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China's recovery slips, stimulus still required; China wary of food inflation; China gets muscular with neighbours; US data improves; Wall Street on edge; UST 10yr at 1.07%; oil unchanged and gold down; NZ$1 = 71.8 USc; TWI-5 = 73.4

China's recovery slips, stimulus still required; China wary of food inflation; China gets muscular with neighbours; US data improves; Wall Street on edge; UST 10yr at 1.07%; oil unchanged and gold down; NZ$1 = 71.8 USc; TWI-5 = 73.4

Here's our summary of key economic events over the weekend that affect New Zealand, with news equity markets are on tenterhooks ahead of this week's opening.

But first in China, their official PMIs for January were released overnight and paint a picture of a slipping expansion. The factory PMI dipped a bit more than expected and their services sector PMI reported a larger slip. These results come after officials have been suggesting they can pull back of stimulus support, so they may be having a re-think about that.

That infrastructure stimulus has been a boon to civil construction companies. Excavator sales rose nearly 40% in 2020; January 2021 sales are expected come in more than double the year-ago level.

In the Chinese mortgage market, there is growing evidence that residential borrowers are able to tap much cheaper mortgage funding that is supposed to only be available for businesses. Banks have stretched the criteria to allow homeowners into these revolving credit arrangements, ones that save borrower from the State-imposed interest levels on homeowners, designed to quell the froth in those residential markets.

Speaking of froth, remember China's HNA conglomerate? It is about to disappear, with creditors filing to force it into bankruptcy. It couldn't escape the consequences of too much debt, no matter how low interest rates were. At the end of the day, if a business isn't profitable, no matter now low market interest rates are, they can't access them. Lenders want their money back.

Sovereign governments however get more slack. But they had better watch out on food inflation. Vegetable prices have more than doubled in China from a year ago, and that will be an undoubted talking point during the Chinese New Year as families gather in the traditional homecoming. It is not a problem "more debt" can solve.

At the same time, China is getting more muscular with its neighbours, sending "survey ships" into many of their waters. The Philippines is particularly aggrieved. It hardly seems the way to win friends, but Beijing does seem to want to be seen exerting its power.

Japanese industrial production remains weak and ended 2020 down -3.2%. Any hope that they are in recovery seems to have stalled.

But South Korean industrial production is on the rise with a better than expected result for December. But the same isn't true for South Korean retail sales.

Across the Pacific, Americans’ incomes climbed for the first time in three months in December as a new round of government-aid efforts kicked in, priming their economy for stronger growth this year. However personal spending fell, minorly it is true, but it is for a second consecutive month and bears watching.

Also improving is the Chicago PMI, a closely-watched heartland measure that came in better for January than expected.

The latest consumer sentiment poll, this one from the University of Michigan, is largely unchanged.

US pending home sales also improved on a year-on-year basis in their latest data, this lot for December.

It is looking quite ominous for the opening this week on Wall Street. On Friday, the S&P500 fell -1.9% and the S&P500 futures suggest it will fall another -2.2% when it opens tomorrow.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 102,758,000 and up +1.07 mln in two days. The variants are increasing their grip and keeping new infection rates high. It is still very grim everywhere except in our region. Global deaths reported now exceed 2,224,000 and +28,000 since Saturday. More countries have started their vaccination programs. And although 93.9 mln doses have been given so far (+7.7 mln in two days), nowhere has 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 +303,000 over the past two days for their tally to reach 26,671,000. The US remains the global epicentre of the virus. The number of active cases rose overnight and is now just on 9,889,000 and +38,000 more than Saturday, so more new infections than recoveries. Their death total is up to 451,000 however (+7000). The US now has a COVID death rate of 1357/mln, awful but made to look 'good' by the disastrous UK level (1559) where deaths are still raging.

In Australia, their community control is impressive. That takes their all-time cases reported to 28,811 and only +11 more cases over the weekend, all new arrivals and all in managed isolation. 66 of these cases are 'active' (-18). Reported deaths are unchanged at 909.

