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Big Japanese quake; China targets NZ over TPP application; US sentiment waivers; Canada loan demand negative; NSW incentivises housing for renters; UST 10yr at 1.21%; oil unchanged and gold up; NZ$1 = 72.2 USc; TWI-5 = 73.6

Big Japanese quake; China targets NZ over TPP application; US sentiment waivers; Canada loan demand negative; NSW incentivises housing for renters; UST 10yr at 1.21%; oil unchanged and gold up; NZ$1 = 72.2 USc; TWI-5 = 73.6

Here's our summary of key economic events over the weekend that affect New Zealand, apart from the local community COVID spread in South Auckland.

First, a 7.3 magnitude earthquake hit off Fukushima prefecture in northeastern Japan late Saturday night, causing no deaths but causing widespread power outages in the region. There was no threat of a tsunami from the quake. This one is being said to be an aftershock from the 2011 quake.

China is ramping up its efforts to join the TPP. This comes as it tries to get ahead of the growing Quad (US, Japan, Australia, India) moves to check China's regional expansions. New Zealand as part of the Five Eyes alliance (US, Canada, Australia, the UK and New Zealand) is drawn into those efforts anyway. Now the latest Chinese foray puts New Zealand at the centre of this tension, with Beijing saying Wellington is the key for its TPP membership drive. New Zealand diplomacy is both elevated, and at the same time running huge risks for our trade given the upgraded NZ:China FTA recently agreed. The Chinese have successfully made us very vulnerable to the consequence of their displeasure if we don't do "the right thing" for them.

China's 'stay put' order over their Luna New Year holiday is distorting transport modes. Passenger travel is down nearly -70% in the first half of February compared to the same period last year. But freight traffic is up nearly +9% on the same basis.

In the US, the latest UofM consumer sentiment survey edged downward to a six month low in early February, with the entire loss concentrated in the Expectation Index and among households with incomes below US$75,000. Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014.

But a new survey of economists expects US 2021 growth to show its strongest gains in 25 years. And in fact, the Atlanta Fed's GDPNow forecast suggests Q1-2021 might be off to a sharp +4.5% pa rise. Most senior professionals however think it is likely to be more like a +2% growth rate.

In the US State of Maryland (basically Baltimore), they have enacted a tax on Big Tech revenues along the lines the EU has proposed and Australia is contemplating. It too will face fierce opposition from the industry. But not everyone; Microsoft is urging Canada to take on Facebook and Google News like Australia.

In Washington DC, ex-Fed boss and now Treasury Secretary Janet Yellen is to create a new senior position that will drive their regulators to do more to strengthen their financial system’s resilience to climate risks.

In Canada, their Senior Loan Officer survey has turned very negative again.

In India, industrial production rose in December, surprising analysts who had expected another decline.

In Italy, the former head of the ECB, Mario Draghi, has formed a new national unity government in an attempt to get Italy out of its economic funk and break the entrenched partisanship in their politics.

In the UK, they released their Q4-2020 GDP data over the weekend. It rose by +1.0% from the prior quarter which was a surprise, but the level of economic activity there is now -7.8% below its year-ago level. That is its worst annual result since 1709! Even so, this grisly decline is marginally better than forecasted.

In Australia, property developers building housing for NSW renters will be eligible for tax discounts and planning exemptions.

Victoria is now in a “short, sharp circuit-breaker” lockdown for five days amid fears the highly infectious UK strain of coronavirus has spread in the community there.

The latest global compilation of COVID-19 data is here. The global tally is still rising but at a slower pace, now at 108,655,000 and up +155,000 in one day. The pandemic seems to be easing in some places now although that may just because it is the weekend and counting systems are delayed. Global deaths reported now exceed 2,396,000 and +4,000 since yesterday.

More countries (88) have started their vaccination programs. About 160.7 mln doses have been given so far (+9.0 mln more over the weekend), 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 +186,000 over the past two days for their tally to reach 28,210,000. The US remains the global epicentre of the virus although there is clearly some easing. The number of active cases fell sharply overnight and is now just on 9,560,000 and -41,000 fewer in two days, so less new infections again than recoveries. Their death total is up at 496,000 (+8000) also in two days. The US now has a COVID death rate of 1494/mln, and that compares to the disastrous UK level (1720) where deaths are also still rising (117,000).

