories and the stresses in container shipping.

American factory activity picked up in January built on higher new orders, in fact a 14 year high. Service sector activity improved sharply as well. All this is despite more reports of supply-chain disruption. And a feature is rising producer inflation.

American existing home sales rose more than expected in December. Another -2% fall was expected (like November), but in fact sales rose +0.7% to their highest level in 14 years.

Data for Canadian retail sales in November was also released over the weekend and it was surprisingly upbeat. However, the early numbers for December aren't great because that was when new lockdowns started there.

China said its foreign exchange reserves rose to US$3.217 trillion at the end of last year, +3.5% more than at the same time in 2019.

From China, to Japan, to India, to the US, carmakers are raising prices as electronic chip makers do the same to them as a worldwide shortage spreads of these items at the heart of almost every machine now. Spreading tech may have been the basis of low inflation in the past decade or so, but surprisingly it may now kick off a new round of inflation in this next decade.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 98,924,000 and up +1,141,000 in two days. We are heading for 100 mln probably on Wednesday this week mainly because the UK variant is increasing its grip, and other variants are emerging too. (By some counts we are already at 100 mln.) It is still very grim everywhere except in our region. Global deaths reported now exceed 2,124,000 and +26,000 since this time Saturday as death rates rise everywhere. Only a few countries have yet started their vaccination programs. And although 64 mln doses have been given so far, nowhere is the tide turned on infections or deaths yet - except perhaps in Israel.

But the largest number of reported cases globally are still in the US, which rose +358,000 over the weekend for their tally to reach 25,583,000. The US remains the global epicentre of the virus. The number of active cases rose overnight and is now just on 9,822,000 and +122,000 more than Saturday, so more new infections than recoveries. Their death total is up to 428,000 however (+7000). The US now has a COVID death rate of 1288/mln, awful but made to look 'good' by the disastrous UK level (1438) where deaths are still raging.

In Australia, their community outbreak is back well under control. That takes their all-time cases reported to 28,766, and only +11 more cases over the weekend, all new arrivals and all in managed isolation. 135 of these cases are 'active' (-22). Reported deaths are unchanged at 909.

The UST 10yr yield will start today unchanged at 1.09%. Their 2-10 rate curve has dipped -1 bp to +96 bps, their 1-5 curve is still at +34 bps, and their 3m-10 year curve is also flatter by -1 bp at +101 bps. The Australian Govt 10 year yield is down -1 bp at 1.06%. The China Govt 10 year yield is unchanged at 3.15%, while the New Zealand Govt 10 year yield is also unchanged at 1.09%.

The price of gold will start up +US$2 today at US$1856/oz.

Oil prices are just a little softer at just under US$52/bbl in the US while the international price is now just under US$55/bbl. The rise in US rig counts seems to have petered out.

And the Kiwi dollar will open where it left off on Saturday at just under 71.8 USc. Against the Australian dollar we are marginally firmer at 93.1 AUc. Against the euro we are unchanged at 59 euro cents. That means our TWI-5 is still at 73.2.

The bitcoin price has recovered after briefly dipping below US$29,000 and is now at US$31,917. However that is still -1.3% lower than where we left it on Saturday. Volatility is relatively low at +/- 2.3% in between. 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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73 Comments

The buying frenzy in action - at the weekend a friend in Auckland attended an auction for a bach on Waiheke Island which sold for more than $1.4 million (RV ~$788,000).

I am more worried about the UK virus escaping into our community which could decimate the population around here. Bloody MIQ and MOH cant manage a pissup so one slip and you wont have to be concerned about high property prices on waiheke island... auckland or elsewhere. Mind you waikehe could fashion itself with closed borders and quarantine new arrivals. Buyers would go nuts for exclusivity.

Nonetheless, punters seem unaware that the long persistent rise in discounted present values of future cash flows associated with assets may have pivoted the other way.

Recent news that the RBNZ may no longer take action to move the OCR to a negative setting and in fact the term discount factor in the form of the government 10 year note has risen from a 50 bps yield last May to 110 bps today are being ignored.

Furthermore, negative real yields (inflation adjusted) offer little hope of rising future nominal rent returns.

Agree with this one Audaxes ... which leads to the quandary: I'm basically out of shares and in commercial property, cash (mainly as of New Year), and NZ treasuries and bonds. I can't see how bonds and treasuries have any upside from here, just quite a large downside, so pondering putting those into cash as well and earning negative real returns until the share crash, which does come, I just don't know when.