The UST 10yr yield will start today down just -1 bp at just over 1.07%, but it did reach 1.11% at the end of last week so from there it is a -4 bps fall. Their 2-10 rate curve is unchanged at +96 bps, their 1-5 curve is at +34 bps, while their 3m-10 year curve is also unchanged at +102 bps. The Australian Govt 10 year yield is up +2 bps at 1.13%. The China Govt 10 year yield is unchanged at 3.22%, while the New Zealand Govt 10 year yield is also unchanged at 1.13%.

The price of gold will start -US$5 lower today at US$1848/oz.

Oil prices are unchanged at US$52/bbl in the US while the international price is still at US$55/bbl.

And the Kiwi dollar will open the week little-changed at 71.8 USc. Against the Australian dollar we are still at 94 AUc. Against the euro we are at 59.2 euro cents. That means our TWI-5 is at 73.4.

The bitcoin price has fallen sharply again and is now at US$32,802 or a drop of -9.7% since this time Saturday. Volatility in the past 48 hours is still high at +/- 5.7%. 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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30 Comments

I like the stock

"Buy high, sell never"

I like the stock. I wish I knew how to create a banana emoji and a rocket ship. HOLD the stock.

I NZD$200 like the stock today lol

This is the way

At the same time, China is getting more muscular with its neighbours, sending "survey ships" into many of their waters
A common super power activity apparently? - About Those Destroyers

Sooner or later there will be an “incident” more likely contrived than accidental. That should draw some revelations of the stature of the powers that be, out of the shadows?

20
up

Marvellous to see the trend on wallstreetsbets of using GME gains to purchase heaps of games consoles (from Gamestop) and donating them to local children's hospitals.

What an interesting movement. Those who came of age around 2008 are looking for blood.

"It is looking quite ominous for the opening this week on Wall Street. On Friday, the S&P500 fell -1.9% and the S&P500 futures suggest it will fall another -2.2% when it opens tomorrow."

What has the GameStop debacle done? (from CH Smith 30/1/21)

The stock market has just been punctured by the thin blades of truth. It is fatally wounded but nobody dares notice. The wounds are barely visible, but the internal damage is mortal. .... the stock market's vital signs are in free fall but the conversation remains upbeat and light: stimulus, rapid growth in the second half, etc., all the patter of a carefully constructed illusion that fraud is forever as long as the truth never comes out....the truth has emerged from the shadows, despite the silence of the insiders and the financial media...All the Federal Reserve has accomplished in 13 years of goosing the stock market is unprecedented wealth and income inequality as the Fed has boosted the market, which has fatally undermined America's social and economic orders...Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans.

Permanent Magic Number Hypothesis

It is yet another abject lesson in the permanent income hypothesis, pretty well proved by this point. If there were any remaining doubts, according to the BEA today in follow-up data, private income (excluding transfers) had declined for two straight months to finish last year while still substantially short of the prior peak. Making for an especially awful Christmas season, these figures completely corroborated and consistent with the employment (and unemployment) data entering 2021 in reverse.

And personal spending, in real terms, has likewise declined in those same months. American consumers, as rightfully fearful and uncertain workers, follow the lessened track of permanent income rather than conveying their wallets toward Treasury’s groping for a magic number.

Hi bw earnings are on the incline not decline and the risk free rate is low. Housing markets around the world are increasing which has the inevitable 3 year growth cycle. What you are looking at is a bit of short termism ....

Hi bw earnings are on the incline not decline and the risk free rate is low.

The risk free rate is low (3 mth US TBill yield 0.05%) because liquidity preference is high.

Let’s Talk Bills (again)

As MSM insist on being negative, I think I must include the most recent figures from Worldometer and NYT which show that worldwide infections per day in last 14 days to 29th January FELL 21% compared to the 14 days prior to that. Yes, I said FELL. MSM unfortunately only seem interested in keeping the bad news coming, like quoting total cases infected despite the fact that about 75% are in fact not cases because they have recovered.
USA cases per day have fallen by 40% in last 2 weeks but MSM not interested in this. WHY?