In Australia, their community control is impressive but Victoria is in a snap 5-day lockdown again as the UK strain may be in the community there from a border breach. Their all-time cases reported is now 28,898 and only +6 more cases overnight, +2 in the community and the rest new arrivals and all in managed isolation. 41 of these cases are 'active' (+8). Reported deaths are unchanged at 909.

The UST 10yr yield is up +1 bp from yesterday at just on 1.21% and its highest in almost one year. Their 2-10 rate curve is a little steeper at 110 bps, their 1-5 curve is steeper too at +43 bps, while their 3m-10 year curve is also marginally steeper at +118 bps. The Australian Govt 10 year yield is up +1 bp at 1.27%. The China Govt 10 year yield is unchanged at 3.26%, while the New Zealand Govt 10 year yield is also unchanged at 1.31%.

The price of gold will start today up +US$4 at US$1824/oz.

Oil prices have drifted slightly since Saturday and are now at just over US$59.50/bbl in the US, while the international price is just over US$62/bbl.

And the Kiwi dollar opens today little-changed at 72.2 USc. Against the Australian dollar we are similar at 93.1 AUc. Against the euro we are at 59.6 euro cents. That means our TWI-5 is the same as it was on Saturday at 73.6 and largely unchanged in a week.

The bitcoin price is up +2.7% from this time Saturday and is now at US$49,106. It hasn't hit US$50,000 yet but it did reach a new all-time high of US$49,716 in the past 24 hours. Volatility has been high at +/- 3.2%. 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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57 Comments

28
up

Sleep walking into being a Chinese lap dog....

19
up

Crunch time is definitely coming. We will soon see what courage our current Government has.

Judith Collins stance on the other hand due to her past connections is likely entirely entirely predictable.

20
up

Ah well, if those of us expressing concerns at least a decade ago had been listened to instead of being labeled xenophobes........

They all try for offshore assets, all try for offshoring wastes. Then they indulge in avoidance-accounting:

https://www.resilience.org/stories/2021-02-14/demateralizing-the-economy...

Hickel mentions that More from Less fans include “the writer Steven Pinker, European Central Bank President Christine Lagarde, and the economist Larry Summers, plus CEOs, bankers, and a number of Silicon Valley celebrities.”

NZ's future depends on China. so, get it right pls, Wellington.

34
up

yes, it does, tell china where to go, and let's build an economy without them having any influence on our future.

How many Chinese made parts are in the device you used to make your comment RE? Use your brain before posting such nonsense

21
up

New Zealand economy depends on China. So best we change that.

Yes lets change it so we depend on US or UK cause they are doing so well

How about the rest of the world? The west should start to focus much more on India

11
up

Or perhaps less on exploiting people in countries where they exploitable and concentrate on being a bit more independent. Perhaps tariffs were not such a bad thing, but they needed to go to people not being paid properly for their labour

Yep, agree

Except India is increasingly ethno-nationalist, Modi's headed in dark direction... not quite at the same point as China, but there's a lot arresting critics/silencing journalists etc happening now. Not a good time to get too close (even though I'd agree in general that the substantial ties between us make India a natural partner)

30
up

Unsure if trading with China is worth the price we've had to pay.

Maybe better to just trade with Asian countries that don't genocide and pandemic.

17
up

We send valuable products to China, milk, pork, beef, lamb, fruit, wine, wood. Their food production relies heavily on countries like nz. Let's hope Wellington have some back bone and treat any negotiations with this in mind. It's much easier to go without electronics, machinery and plastic knick knacks for a medium term, than it is to go without food.

And given that any punter can easily buy direct from suppliers through AliExpress etc., we as consumers have access to many of those same Chinese products tariff free anyway.

Handle it like the cardinals. no one else knows who voted for who.

China's reliance on NZ comes down to whole milk powder and mutton. For everything else, China can find alternatives. There was an article written by Mr Keith Woodford discussing this subject.

Zero sum games.

Re Vaccinations. 88 countries started. Good ole nz, not so much. Did we forget to order them?
Ahh well. Just lock it down.

NZ is starting vaccinations of border staff this weekend.

