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Dairy prices up again; US retail sales rise; CBO likes what it sees; China housing froth returns; EU struggles; RBA extends big QE; UST 10yr at 1.10%; oil up and gold down; NZ$1 = 71.5 USc; TWI-5 = 73.5

Dairy prices up again; US retail sales rise; CBO likes what it sees; China housing froth returns; EU struggles; RBA extends big QE; UST 10yr at 1.10%; oil up and gold down; NZ$1 = 71.5 USc; TWI-5 = 73.5

Here's our summary of key economic events overnight that affect New Zealand, with news of some major divergences between some major economic blocks.

But first, the overnight dairy auction saw prices rise a modest +1.8% in USD terms, but it was the sixth consecutive gain and took overall prices up to their highest since May 2014. (However, in NZD terms they are only back to year-ago levels.) Apart from SMP prices which dipped -1.5% after a strong rise at the prior event, all other products rose strongly with the key WMP price up another +2.3% and taking its price to its highest since December 2016. In NZD terms, overall prices gained another +1.2%. At these new levels there will be upward pressure on farm gate payout prices, limited by the rising Kiwi dollar.

Update: Fonterra has raised its farmgate milk price forecast by +20c. More here.

US retail sales last week were still lower on a month-ago holiday-boosted basis, which is pretty understandable, but on a year-on-year basis they are making further impressive gains.

The independent Congressional Budget Office has issued an upbeat assessment of American economic prospects for the next ten years. It expects their economy to grow 'above potential' for the next few years, making back its pandemic losses by as early as next year. It also expects inflation to pick up, along with interest rates, and debt servicing will become a larger burden for them. This is an overall stronger outcome than the one they last released in July 2020.

In China, there is growing evidence that their housing market is in a new and unrestrained surge of demand. Authorities there will likely be stepping in again and soon.

In Hong Kong, they reported very ugly retail sales data for December, down -13% from the same month in 2019 and for all of 2020 retail sales there were down a massive -24%. Pessimism is high in the recently invaded Territory and it is becoming a shadow of its former self.

In the EU, things aren't great either. It is falling further behind. Their Q3 GDP bounceback has faded fast and in Q4, they went backwards by -0.5%. Unless the Q1 2021 result is positive, they are back in recession. Changes aren't great for avoiding this double-dip. On a year-on-year basis, it looks awful. About the only 'good' thing is that the UK is out of their numbers now and no longer another drag on these results.

In Australia, the RBA didn't change the interest rate at its review late yesterday, but it did dramatically extend its QE program. It decided to purchase an additional AU$100 bln of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid April. These additional purchases will be at the current rate of AU$5 bln a week. But the RBA is buying bonds at a faster pace than the government is selling them. The gap will widen to shrink their bond market by -$1.5 bln a week. This is a AU$750 bln market and the RBA already owns 10% of it.

Wall Street is posting another strong rise today with the S&P500 up +1.6% in early afternoon trade. Overnight European markets rose about +1.6% (although London only managed a +0.8% gain). Yesterday, the very large Tokyo market rose +1.0%, Hong Kong was up +1.2% and Shanghai gained +0.8%. The ASX200 rose +1.5% yesterday while the NZX50 Capital Index was the outlier, falling -0.4%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now at 103,573,000 and up +483,000 in one day. 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 2,244,000 and +13,000 since yesterday. We should also note that the Russian vaccine has passed its clinical trials well.

More countries (69) have started their vaccination programs. And although 101.4 doses have been given so far (+4.8 mln more overnight), nowhere has the tide turned on infections - except perhaps in Israel and the USA. However, there is clear evidence the vaccines are working to reduce or even eliminate deaths for those who have taken it.

The largest number of reported cases globally are still in the US, which rose +146,000 overnight for their tally to reach 26,924,000. The US remains the global epicentre of the virus. The number of active cases fell overnight and is now just on 9,835,000 and -85,000 less in one day, so more recoveries than new infections. And there are now more vaccinated people than active cases in the US, which is a milestone. Their death total is up to 455,000 however (+3000). The US now has a COVID death rate of 1369/mln, awful but made to look 'good' by the disastrous UK level (1586) where deaths are still rising fast.