2 weeks ago, mid winter in the north seemed like peak virus... the vaccine is coming for europe and the USA. I dont like NZs chances of getting vaccine supplies however

The MSM love bad news and sensationalism. There's the answer.

Both of the brokerages we use ,have sent emails over the weekend that no new positions can be opened specifically in either AMC or Gamestop, and any open positions at opening Tuesday morning will require , not unsurprisingly 100 per cent margin.

11
up

I spoke to mate in UK whose father died of heart attack. He had heart disease for a number of years.The doctor put cause of death as Covid on death certificate.When questioned he said he had been told to put Covid on all deaths.Something to do with money for NHS.

Lolz why does that not surprise me, its what bureaucrats do. They had better be careful or people will lose faith in the system, oh wait they already have.

11
up

Well, did he have COVID? No offense, but your 'mate' sounds full of sh*t. As a front line medical worker it is disheartening and frankly quite offensive to hear these BS stories repeated over and over again.

As a former Police Officer there was a regular occurance near year end. A senior officer would instruct us in the pre-shift briefing to put a certain code in our time sheets as they were short on hours. Often traffic related, but not exclusively, as ACC was providing some of the budget. Similarly it might be that a clearance rates for offences might need to be tweaked, which meant either more, or less, recording of certain offences. For instance things normally recorded as K1 or K3, no offence or Police Attendence sufficient, would be recoded to K6 and a form filled in. This was for budgetary reasons in anticipation of what was being demanded for the next financial year, including staff numbers. So I think your feeling offended is misplaced, and your thinking on this is Naive.

I'd also add that I've seen a whooping cough epidemic run through a small NZ city unreported. It was just called the 90 day cough. Funnily enough that is the old term for whooping cough, but since we have vaccines we don't get whooping cough anymore (Tui add). Schools had massive numbers of kids, and teachers, at home sick.

I briefly worked in an NHS, where senior management response to 2 patients about to breach the unbreachable waiting time on the list was to go and pay personal visits to said patients to promise if they could just take their names off the waiting list temporarily, they WOULD be seen next week.

If you want to stay sane working in government, you need to recognise that 80% of staff are furniture, 15% are ass-coverering psychopaths, and the other 5% get things done. The collateral damage from this is wide and varied, and it gets worse the further up the chain you get. The EU, UN, WHO, IMF, et. al. are the worst of the worst.

I used to do a lot of reporting for MoH and DHBs. What actually happens on the frontline is entirely different to what is "reported" to have happened.

No one is implying the frontline aren't doing a great job. Just that what is reported may not align with what happened.

i still do -- and they never read a bloody thing! We have been promised joined up auditing and reporting for 15 years now -- with no progress - just more unnecessary requirements -- and being audited by three differetn agencies every year -- all lookign at the same things -- like cant you just agree to accept one agencies audit! extremely wasteful of time and much needed staff time from face to face supports to box ticking

Couldn't agree more, plenty still paper pushing line of managers, CEOs, team leads, PAs - passing those word menure at the front line, ended up written as fertiliser to promote growth in the upper chain - C19 era? will make it worst, as more $ injected into public servants employment for 'economic stability'

Are you sure he wasn't in the US, that is where this story started....

j reacher - Family in UK relayed the fight with NHS a friend had whose husband was killed in a car crash last year, and had covid put as cause of death. It was absolutely harrowing for her. At that time - I don't know if it still applies - there were very different rules re funerals for covid and non covid deaths. All the widow wanted was to be able to giver her loved one a 'decent' funeral. She fought hard and eventually got it changed, but was told the same as what your mate was told.

j reacher,

"he said he had been told to put Covid on all deaths". Really? by whom? frankly, i don't believe it.

Remember, even when the shares tank, those that (mostly) in NZ piggy back their gambling habit to the assurance asset class that is housing.. it's a clear sign to be bail out by tax payers. NZ will and shall not understand what is the meaning of belt tightening, austerity etc. - NZ detox process is different, pour more invisible resources... from the future. Cool recipe.