Yes and NZ is building 100'000 affordable homes starting… 3 years ago. Don't hold your breath

Everyone in NZ who wants to be, will be vaccinated......in about 12 months or so.

22
up

So now all the super powers want to join the TPP. Time for NZ to leverage its pivotal role and selfishly negotiate across the spectrum in NZs interests. Never again will we have such a great opportunity. Shame we have a government who’s only demonstrated capability is keeping out Covid.

Jasinta can't even do that very well akshully

Jasinta who?

U no, Jasenda Ardurn

We better sell to china, they will come anyway.

Right now, I would be more concerned about oversees (Australia at the minute) attempts to take over Infratil. I think that needs to be labeled essential and out of bounds for such a takeover

Exactly: But I suspect current account deficit funding pressures could prevail. Press the MAX button on the chart to comprehend the magnitude of the dilemma we have constructed for ourselves.

China is ramping up its efforts to join the TPP.
The Chinese have successfully made us very vulnerable to the consequence of their displeasure if we don't do "the right thing" for them.

U.K. Prime Minister Boris Johnson is promoting the idea of a "global Britain," seeking opportunities worldwide after being freed from the constraints of the EU. Asia is a natural and important target of the initiative, given the region's economic growth and rising trade volume with Britain. But Johnson's stance toward China is harsh.

Who turned Britain?

Just over a year ago, Boris Johnson publicized a phone call he had with Xi Jinping. “I love China” he was reported to have stated. At the time, China was struggling with the outbreak of the Covid-19 pandemic in Wuhan. Johnson pledged to strengthen economic ties with Beijing, providing another broad hint of the enthusiasm he held toward China as an option for post-Brexit trade and investment.Link

Who turned Britain? I suspect it's come from both internal and external (USA) sources.
I suspect covid has had an impact, as well as China's increasingly belligerent stances.
We have known about the genocide for years, so I suspect that is not a new concern but rather one that is being elevated to support the wider anti- China rhetoric.

22
up

More nasty bullying from China, is that why they were blocking seafood exports? The sooner the world pivots away from them, the better.

It seems Germany/EU is pivoting towards China.
Furthermore, if it fails - EU/Germany parting of the ways?

Those build to rent policies in Aus sound good, NZ should replicate.

Yes, but not by ending up with foreigners renting back to us. That one I would absolutely die in a ditch over

You don't seem to like foreigners very much?

https://www.theautomaticearth.com/2021/02/quo-vadis-media/

wry comment on click-bait media.

David Chaston, I have a request: Can you please indicate debt every time you indicate GDP?
https://surplusenergyeconomics.wordpress.com/

"Between 1999 and 2019, reported GDP increased by $66tn (PPP*) whilst debt expanded by $197tn, meaning that each dollar of reported “growth” was accompanied by $3 of net new debt."

Your point is valid but your example is not. Both need to be 'nominal'. Mixing 'real' PPP with 'nominal' debt is nonsense. And GDP is an (annual) flow measure while debt is a (reservoir) stock measure. Most readers don't understand the difference.

Sadly for NZ, consistent data is not available 1999 to 2019. But it is for 2007 to 2020

For New Zealand, nominal GDP between 2007 and 2020 increased by NZ$3.42 tnl from $168.9 bln per year to $331.5 bln per year (a flow over 14 years). New Zealand's nominal debt expanded from $1.96 tln in 2007 to $3.33 tln in 2020, an increase of $1.37 bln. This is on an "All Liabilities" basis, so the most comprehensive view possible. (Of that $123.3 bln was the increase with the "rest of the world".)

Data for GDP is Stats NZ summarised by RBNZ, for debt it is StatsNZ via their Infoshare tool.

So for New Zealand over those 14 years, +$1 of economic activity (GDP increase) came with +$0.40 of new debt. That is quite different to the logically dodgy data in your source.

David ... I dont agree with your approach... thou I do understand what u are saying.

(To use your analogy of flow/reservoir),... GDP as a flow, does not accumulate into a reservoir.. ( You are assuming that it does when you aggregate 14 yrs of GDP flow and then compare it to debt. )

My own view , is that it is meaningful to compare changes in nominal GDP with changes in the quantity of money supply ( debt ), on an annual basis.
In that way we can make comparisons..
How the nominal level of GDP, each yr, is affected by changes of the quantity of Money is very meaningful.