The hardest of times to be trying to retire. In fact for the risk averse these are lunatic times thanks to the immorality of central bank monetary policy.

The upside is, it is truly interesting times, and hopefully economics textbooks see some radical revisions in coming years.
I suspect that, like me, you believe a collapse in the market is inevitable -- with the question being which domino falls first, and when. But those of us who think this way have been proven wrong time and again in recent years. I do think the role of central banks is overplayed - the CBs can't make people buy anything. None of this would be the same without old-fashioned greed-induced bubble delirium.

"I do think the role of central banks is overplayed" ..so setting interest rates levels has no affect on peoples buying decisions? ..just fell off my chair..

Oh, it does make a big difference.
But those overpriced investments are still overpriced, as Audaxes points out above. If people were thinking rationally we wouldn't be seeing the frenzy we are right now in RE, equities etc.

When CBs ARE the buyers and have unlimited capacity to support other buyers, then you have quite a different situation...

Most people won't have seen a market that goes bidless.
Wanting to sell something; anything - be that stocks, bonds or property, and finding out there are no buyers, at any price, is a tad unnerving.
And when that first price comes in, it's a sobering experience.
https://www.davidstockmanscontracorner.com/the-rising-danger-of-a-bidles...

MH - No, these are indeed lunatic times, but the central banks, banks, 'investors' (ticket-clippers in a zero-sum game, from a physics POV), house speculators etc, are all equally guilty of the lunacy.

Saving physically for retirement (glasshouses, firewood, vege-patch, energy systems, avoiding intensive maintenance) beats amassing digits in a bank computer. Last I heard, they don't do a lot nutrient-wise.

Remember that folk who study what I do - the Limits to Growth, global energy, rates of entropy - have known this phase was inevitable, for several decades. I guess it just depends whether someone was a believer or a questioner, probably an important distinction in the formative years.

Don't forget the harvesting and supply of fresh crystal clear water - a benefit Aucklanders will not have come the day

"The hardest of times to be trying to retire"

As i have said before, retirement as a concept will soon be consigned to history
A brief flash in the pan when growth was a sure thing

Possibly. Also why every central banker for last decade should be in a criminal court for the utter recklessness.

central bankers can only conjure up Claims on resources

they cant conjure up resources

Swap rates at the long end are going higher? Can property prices rise simultaneously with interest rates. Yes. But will depend on other conditions

Decompressing from a highly negative position with respect to the sovereign debt bench mark.

Even so the swap (mid 20 yr) against the most recent tender (19/1/21) of NZ government 41's traded -26 bps below the sovereign yield - hardly a strong inflationary signal.

The vaccine, notably the Chinese version should be considered heavily by govt. As NZ sole great trading partner. With that major discount in mind, the QR code scan, wash hands clearly will repel the C19 (same like bugs repellent cream for body use) - We are waiting the next announcement by the ministers to subsidized all Kiwis with the latest, mobile devices capable of the blue tooth, QR scan & hopefully with the extra power banks to avoid device powering down and disable the punter from entering premises. Sweet.

Out of curiosity I went on one roof over the weekend to find the average price of our house has gone up $75K in 5 months. Absolutely nuts !

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I am sure you smiled and gave yourself a slap on the back for the hard work and superior investing intelligence than renters.

I was 'on the roof', cleaning the spouting

Surely that adds a few hundred thousand to the valuation?

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which means what you break it down ... it means that if you sold you would pay $75K more for the same house in this new awesome market

Its a leveraging Ponzi ... designed to get more spend and debt in criculation. Nothing more
there's no wealth out there, despite what the masses & media & oneroof say

(more) wealth

Tradersam... I would tend to question the accuracy of One Roof valuations. I just got one to say that the house I bought in New Plymouth in April has increased $1000+ a day. Could be right but any publication employing Alexander the not so great and Ashley Mosque should probably not be relied on for its accuracy and certainly not for its impartiality.

Is the COVID threat reducing the number of small businesses and increasing the market share of large companies and organisations? Must be getting harder to stay in business with lockdowns and restrictions.

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I agree. I understand that Kiwis have the right to return home, however, I believe that every time someone enters the country, they risk us all. For that reason ONLY Kiwi citizens should be able to get MIQ bookings at the moment.

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Agreed – roughly a third of those returning daily are non NZ passport holders and thus are not “stateless” outside of NZ.

Government is repeatedly fudging this situation and importing unnecessary risk.

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Yep. Distingush between citizens and residents.

