Breakfast briefing: Inflation still hard to find

US inflation lower; China back in deflation; China FDI growth fades; South Korea unemployment rises; Australian consumer confidence up; UST 10yr at 1.14%; oil unchanged and gold up; NZ$1 = 72.2 USc; TWI-5 = 73.6

11th Feb 21, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the expectations of higher inflation aren't being borne out in today's data.

But first, the new US Administration's 2021 Budget is expected to be announced soon, but isn't available yet. We will update this item when it comes to hand.

American mortgage applications slipped last week while their mortgage interest rates turned a little higher.

And the talk of rising inflation has been undermined by their January CPI data. There was none from December and their year-on-year rate fell more than expected to 1.4%pa. It was a result that took the wind from the rising bond yield sails.

Further, China slipped into back into deflation in January according to their official CPI data. Falling prices for fuel, tourism and now pork drove the reversal. Of interest to us, lamb prices are still rising quite fast even as beef price growth slows. Prices for sheep meats are up +6.7% in a year, up +2.7% in a month. For beef they are up +4.1% in a year, up +1.2% in a month. Milk prices are also up +1.7% in a year but up only +0.2% in a month. Producer prices were up +0.3% in January year-on-year, the first time they have been positive in more than a year.

And the rise in foreign direct investment in China seems to be fading. In December the year-on-year increase was +6.2% but in January it slipped sharply to +4.6% with a monthly gain of just +US$1.2 bln. Most of the January gain came from Hong Kong, Taiwan and the EU. It is unclear why they pump their data with Hong Kong sourced investment, given it is an integrated PRC city these days.

In South Korea their unemployment rate took a turn up in January to 5.4% from 4.6% in December and that is actually quite a sharp and unwelcome rise.

The latest reading of Australia consumer confidence recorded a recovery after an unexpected fall in January. Recall that the December result was a ten year high so the bounce-back in February signals that the Australian consumer remains extraordinarily confident. High confidence among consumers is important at this juncture mainly because the Australian Federal government is scheduled to phase out their JobKeeper program at the end of March.

On Wall Street the S&P500 is a little lower in early afternoon trade, down -0.2%. Overnight European markets were all about -0.4% lower. Yesterday Shanghai rose a very strong +1.4% for a second day running, Hong Kong was up more by +1.9%, and the very large Tokyo market was up +0.2% and holding on to big gains earlier in the week. The ASX200 rose +0.5% while the NZX50 Capital Index fell -0.8%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now at 107,048,000 and up +431,000 in one day. The pandemic seems to be easing in many places now. Global deaths reported now exceed 2,346,000 and +16,000 since yesterday.

More countries (83) have started their vaccination programs. About 136.1 mln doses have been given so far (+1.4 mln more overnight), and 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 +107,000 overnight for their tally to reach 27,811,000. The US remains the global epicentre of the virus although there is some easing. The number of active cases fell overnight and is now just on 9,687,000 and -9,000 less in one day, so more recoveries than new infections. Their death total is up however as 480,000 (+3000) as the vaccination program kicks in. We are waiting to see if there is any Superbowl party super spreading data. The US now has a COVID death rate of 1445/mln, and that compares to the disastrous UK level (1686) where deaths are also still rising (115,000, +1000 overnight).

In Australia, their community control is impressive. Their all-time cases reported is now 28,871 and only +11 more cases overnight, two in the community and the rest are new arrivals and all in managed isolation. 45 of these cases are 'active' (+1). Reported deaths are unchanged at 909.

The UST 10yr yield is down another -1 bp from yesterday at just on 1.14%. Their 2-10 rate curve is unchanged at 103 bps, their 1-5 curve is marginally flatter at +39 bps, while their 3m-10 year curve is also marginally flatter at +110 bps. The Australian Govt 10 year yield is unchanged at 1.22%. The China Govt 10 year yield is up by +1 bp at 3.26%, while the New Zealand Govt 10 year yield is lower by +4 bps at 1.40%.

The price of gold will start today up +US$3 at US$1840/oz.

Oil prices are little-changed at US$58/bbl in the US, while the international price is at US$61/bbl.

And the Kiwi dollar will open today soft at 72.2 USc. And against the Australian dollar we are softer too at 93.4 AUc. Against the euro we are down to at 59.5 euro cents. That means our TWI-5 is lower at 73.6.