In Australia, their community control is impressive. Their all-time cases reported is now 28,824 and only +6 more cases overnight, mostly new arrivals and all in managed isolation. 55 of these cases are 'active' (-5). Reported deaths are unchanged at 909.

The UST 10yr yield is up +3 bps at just over 1.10%. Their 2-10 rate curve is steeper at +99 bps, their 1-5 curve is at +36 bps, while their 3m-10 year curve is also much steeper at +106 bps. The Australian Govt 10 year yield is up +1 bp at 1.17%. The China Govt 10 year yield is also up +1 bp at 3.21%, while the New Zealand Govt 10 year yield is up a sharper +4 bps at 1.23% and its highest in nearly a year.

The price of gold will start today down +US$25 at US$1838/oz. Silver is down more than -7%.

Oil prices are up almost +US$1.50 at nearly US$54.50/bbl in the US while the international price is now nearly US$57.50/bbl. ExxonMobil has posted an enormous -US$22 bln loss for 2020.

And the Kiwi dollar will open today little-changed if a little softish at 71.5 USc. Against the Australian dollar we are firmer at just on 94.3 AUc and its highest since early December. Against the euro we are just under at 59.5 euro cents. That means our TWI-5 is up very slightly at 73.5.

The bitcoin price has risen again overnight and by +6.3% and is now at US$34,865. Volatility has been a relatively low +/- 3.3%. 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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49 Comments

"It expects their economy to grow 'above potential' for the next few years"

How many $ of debt to a $ of GDP?

https://seekingalpha.com/article/4308227-powells-fantasy-economy-should-...

A good read with many points worthy of highlighting, but best summed up by:

The reality is the economy cannot sustain itself without the debt.
While we do have the ability to choose our future path, taking action today would require more economic pain and sacrifice than elected politicians are willing to inflict upon their constituents. This is why throughout the entirety of history, every empire eventually collapsed under the weight of its own debt.
Eventually, the opportunity to make tough choices for future prosperity will result in those choices being forced upon us.

I need to keep posting this because it's the simplest graphic that sums up that article https://i.imgur.com/bag3sKl.jpg.

And the big question for economists in light of a sunk US economy, that will inevitably cause the USD to lose global reserve status has to be - what's next? My take on the whole Wall Street Bets movement (which is global, and consists of internet savvy adults rather than bored kids) is that the voting public don't trust central banks to steer their economies any more, and Wall Street as the primary benefactor of QE is the best target for social action. With rising inequality, rising inflation, and rising dissatisfaction about 2 sets of rules for the public and the establishment, things are likely to get much more volatile yet. What's required to fix this whole mess is a financial system that sits outside the whims of government and finance lobbyists. That sort of system will underpin the next global reserve.

"What's required to fix this whole mess is a financial system that sits outside the whims of government and finance lobbyists. That sort of system will underpin the next global reserve."

The current financial system is a leverage bonanza not to be repeated ... EVERYONE has been consuming and living off debt and ultimately this has enabled resources to be mined/harvested/pillaged from all ends of the earth
The debt keeps the supply chains ticking and consumers viable (able to keep demand pull going & bringing economies to scale...)
To remove this leverage (and face reality) is to decimate living standards & disrupt supply chains - its coming anyway

So the next "financial" system wont be the nice democratic form you are suggesting ...
more likely power plays over dwindling surplus ...

What you're describing is the hard constraints of finite resources which I'm in complete agreement with. Unfortunately though, history gets repeated over and over by those who choose to ignore it. So, what was will be again, what happened will happen again.

We're about to witness a world with something "new under the sun" though with blockchain - a decentralized, distributed, verifiable open ledger. Possibly the most democratic tool ever invented. History is yet to write it's first chapter about how that plays out.

The link is good; history repeats... but the conclusion is wrong
It wasnt the financial shenanigans that collapsed Rome
It was their inability to keep conquering (expand resource bases to tax) ... which necessitated financial shennigans to keep the party going ...