What Powerkiwi is alluding to, is that each yr it takes a greater growth in the Money supply to generate a certain level of growth in nominal GDP.
eg. 20yrs ago a 5% growth in money supply might give us a 3% GDP growth.. Today a 5% growth in money supply might only give us 2% GDP growth (nominal ).
The diminished GDP growth / Money supply increase, has probably more to do with our unproductive debt burden rather than diminishing productivity because, for example, we are less smart/innovative/creative and work less hard....??

Because GDP is measured in $money , increasing the quantity of money in an economy will affect nominal GDP ( in $money terms).
(This is akin to altering a ruler that we use to measure ones height . .... so we can then grow taller every yr )

In a way.... our fixation on GDP growth is "fools gold".... in regards to the nature of our current Monetary system..

Just my view.

Not sure I agree with what you are saying (will have to think more on it), but I just ran the data on your basis: "compare changes in nominal GDP with changes in the quantity of money supply ( debt ), on an annual basis."

Only have it for 2009 to 2020, so an even shorter time frame.

But it shows over this time period in NZ that we are +7.7% ahead.

That is, the growth in nominal GDP M5 exceeds the growth in the private "money supply" as represented by C5 household+business+rural debt.

I have added the chart link here

So in the past decade we have added more economic activity than debt. Not by a huge amount on this basis, but not the grim assumption in PDK's link.

Id love to be able to generate graphs like that..!!! How do u do it.?

I'd prefer using Broad money as a measure ..C50
Yes.... NZ has the capacity to handle a much greater debt burden...

I read somewhere that the long term productivity growth curve is about 1% ..( maybe a little more)..... ( Productivity has nothing to do with debt.. Productivity derives from work ethic + innovation + creativity ..etc,,, but keeping in mind that debt facilitates Capital Formation )

Other things I'd look at before drawing conclusions , off the cuff,.... velocity of money and I'd drill down into the components of GDP ( Govt has grown profoundly ). https://www.treasury.govt.nz/sites/default/files/2018-02/fs16-13.gif

Another thing that is important in regards to NZs' "wealth" is our current acct.
Running chronic current acct deficits does not show up in our GDP... (eg. NZ foreign owned companies that repatriate profits ..eg.. Westpac, BNZ, ASB...etc.... )

I do like Ray Dalios perspective on productivity and debt, in regards to growth
https://moderntimesinvestors.com/debt-and-productivity/?source=post_page...

David, shouldn't that be Australia and not China as one of the Quad members?

Agreed - definitely a typo there.

Ouch! Quite right. Corrected now. Thank you.

12
up

Is it just me, or does the MSM in NZ - and I am mainly thinking of the Herald - have very little critical analysis of China, and it's motives and behaviour?

12
up

100% . I'd guess there'd be a bit of Chinese money flowing through (Chinese Herald etc) preventing anything critical?

A good investigative journalist would look into that. It seems fishy

Has anyone here ever written to ministers on our relationship with China, given their human rights abuses?
I might do it for fun. Although I can easily predict the response...

You can make a difference
Next time you are in Bunnings, Mitre 10, or the Warehouse
Don't buy anything made in China

You might as well not go in that case cuz there wouldn't be much to buy.

Yeah almost all their stuff is made in China.
I am trying my best to not buy made in China, it's relatively easy for clothes (quite a lot made in Vietnam or India). It's hard in terms of hardware, luckily we are pretty well stocked with older, durable stuff but having said that I did have to get something in Bunnings the other day that....was made in China

Again, if you want to stop buying Chinese made, you will have to stop commenting on Interest, also stop reading it and stop using any computer smartphone etc…

Good luck to you

I'm already doing that. It is hard at times and I have to spend a lot of time searching, but figure it is worth it.

" this grisly decline is marginally better than forecasted."
The economy is slightly up this morning, while grammar is down.
Forecasted?
Casted?
Broadcasted?
[Queue Margaret Thatcher image]
No, no, no!

:)

Just to warn you, I also use the word "gotten". Sorry in advance. (It's from my many years in the US.)

Language and grammar develops (even though I would agree it is not always for the best).

China will always gamble... with the looser. After all, what is the point to gamble with a tough opponent?