The bitcoin price has fallen overnight and is now at US$44,804 and down by -4.2% in a day. Volatility remains high at +/- 4.3%. 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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39 Comments

by MortgageBelt | 11th Feb 21, 7:59am 1612983558

Interesting article puzzling over why NZ employment etc so good despite border shut.
https://i.stuff.co.nz/business/opinion-analysis/300226516/why-did-covid…

by donny11 | 11th Feb 21, 8:14am 1612984461

Won't lie, I thought things would be a lot worst with no tourists.

by Lapun | 11th Feb 21, 8:18am 1612984732

A good article - pleasing to read an economist admitting to (a) having been wrong (b) not having an answer. My answer is: the NZ labour market is far more flexible than expected. The biggest hit would have been to NZ's foreign tourism and that is a business that serves foreigners, employs foreigners and frequently is owned by foreigners. Those who worked in hospitality and for airlines are by the nature of their jobs highly adaptable unlike say computer programmers or brick-layers.

by Advisor | 11th Feb 21, 10:16am 1612991769

We have a flexible labour market here in NZ plus a responsive government that acted quickly and brought 14k more people into apprenticeships than in the previous year.
Not entirely convinced with your computer programmer comparison. Plenty of workers in data analysis, digital marketing and web design roles in my network were testers and programmers before COVID hit and lost their jobs to outsourcing. Their current jobs are more stable due to the client-facing nature of their work.

From what I have seen through this pandemic, those driven enough to retrain or smart enough to pivot their career path are unlikely to stay jobless for long.

by donny11 | 11th Feb 21, 10:22am 1612992137

That's interesting as the govt is giving 12k +gst a year to take on apprentices. Wonder if there is bit of can kicking going on?

by Advisor | 11th Feb 21, 10:41am 1612993267

All this apprenticeship frenzy will last until borders reopen. Businesses will return to their usual practice of hiring overqualified migrants at low pay rather than training locals.

The engineering subcontracting industry is marred with race-to-the-bottom pricing. The way to survive for unscrupulous businesses to survive is wage suppression and exploitation: https://www.stuff.co.nz/business/122567456/no-work-no-pay-sitaram-mukku…

by fender bender | 11th Feb 21, 1:24pm 1613003058

"The roll-out of the nationwide fibre network was split between several major firms, who in turn subcontracted the work to tiny operators who often relied upon migrant labour – and were entirely dependent on the big companies providing them with work."
"Entirely dependent on the big companies providing them with work", is this not monopolistic or duopolistic in nature? The suppliers to the insurance industry are in the same boat (2 x companies control 80-85%), the supermarket supplier industry, the building industry to some extent, courier industry. People bash the employers, and I by no means condone some of the migrant exploitation we read about, but its an ugly inevitability when as these industries have been ground down by the corporate monopolies / duopolies to the point where wages have stagnated because the charge rates allowed by the corporate monopolies have forced employers to reduces wage increases or stagnate wage increases, some businesses leave the industry, some just blindly do what they have to do to survive and pay down debt. As a result service levels plunge (anyone dealt with chorus in last couple of years), stories of exploitation become more common, kiwis leave the industry because the pays not good enough.
I have had an ad on trade me for the last month. Out of the dozen applicants I have received, all but one are migrants, none qualified. Another symptom, no one trains in these monopolistic environments because there is not enough fat in it to sustain long term training program's. The other thing is whom wants their kid to train in an industry (for 3-5 years) where the qualified wage is 10 - 15 bucks and hour more than the minimum wage? The problem is at Government level, they have allowed these monopolies to become too powerful, at the cost of New Zealand's largest employer small business. The cracks are clearly visible.

by redcows1 | 11th Feb 21, 8:21am 1612984909

Stating the obvious, but seemingly not to economists, actually producing stuff is important. Maybe all their models simply overstate the importance of the likes of tourism and immigration.
Nah just joking, that'd ruin everything.

by bw | 11th Feb 21, 8:28am 1612985302

What collapsed the Middle Class?
- Firstly, decapitalization and the decay of the ladder of social mobility which enabled tens of millions of workers to transform their wages into productive capital via saving and investment in their own human capital, their own enterprises and assets that earn income.
-The second primary dynamic is the substitution of debt and speculation for earned income and productive capital. As the purchasing power of the bottom 90%'s wages declines, the status quo has substituted debt for income and speculation for investing in productive capital.