Modern day, the bit i would argue with is thinking a "democratic solution" (like Bitcoin supposedly) will come into place ...

History says when resources are scarce / limited, committees go out the window ... And force rules

What can the EU do? EC President Ursula von der Leyen has made several errors in dealing with Covid-19 that have compounded one another and refuses to stand stand up and be accountable or stand down from her position, along with those in charge of the vaccine program. Her presidency has become the best advertisement for Brexit as the British surge ahead.

What's the preferred delivery method for a Russian vaccine, smearing it on someones door handle? I'd rather wait than have either, the fact the Germans are even considering this (when BioNTech is a German company!) shows you how desperate the situation is in the EU.

Umbrella.

"The Camel Marches while the Dog Keeps on Barking"
Russia to supply over 300,000 respirators to Germany in February-March

British surge ahead? what economy in recession or covid deaths ..what are you on about?

The British poorly handled the situation early-on but have recovered. The EU member states comparatively succeed at controlling the virus through rigid lockdowns but, because health ministers deferred vaccine procurement to the EU itself for ideological reasons, do not have the manufacturing and logistics capacity ready to produce at scale.

Wow! Please can you define what you mean by "early on" and "recovered". The past few months there have been a sh*tshow. And although they have a head start on vaccination what's going to happen if those vaccines don't work quite so well against the new variants (and there will be more of those coming soon..)
Yesterday I was reading about how Brexit is leading to empty lorries going back to Europe...

Surge ahead into...covid disaster? Tory crony disaster? Economic disaster?

The independent Congressional Budget Office has issued an upbeat assessment of American economic prospects for the next ten years. It expects their economy to grow 'above potential' for the next few years, making back its pandemic losses by as early as next year. It also expects inflation to pick up, along with interest rates, and debt servicing will become a larger burden for them.
Bonds prices have a long way to fall to price this outlook.

At the present time, however, the cracks which had papered over the post 2008 bodge and the distribution of national income was increasingly tilted away from the 99% to the 1%. Such a polarization of wealth and income cannot possibly endure without economic and political chaos. The process is in its early stages and represents the most severe trial of the new order since the 1971 establishment. In effect democracy is being sacrificed by the requirements of capitalism. This Great Reset is the Hayekian wonderland of a 21st century slave state.

‘’If capitalism of the consolidation state can no longer produce even the illusion of equitable growth, the time will come when the paths of capitalism and democracy must part. The likeliest outcome would be the completion of a Hayekian social dictatorship in which the capitalist market economy was protected from democratic correction. Its legitimacy would depend upon whether those who once were its citizens would have learned to equate market justice with social justice and to think of themselves as members of a unified marktvolk. Its stability would further require instruments for the ideological marginalization, political disorganization, and physical restraint of anyone unwilling to accept this lesson.
Link

Who ever wrote this citation Audaxes, has a brilliant comment in it which needs repeating; "In effect democracy is being sacrificed by the requirements of capitalism."

If you didn't understand the riots in the capitol, this is what they were about - people trying to ensure that democracy doesn't get priority over capitalism. This is what we in NZ need to guard against, but which multiple Governments in succession have been trying to do by stealth, and the current one is yet to change that path.

Hedges: Papering Over the Rot

...the root cause of the demise of America — unchecked oligarchic power and greed. The longer wealth is funneled upwards into the hands of a tiny, oligarchic cabal, who put Biden into office and whose interests he assiduously serves, we are doomed.

But, but, but .. Biden is a DEMOCRAT!!!!

And while I am not surprised that he is guilty of this, this is why America needs to do some frank self analysis and come to understand the turmoils it is suffering - the WHY more than the who. But the rest of the world also needs to learn from it as well, and we need to make sure it doesn't happen here.

Very naive...

"into the hands of a tiny, oligarchic cabal, who put Biden into office"

name some names

Quelle suprise, an economic forecaster full of economists trained in neo-classical theory stating that it will be more ja tomorrow.
Unfortunately their forecasts have undershot for 12 years running, as has FED and IMF. Pathetic.
GDP growth is paltry due to debt, ageing pop, and China but USA and EU will never admit this.