Yeah and lets keep out celebrities and sports team until we have vaccinated OUR people.

Fudging? you are too kind

Any small business in the leisure industry has done exceptionally well. Try and buy a boat, outboard, wetsuit, pool, spa, e-bike. The biggest problem any import distribution business has is getting stock here. Issues down the entire logistics chain, raw materials to freight. Expect some large increases coming through this year, we have seen up to a 5x increase in freight costs, and suppliers threatening large increases.

Not just a threat anymore, the reality has arrived. We are now paying 4+ times more per container than this time last year. Selling stuff is easy, as you observe, getting it here the hard part. Breaking the news to people that their dreams will have to the postponed for a few months not really a fun part of the job. Our bankers tell us that our story of strong sales and profitability is widespread, as you note. The C19 months spent cutting costs, reducing stock holdings and paying down debt as hard as we could would, with hindsight, have been better spent borrowing more to build inventory.

Mortgagebelt... I woulda thought so too but just returned from Welly where my two mates have a number of businesses. They both said things have never been better and they have just bought a huge piece of land (they can get about 28 sections from it) which they will likely just landbank for years. Contrary to what I heard Ashley say last week, in our current housing crisis it is imperative to (heavily) tax empty houses and vacant (residential) land.

During November 2020, for the first time ,the median New Zealand house price when priced in USD breached 500,000.It maintained that level throughout the December month Currently at 540,000USD , a premium of some 210,000 USD, when compared to the median (existing) US home. The percentage or absolute difference has not been higher.

That's insane.
51% of adults so damn rich.
Hahaha.... pop

Yes, the Demographia report is out today and will confirm we are still world-leading, in the wrong way.

The farm is getting crispy, no rain for ages. It's not so important this time of year, the cattle are happy in the shade and it's too hot for them to eat most of the day.

I am what I call short beef, I only have big cattle on, most of which I can kill anytime but rather end of May. I can get weaner bulls or 6 month old calves quite cheap, I can buy 3 for every big animal. But if I sell these big cattle and buy little ones, I am long beef. It sounds countercyclical but if times get tough you are better in big animals, there will always be a margin trading down and you are not dependent on the auction or store markets.

The price per kg in the works is $4.80 but it was in the 6s. I should get $1500 for these cattle in May. Little ones could be worth what I have paid for them, buying cheaper animals is good for the bank balance short term but not as good for profits.
I have been quoted 1 year old cattle R1 bulls for @2.30 ouch some one hasn't made any money for a whole year.

I talked to friend in the States he was saying Thursday Fridays action in the grain markets cost him 100k. Wild swings are hard when you are stuck between God and Nature. Which at the end of the day I guess we all are.

Friend killed lambs last week and got $120 for 17 kg lambs, way back on the last few years and wool is stuck on $1 a kg way below cost.

Meanwhile in the background this consent to farm is going to be a nightmare for us all, I don't think people have realised just whats happening. We will have stock caps, fertiliser caps, it will be enforced so we better get on with the enforcer. Who would buy a farm with this hanging over us?

In the mean time we have large dairy farms using surface takes when the rivers are hardly flowing and falling daily. The councils should be made to publish min flows and daily water takes. Our stream is the lowest I have ever seen it, we just haven't had a big rain event to recharge the aquifer for almost 3 years. At this rate it will dry up by the end of Feb, a first.

The profits in farming are captured by the processors and the retail chains.

If this covid is the new strain i doubt it will be controllable looking at results from overseas. Our Media is myopic and I for one am frustrated, whats happening in Sweden, India, Africa even Italy? The MSM is run on a shoe string and more focused dwindling profits. Whats it take to Skype call Sweden. I have a daughter who lived in Sweden she could do it now.

Friends in the UK are snowed in. Norway has locked down due to new covid cases, coming from Sweden. Friends are still working though.

proof
https://pbs.twimg.com/media/Er3MTOyXIAEF_IE?format=png&name=small

Carbon credits are ridiculous

https://www.newsroom.co.nz/pro/why-we-cant-plant-our-way-out-of-climate-...

Shipping in Asia, international trade is huge in a globalised world.

https://pbs.twimg.com/media/EscGXGNU0AQh_ie?format=jpg&name=small

Accidental report.
Anyway.
Eastern Eastern BOP, had 250mm this month and have water in places I've not seen before so things are looking pretty good with 3x the supplement of last year so far.
Cows will probably drop this week though, anything above 26deg and quality and quantity of feed becomes irrelevant. Still there's good water in the river to swim in though of course the cows aren't allowed.
Probably best season I've ever seen to this point.
Add to that a $7 plus payout?

