sign up log in
Want to go ad-free? Find out how, here.

Factory expansions uneven led by Germany and the US, lagged by China; Australian housing data strong; RBA doubles QE; China shuns Australia; UST 10yr at 1.45%; oil down and gold lower; NZ$1 = 72.7 USc; TWI-5 = 74.3

Factory expansions uneven led by Germany and the US, lagged by China; Australian housing data strong; RBA doubles QE; China shuns Australia; UST 10yr at 1.45%; oil down and gold lower; NZ$1 = 72.7 USc; TWI-5 = 74.3

Here's our summary of key economic events overnight that affect New Zealand, with news more settled bond markets are allowing equity investors to jump back in.

But first, the global expansion in manufacturing extended into February, but results were very uneven. Germany and the US are recording strong results, while China is slipping back towards a stall. In all cases however, cost inflation is at a near-decade high.

In the US there were two reports out recording the state of their factory sector, and both report a healthy expansion. The widely-watched local one has new orders and new export orders growing while reporting rising costs and prices. Similarly, the internationally-benchmarked Markit one featured good new order growth, but costs and prices are rising the fastest in a decade.

Those good factory reports are mirrored by American construction levels, up +5.1% year-on-year in January and boosted by a whopping +22% rise for residential construction.

In Australia, there has been a very strong rebound in lending for housing with a massive +10.5% increase in January from December, adding to an even more massive +44% rise from the same month in January 2020. And if you think those record levels are eye-catching, well the lending growth to investors is even more aggressive, up +52% year on year, with almost +11% of that in January alone. (Lending to businesses to buy property is however in the doldrums with some sharp double-digit drops, not only month-on-month, but year-on-year as well.)

This frenzy likely extended into February. Australian home prices surged +2.1% higher in February, the largest month-on-month change in more than 17 years. Year-on-year they are up only +4%, so it is 2021 when all the rush really started. It is being spurred on by a combination of record low mortgage rates, improving economic conditions, government incentives, and low advertised supply levels, Australia’s housing market is starting 2021 with a frenetic boom.

Prices are not only rising in their housing market; they are up sharply too in the Australian manufacturing sector too. The factory expansion is continuing at a robust level (56.9 or 58.8 depending on which survey you choose to read) but the rises in input costs (+9.7%) is cause for concern and that will soon drive up a sharp rise in output prices which didn't happen in February yet.

Meanwhile, the Aussie central bank is juicing up their market liquidity, doubling the size of its daily quantitative easing program mainly because it is failing to keep its target 0.1% yield on target for 3 year Government bonds as benchmark yields rise worldwide. It said it will increase bond purchases from AU$2 bln to AU$4 bln per day. The RBA meets later today to review its targeting policies. This comes as Australian Government interest costs are on track to blow out by +AU$15 bln over the next two years because of the sudden jump in bond yields. Highly indebted governments have the most to lose if interest rates keep on rising (and the Aussie Government isn't "highly indebted"), nor is the New Zealand Government. Even so the costs could be high even for them.

In Japan, their latest factory PMI report shows output and new orders expanded modestly in February, but input prices rose at their fastest pace for two years. Japanese manufacturers were their most positive since July 2017 with strong rises in sentiment and r industrial production is expected to grow +7.4% in 2021.

But Chinese factory activity is tailing off after a good start to the year. The private sector Caixin PMI replicated what the official PMI noted yesterday - their expansion is slowing to a crawl and this latest data is much lower than what analysts were expecting.

China is having to subsidise its new semiconductor sector with increased 'support' and it struggles to develop in a sustainable way or even meet Beijing's targets.

China invested just AU$1 bln in Australia in 2020, a new low benchmark. That is a -60% fall from 2019 and investment from China fell almost -50% then too. The new level is the lowest in six years. The latest data we have for Chinese investment in New Zealand is three years old. Investment from China including Hong Kong into New Zealand reached NZ$10.6 bln in 2018. After Australia, China (including Hong Kong) is New Zealand’s second largest source country for foreign direct investment, representing almost 10% of our total FDI stock.

And in both Hong Kong, and Myanmar, there have been stunning outbreaks of extreme bravery as people gathered to protest undemocratic laws, arrests, and coups. The displays of defiance in the face of overwhelming state power are humbling, but also reflect desperation by the people of both countries.

In Malaysia, a local bank there has agreed a NZ$1.2 bln settlement for failing to prevent the fraudulent transfer of funds into one of its accounts owned by the former prime minister. That will mean ANZ will take a NZ$230 mln hit to its returns given that it owns 24% of that Malaysian bank. (ANZ has been trying to offload that investment for years, unsuccessfully. No-one else wants it.)

On Wall Street, there are strong gains to start their week, with the S&P500 up +2.4% in mid-day trade. That follows European markets which gained +1.6% overnight. Yesterday the very large Tokyo market rose +2.4% leading the way, Hong Kong was up +1.6% and Shanghai was up +1.2%. The ASX200 gained 1.7% yesterday but the NZX50 Capital Index was up only +0.6%.