Undoubtedly Barfoots will keep the foot down, when it provides its January data today , maintaining the recent overwhelming prices always and only go up story . I am sure , unlike Gamestop et al , there are few groups shorting or manipulating the Kiwi quarter acre.
Interestingly the iron ore price has given back another 10 percent in the past week , perhaps Mr Kerr's AUD/NZD forecast is being manipulated .

In Australia, the RBA didn't change the interest rate at its review late yesterday, but it did dramatically extend its QE program.

This policy intervention revolves around Open Market Operations (OMO) whose ultimate end (not aim) is its own balance sheet remainder: bank reserves. We are all taught that it is the OMO which determines money market rates, all because of that whole printing press thing we are further taught to presume spits out digital bank reserves.

Given this, it was a huge problem for Ben Bernanke’s group of officials twelve and thirteen years ago when money market rates were quite clearly being determined by anything else besides the Federal Reserve’s OMOs. You can read more about it here – and I urge you to do so in order to understand why the policy response had been so fatally flawed so as to more clearly appreciate what really must have happened; suffice to summarize, Bernanke’s crew believed they had created a situation where, during the worst global monetary panic since the Great Depression, there were “abundant reserves.”

Straight away you have to ask, what good are reserves if they are abundant and the whole world melts down anyway? According to the doctrine, you aren’t supposed to ask that question.

Therefore, the episode teaches us two very important lessons. First, there’s obviously much more to the financial picture than bank reserves. The Fed talks about liquidity in regard to them, but they must be small issue to the wider world otherwise 2008 wouldn’t have happened at least beyond October.

There’s simply no way to reconcile a monetary panic with this absurd idea of too much money or liquidity. The level of bank reserves just doesn’t correlate to anything outside the immediate arena of bank reserves. Link

5m vaccinations per day aren't going to cut it, we need that multiplied x4 if we are going to give everyone in the world their first dose in a year. Currently it's going to take 4 years to vaccinate everyone in the world. But remember, most vaccines need a booster, so we are talking 8 years including the booster. Or 4 years if we want to hit 50% vaccinated where we should start seeing decent results. That's a lot of time for new mutations, so we have a long way to go yet.

This is why they are scarce and life saving medicines and why NZ should not be out front buying more. Luckily we are part of COVAX. Australia promising to vaccinate everyone in 2021 is dire, it will mean a whole lot of people in other jurisdictions die if they go outside the COVAX program and buy their own, depriving places that really need it.

I am afraid David that you risk being lumped in with rest of gloom merchant MSM.
You state that USA recoveries are exceeding new cases but do not state that new cases per day have been falling for weeks now. They were (in USA) over 300,000 per day. Now it is 146,000. A drop of over 50%. So tings are improving rapidly. Yes, with the new variant things may well get a lot worse soon, but that is not the current trend. Worldometer shows that worldwide infections per day have also been falling, by 28% comparing the last 14 days with previous 14 days. Yes things are getting worse in EU. And, experts told us all last year that 3rd world would be far worse than developed world. But it is not. Because people in 3rd world mostly do not live near airports, or travel on planes and half at least of their pop do not live in cities, where spread is fastest and chances of getting it are far higher . Most people in these countries live out in sticks with plenty of fresh air. Laurie Garrett said all this in her v informative book in 1994, called The Coming Plague. Media experts do not like to admit it but they were wrong. 3rd world is doing much better than developed world. Hence their not getting the vaccine at same time will NOT be this heinous humanity error that WHO keeps whining about either.

Not that the 3rd world needs the vaccine anyway. Most 3rd world countries don't have significant elderly populations so the virus isn't much of an issue.

I think you'll find that most 3rd world countries *do* have significant elderly populations, just not as a percentage of their total population.

By the way, NZ GDP fell each year (2017-18-19-20)
Are we really expecting it to be higher in 2021? Compared to which year?
By fell, I mean It was lower than prev year, not in absolute terms

No it didn't, in either nominal or 'real' terms.