We live in a dry place, Im getting over these dry patches, okay in Jan but no rain by the end of Feb and i'm not so happy, mid March i'm worried, by the start of April I'm starting to panic.

South of here it's green, south of Hastings is dry. We have 27 sections being developed around us.

@Andrewj. "Wild swings are hard when you are stuck between God and Nature. Which at the end of the day I guess we all are."
Well. Many are not. Look at government employees. Covid not a problem for them.
It will be OK. As Ardern and Robertson get more and more of us dependent on Government we will be insulated from all problems. Magic.

"Our Media is myopic and I for one am frustrated, whats happening in Sweden, India, Africa even Italy? The MSM is run on a shoe string.."

Totally right
Its why we get American only news ... its cheap and stupid
No reporters and when we do its for a live cross to an empty parliament frontage ... awesome

So how many here pay a subscription for news.....silence is deafening..

you paid through viewing ads ...

frazz...most people on here prolly pay for Sky TV, which has at least 7 (almost worthless) news channels.

Really? Ditched the TV years ago..

https://www.nzherald.co.nz/entertainment/tv-presenter-matt-chisholm-lose...

What do you mean? This is important and insightful journalism.

Do you think the farming caps will be enforced the same as in the following article?
https://www.rnz.co.nz/news/in-depth/435111/revealed-the-companies-dumpin...

From the link above,
"Despite hundreds of consent holders dumping contaminants into the sewers in the past year, not a single one has been prosecuted. Councils can't stomach the cost of taking a prosecution under the Local Government Act or the Resource Management Act.

How many have been slapped with fines? None. A legal loophole means councils have no power to issue them, so are instead forced to take an "educative" approach with errant firms."

"The profits in farming are captured by the processors and the retail chains."

Which was a big part of the reason for "cooperatives"... ie. a farmers collective style processing/manufacturing.
ie. Farmers could maximise their own profits by being more than just the "producer"
Farmers lost that with the evolution of Fonterra and its dream of becoming a global giant. ( Why was Fonterra, as a cooperative, buying farms in China.? )

ps... I ended up reading Rusty Firths' books... He was keen on farmers operating their own Small processing facilities. eg.. an abattoir owned between local farmers.. ( books written in the 1980s')
I'm guessing the regulatory nature of todays world would make this almost impossible to do..?

With the technology of today, one would think that micro- industries are very doable..??

What's with the price of fuel. Vastly more expensive in Auckland than Otago. More so than the 10c extra levy in Auckland would indicate.
For diesel over the last week whilst travelling.
Auckland and Northland. $1.23 to $1.45. 1.45 was common at "Z"
Highest there was Caltex in Penrose on the great South Road in Penrose at $1.51.
Highest in Otago was $1.18 at BP in Cromwell. With Z Cromwell $1.13 and Z Dunedin $1.11.
Lowest was Cromwell Allied and NPD at $1.07.
What I don't get is the highest in Penrose, middle of a big city with huge traffic problems, and lowest in Cromwell, small town, hauled as far from the port as you can go in New Zealand.
Yes market forces apply, but only in a limited way.

To be fair, the market also includes selling for the highest price you can get, why sell high volume with more work/costs when you don't have to.

Collusion works well redcows. It can be very subtle.

If we had much better public transport in Auckland there might be a lot less demand for fuel...
I've had the displeasure of driving quite a few times on the Southern Motorway in the past week. About a third of those trips have been elongated by accidents.
I will do my best to stay away from the highways.
I am sadly not surprised by the accident frequency. Many drivers seem to have no understanding of safe driving distance.

I've been in the waikato for the sprint nationals in my sport and was twice approached in Hamilton by people begging me for money outside food establishments. Active rather than passive begging. Is anyone else finding this?

It's just the start. It will get much worse as inequality worsens and a LABOUR government does jack about it....

What did you do?

Fair question. I was shocked really & didn't know what to do. First inclination was to help out flick them a few dollars, I went to with the first guy but only had a $50 note on me. Really the trick is to buy them food direct, but when caught by surprise I'm not good at thinking on my feet.

I have been open on here about my hitchhiking activity in the past. I'll pick them up also when I'm in a position to. But I think was hitchhiking we are talking a different mentality to a begger.

You've got to help the poor, but I think it probably has to be conditional. I don't think it works with a stranger you know nothing about, it would work if some obligation or expectation is involved.