(CH Smith)

by KH | 11th Feb 21, 9:22am 1612988536

Redcows. Yes. And the term "education industry" sounded like a hollow drum to me.

by noReserve | 11th Feb 21, 11:22am 1612995737

Maybe it is because the govt is borrowing heavily from our children. Great stuff.

by General Comment | 11th Feb 21, 8:25am 1612985115

I was on leave for a couple of weeks (I know you missed me, cheers) working on a cottage we have on our property. I listen to the radio a lot while doing this kind of thing, and it struck me that there were two industries advertising for workers - pickers desperately needed to bring in this year's crops, and TTP's brother/son/cousin looking for people who wanted to get into the RE business.

As an aside, the cottage is up for rent and we've been flooded with applications. Several have said they're living in tents on their friends'/parent's back yard. Many single mothers or young couples, all with children, and those moving from another rental all wanted to take the cottage from today. The new tenancy rules have initiated a clean-out of "less desirable" tenants in the area. Things are going to get nasty.

by rastus1 | 11th Feb 21, 9:09am 1612987783

And we wonder why. Too many people too quickly....
https://www.facebook.com/pages/category/Interest/NZ-Observer-9202619416…

by blobbles | 11th Feb 21, 9:10am 1612987802

Seriously, I hope they get organised and do something (though they will likely be scrambling to secure housing). At this point, the 25k people on the housing wait list should head to Wellington, enter parliament with a sleeping bag and start sleeping on the floors. Show the pollies the destruction they have caused, up close and personal. Particularly anyone with kids, call it a camping trip. After all, we all pay rates for those buildings, we are the owners, we should be able to stay there when we want.

by frazz | 11th Feb 21, 9:17am 1612988276

GC- Let me guess ..you rented to professional couple, no kids, no pets on a fixed 1 year lease?

by General Comment | 11th Feb 21, 9:41am 1612989699

That is nearly our requirement, but not for the reasons you may think.

No kids or pets due to livestock risks, we're rural. Obviously things like birds and fish are ok, but if your budgie escapes it'll be dead before it finds a tree to roost in due to harriers and karearea in the area. Also the sight of Mr Farmer putting a bullet into a rabbit/feral cat tends to disturb children. One year lease because we'll need the place for ourselves next year while the main house is uninhabitable, although describing it as habitable now is a bit of a stretch. The cottage itself is well above minimum requirements, warm, dry and sunny. It wouldn't be fair to rent to someone who thinks they've found the rural idyll only to be kicked out next year, we'd rather be honest up front.

Not fussed on professional couple, they just have to be nice people as they're living on our property, and if things go pear-shaped it could get awkward.

Not every landlord is a demon.

by youngdumbandbroke | 11th Feb 21, 9:24am 1612988667

*Cue ambulance at the bottom of the cliff

by Tradersam | 11th Feb 21, 9:35am 1612989308

We to were flooded with rental enquiries on our little shoe box on the Thames Coast, trouble is they all required WINZ assistance with the bond and rent. We refuse to be a landlord to WINZ given the amount of personal information they require - IMO it’s an unnecessary to the point of being invasion on our privacy.

by frazz | 11th Feb 21, 10:26am 1612992418

Good for you..how much are you renting your shoebox out for?

by Audaxes | 11th Feb 21, 10:44am 1612993474

So, "let them eat cake"

A similar implication was blurted out yesterday by the Treasury secretary in response to intense questioning in parliament:

But McLiesh said the overall impact on wealth inequality was “quite complex” because the LSAP was also supporting lower unemployment. In other words, high house prices are the price employees pay for still having a job.

"Jobs saved" - I am sure monetary "stimulus" was sold as a "jobs created" undertaking - Seven Years of ‘Jobs Saved’ Is Just The Start

by labcoat | 11th Feb 21, 10:32am 1612992775

Can you elaborate on "The new tenancy rules have initiated a clean-out of "less desirable" tenants in the area. Things are going to get nasty." at all?

by General Comment | 11th Feb 21, 11:06am 1612994767

Sure thing.

As of today the balance of power in the landlord/tenant relationship has swung slightly back in the direction of the tenant. It's harder for a landlord to get rid of a tenant they don't like, and the tenant is now allowed to make minor changes to the property, although in my brief reading I have yet to find the definition of "minor".

So if a landlord is going to have to put up with letting someone inhabit their rapidly appreciating asset they're going to want the cream of the crop, which as frazz notes is generally a professional couple with no dependents on a one year fixed lease. Next level is something like a small family, two incomes, one or two children, no pets, and it goes downhill from there. Bottom of the pile are things like gang members/associates, but they're getting very good at disguising themselves are honest, hard working folks, so next "lowest" tenants are beneficiaries, solo mums and other socially inconvenient peoples.