We only have 12 month data to September, but on that basis

Nominal, 12 months to September ...
2017 = NZ$280.857 bln
2018 = NZ$299.840 bln
2019 = NZ$314.165 bln
2020 = NZ$320.968 bln

On a 'real' basis using chain-volume basis

'Real', 12 months to September ...
2017 = +3.6% pa
2018 = +4.6% pa
2019 = +3.4% pa
2020 = -0.8% pa

Data from Stats NZ, Expenditure basis

Thank you. Are the numbers still positive on a per capita basis after allowing for population growth/net migration

Hi David,

I was not clear enough I think
I was referring to % increase in GDP pa.
Which has fallen since Labour was elected, each year.

Stats NZ figures:

Sept 15 GDP annual growth was 4.1%
Sept 16: 3.9%
Sept 17: 3.4%
Sept 18: 3.5%
Sept 19: 2.8%
Sept 20: - 2.2%

Some interesting research into the real enemies of WSB...
https://youtu.be/cAhOMOhFcY8

Thank you Pacman_46 this is a must watch, even if its a little depressing.....

... and I don't really like the Bitcoin pump at the end but I understand why its there... I'm more old school with a little bullion under my mattress ....

by bw | 1st Feb 21, 8:46am

"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."

Some people do talk shite...

Looks like the inevitable GME fallout has begun in earnest.

"The number of active cases fell overnight and is now just on 9,835,000 and -85,000 less in one day, so more recoveries than new infections. And there are now more vaccinated people than active cases in the US"

Given how much exposure has been published on the bad Covid news over the last year, should the above statement not be the one and only headline, printed in capital and bold ?

Absolutely yes! Although as they say, one swallow...

"Between 2015 and 2019, the number of people aged 70+ increased by 13 per cent, so – even without a pandemic – you’d expect more deaths in 2020 than the average of the last five years.
...focussing on the total number of deaths attributable to Covid-19 can be misleading, and news outlets would do well to report both this number and the age-standardised mortality rates going forward."

https://thecritic.co.uk/why-the-100000-deaths-figure-is-misleading-the-p...

Profile, you tried that last week with some cherry picked numbers, but the link you provided actaully proved that there had been a big jump in age standardised mortality in 2020 in the UK (against a trend of it declining since 1944). I don't understand why you keep pushing this...?

Sorely need context. "Raging" pandemic 2020 for the UK was less deadly to the populace than any year prior to 2008. Not very click batey but there it is.

Except it wasnt really "raging" because they had lockdowns (even if they were relatively soft ones) and other measures in place. That's the context. If it had been left to "rage" tens of thousands more would be dead and the age standardised mortality rate would be even worse. I still don't get why you are trying to downplay it...? If it's not that bad how come around 2 million people are dead? Again, despite worldwide lockdowns etc...

Plenty of evidence showing lockdowns are a draconian waste of life. What is your problem with age-standardised mortality rates being reported?

Pandemic refers only to how many countries have cases, not the death toll, or infection rate.
USA has by example had 446,000 deaths due to Cv19 infection.
Pop is 330m.
Infections are about 26m: so about 8% of their pop has been infected thus far.
Deaths as a % of infection = 1.7%
Deaths as a % of pop = 0.00135%

Not exactly "raging" as media like to phrase it.
USA, by contrast, in October 1918 (yes in one month) had over 100,000 dead.
And pop in 1918 of USA was 103 million. 675,000 died. Or 0.0065%
The current epidemic has of course not finished, but the 1918 death rate was 4.85 times higher.

Wow, totally insensitive. When you are dealing with big numbers, small percentages matter. But according to you 400k dead is nothing to worry about? The media shouldn't report infections or something?

Over the whole world only 0.03% of people are dead, so we shouldn't worry about it. That's 2.2m people dead, but meh, who cares?

Comment is directed at media not putting it in context and catastrophising all time. They don’t like it improving is point.

March 2009 low for DJIA was around 7600.
So it has quite a bit to go before any "correction" or crash will be suitable as an expression for its downward moves. it only went down to 23,000 in March 2020.
A meteor would be needed, in form of collapse of USD, to impact it at present.
When margin debt stops rising, then we will have some interest.