On a separate psychological note, what is the personality type of this style of beggar? Most wouldn't have the gumption to be so forward surely?

If you 'help them' by giving them free cash you are not helping. Give a man a fish saying is very true

Pretty common for some time. Often carrying plastic can and they spin you are story about running out of gas. If they want money, tell em to wait and you’ll be out wit a can of baked beans. Bottom line is we have a very generous benefit system and these people have other issues..the State does not abandon them...they abandon the State.

yep seen this at a dairy in New Windsor, and outside high Street shops in Blockhouse Bay, havnt seen that before

'Anti-Vaxxers' just got a shot in the arm for community support.

Government grants vaccine suppliers indemnity against claims

Does any side effect then become an accident and covered by ACC?

Well that has to be one of the best written PR BS I have read in a while.

Apparently the 'indemnity shields Pfizer and BioNTech from any potential legal action overuse of the vaccine.'

No mention what so ever as to why someone would want to start any legal action against its use.

And the reason that they seek it is:

'Pharmaceutical companies often seek indemnities when developing a pandemic vaccine, because of the need to speed up the clinical trial process.'

I can just see it now, "Yes your honour, they were doing 100km in a 50km speed zone."

Andrew. What area of CHB do you farm in?

half an hour south of Hastings. Always been a dry belt, goes from south east of Waipukurau up though here along hwy two, over to Maraekakaho then south down to Kereru and up to Mountains.

The problem here is if I want rainfall i have to go for altitude and it's too cold in winter, here winter is very mild.

A question - does anyone know what this proposal by the National housing spokesperson might mean?

5. Implement new finance models: The Government should work with industry to develop finance models that leverage Accommodation Supplement and Income-Related Rent entitlements to drive new housing development.

https://www.scoop.co.nz/stories/PA2101/S00048/bolder-action-required-to-...

Are you familiar with the 1960's-1970's Capitalisation of the Child Benefit Scheme?
It has been suggested here that if a Family is in rented accommodation, have children, are a FHB, receiving Accommodation Supplement and Income related Rent entitlements it is a small step to allow that family to capitalise 10 years accommodation supplement, receive it as a lump sum toward the purchase of a "new" home. In the current house price environment it is probable they would still be stuck receiving those benefits in 10 years time

On the face of it that sounds entirely sensible.
There's one or two flaws I can think of but no policy is perfect.

Problem is the Accommodation Supplement itself is an imperfect (read: awful) policy to begin with;

https://www.stuff.co.nz/business/opinion-analysis/113200606/bad-design-o...

The availability of the supplement for many beneficiaries (i.e., those without work) it does not lift them above the poverty line. But, think of its application to working families.

Take for example one, two-income (i.e., working) household that splits up and becomes two, one-income (working) households with 50/50 shared care of the dependents. In the pre-split environment, the two incomes together exceeded the income threshold for A/S to be collected/paid. Post-spilt, both households qualify, and it can be used to supplement the costs of either rent or mortgage(s). At the maximum supplement of $305/week to help with the mortgage, why not own two owner-occupied homes? And the sum total of tax free capital gains will be higher too, I imagine.

We need to get rid of this type of middle class welfare, and just get NZs cost-of-living sorted through better/improved regulation (such as #rentcontrolnow).

Bigger analysis on unsuitability of the A/S here;
https://www.cpag.org.nz/assets/190503%20AS%20report%20May%202%20final%20...

Oh, thanks I get it now. But can't say I'd agree at all with it. It more or less cements the Accommodation Supplement Scheme into our tax/welfare system. Just as [the perceived guarantee of] property rates are leveraged by Council's in terms of their debt/borrowing. All this 'leveraging' is the problem, not the solution.

And it will allow a increase in the leveraging. Fuel to the fire just as the other grants and kiwisaver usage were/ are.

The test of your cementation concern is, if you could, how would you unwind Accommodation Supplements and Rental Benefits

Market regulation by way of rent price controls. If rents were affordable, there would be no need for a supplement, and there would be a lot less need for state housing as well.

It needs to be done quickly however, as anyone purchasing a rent-to-buy in this 'hot' market will possibly find the controlled prices for lower-quartile properties unattractive. So, the fewer investors that pile into highly leveraged rental properties while purchase prices are high, the better for them in terms of their overall portfolio of investments.

Think of rent controls as a regulatory mechanism that would discourage the type of leveraging going on in our housing market.