Now, it seems many landlords have panicked and decided that any tenant they've had any issues with, or may even possibly on some abstract level entertain the notion of maybe experiencing some slight chance of personality clash with, should be sent packing in the hopes of finding someone more to their liking. Of course this has probably kicked off a game of Rental Musical Chairs, whereby all those types deemed unworthy of shelter are doing their best to appear likeable, on the off chance Sir might allow Oliver another bowl of gruel.

Soon enough the more financially secure landlords will make the call as to whether they should rent their property out at all, or just sit on it and soak up all the moneys that come with capital gains (remember, EVERYBODY wants to buy a house!), or maybe just cash out and let the masses argue over who wants to give them the most money for it. Meanwhile society's downtrodden are getting desperate to find somewhere, anywhere, to raise their kids, even if it means living in the car for a while. And so the divide gets ever wider.

Much hyperbole in the above, of course, and sweeping statements made, but you get the picture. I'm not going back to proof read it either, sorry.

by Hamish | 11th Feb 21, 11:14am 1612995282

So inconvenient when real life gets in the way of lets all be kind to each other.

by brisket | 11th Feb 21, 11:44am 1612997079

Not hyperbolic at all, seems pretty accurate to me. We're in a hell of a tangle. I fully expect to see house prices and rents, and homelessness, continuing to rise even as supply grows. It's quite possible to have massive vacancies and mass homelessness at the same time, as Spain now demonstrates. We could build three houses for every resident and still have outlandish prices and homelessness.The incentives to hoard property are still very powerful.

by frazz | 11th Feb 21, 12:03pm 1612998184

Hoddle your property and BTC close...my precious?

by youngdumbandbroke | 11th Feb 21, 12:12pm 1612998771

Just bought a Trezor One after doing my research. Finally feel I know enough to enter the crypto space

by Tradersam | 11th Feb 21, 12:30pm 1612999822

Youngdumb - what source(s) did you use for your research?

by youngdumbandbroke | 11th Feb 21, 12:36pm 1613000188

Basically for the cold wallet, Trezor or Ledger are the best options after looking around. I just looked up plenty of reviews and they were the most commonly mentioned. Note - a common theme was to always buy direct from the manufacturer to avoid it being tampered by a third party in the supply chain.

by JRSNZ | 11th Feb 21, 3:17pm 1613009827

Yes. And use a burner email and phone number. Have the device delivered to your work address or another address that is not your home. The Ledger hack proved why this is so important.

If you're bitcoin-only, consider a ColdCard hardware wallet from Coinkite.

by frazz | 11th Feb 21, 1:52pm 1613004736

Just about too...also Casa seems to be on to it for security

by blobbles | 11th Feb 21, 12:15pm 1612998957

There have been heaps of articles on this over the past few years, with heaps of landlord focussed facebook pages and associations saying exactly that. Near enough guarantee the number of empty houses in this country is skyrocketing while at the same time the number of people on housing wait lists booms.

by Audaxes | 11th Feb 21, 9:19am 1612988377

It is unclear why they pump their data with Hong Kong sourced investment, given it is an integrated PRC city these days.
Possibly, due to the fact foreign owned, eurodollar emitting banks are still registered there.

by JRSNZ | 11th Feb 21, 9:43am 1612989785

Inflation is not hard to find. Maybe by the CPI standard, which is proven to be a steaming pile of horse s****.

Property. Stocks. Art. Classic cars. Anything remotely scarce is inflating at incredible rates.

by youngdumbandbroke | 11th Feb 21, 10:06am 1612991189

Basically, anything that isn't fiat is rising in value. Debasement abound

by Anzac888 | 11th Feb 21, 10:08am 1612991332

Anything even remotely desirable in Classic cars is sold within hours. Hemi Chargers, Chevelles, even Commodores are obtaining stratospheric prices. Chevrolet 1970 with the 454 manual in particular are in demand. Sold in 1 hour.

by JRSNZ | 11th Feb 21, 10:20am 1612992010

Yup. Have you seen HSV prices recently? Incredible!

by rastus1 | 11th Feb 21, 3:31pm 1613010700

Bored boomers with small or non functioning manhoods.

by Philby | 11th Feb 21, 3:48pm 1613011705

“Non functioning manhoods” I think you will find that’s the cyclist crowd.

by refactornz | 11th Feb 21, 10:20am 1612992008

Property is the only "need" there. It doesn't matter if stocks, art and classic car prices inflate.