The latest global compilation of COVID-19 data is here. The global tally is still rising and at a faster pace, now at 114,241,000 and up +316,000 in one day, so no letup globally. But it seems to be easing in some notable places in the first world. Global deaths reported now exceed 2,533,000 and +5,000 since yesterday which is a slower rise.

More countries (122) have started their vaccination programs. About 244.3 mln doses have been given so far (+4.3 mln in one day). 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 +55,000 over the past day for their tally to reach 29,259,000. The number of active cases fell overnight and is now just on 9,039,000 and -8,000 fewer in a day, so more recoveries that new infections again. Their death total is still rising however but at a much slower pace and is up at 526,000 (+1000).

The UST 10yr yield is up +4 bps at 1.45% and holding most of last week's sharp run up. The US 2-10 rate curve is steeper at 131 bps. Their 1-5 curve is little-changed at +64 bps, while their 3m-10 year curve is also steeper at +141 bps. The Australian Govt 10 year yield is down -7 bps at 1.66% following the QE commitment from the RBA. The China Govt 10 year yield is down -2 bps at 3.28%, but the New Zealand Govt 10 year yield is sharply lower, down -15 bps at 1.76%.

The price of gold starts today unchanged from yesterday at US$1736/oz.

Oil prices are little-changed and are now at just under US$61.50/bbl in the US, while the international price is just on US$64.50/bbl.

And the Kiwi dollar opens at 72.7 USc and nearly +½c higher that this time yesterday. Against the Australian dollar we are lower at 93.5 AUc. Against the euro we are firmer at 60.3 euro cents. That means our TWI-5 is now up at 74.3.

The bitcoin price is now at US$48,795 and up a sharp +11.7% from this time yesterday. It seems to have reached a plateau in the high US$40,000's. Volatility in the past 24 hours is still very high at +/- 7.4%. New regulator actions are underway in China to stamp out crypto mining operations. 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 ».

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

27 Comments

“And in both Hong Kong, and Myanmar, there have been stunning outbreaks of extreme bravery as people gathered to protest undemocratic laws, arrests, and coups.”
Will NZers be doing something similar in the future? 10bln annual investment & partnerships, MOUs all approved by the OIO.

Up
0

Ardern has lost the support of those like me; optimists, who voted for the change she would bring in.
She is in the process of alienating other groups, with her patronising rhetoric.
It won't be long until we have our own form of insurrection. One where no one listens to a word she says, and then all the problems we face; those so carefully managed, will break loose.

Up
0

Likewise. "Patronising rhetoric" ... I agree, everytime I hear her speak now I think of Suzy Cato (talking to us like we are all pre-schoolers).

Up
0

And Robertson's wise old uncle act, talking down to us confused ones.

Up
0

Perhaps e should just substitute the name Jacinda Ardern for every other name, this piece of 'humour'?:

If you wanted a masterclass in crisis management, you’d scarcely turn to former AMP chairman and current Rio Tinto director Simon McKeon, a fellow prone to flee the scene of a crisis or be rendered catatonic by its enormity. You’d just as soon ask Gerry Harvey about corporate governance, consult Elaine Stead on capital preservation or check in with Andrew Liveris vis à vis self-awareness.

https://www.afr.com/rear-window/simon-mckeon-no-man-for-a-crisis-202103…

Up
0

I too am a big fan of many aspects of her leadership but question what (other than c19) is being prioritized by the government for action? If we wanted a status quo government NZ'ers would have voted for national.

Housing - silence
Climate emergency - silence feat occassional photo op
Infrastructure - silence

Need I continue...

Up
0

Personally I believe our PM is a sincere, good person and in her own way quite strong. But sometimes you just have to be tough too. Her reactions to developments of late are making her look weaker by the day. But the good news for her is, not as weak as the deputy PM.

Up
0

Yeah, I would tend to agree. The Prime Minister has generally handled crisis situations well (The Christchurch Mosque shootings, White Island, Covid-19) but progress on policy (Housing, wealth/income inequality, child poverty, infrastructure etc.) has been disappointing.

One thing you have to appreciate is the Prime Ministers shrewd use of social media channels for fireside chats. Her personal social media channel has become the defacto channel for New Zealand Government commentary after Covid announcements and Cabinet Meetings so blending party politics with government business. This will give her huge leverage in the next election cycle because she has a direct route to peoples social media newsfeeds next election cycle. This is compounded by the fact that Judith Collins use of social media has been relatively poor and unengaging.

We have certainly entered an era of personality politics, even for us recalcitrant old gits that have had to be dragged along kicking and screaming.

Up
0

And in that you describe, the rub, the real quandary for NZrs in general that National as the opposition hardly looks the ticket as being the saviour. Seems to me that ACT is confronting the government more tellingly and have to say too, when on some of the more general issues, the Greens, some of their younger ladies especially, are applying some good heat too.

Up
0

I agree, I basically like her and it's easy to make her the scapegoat of the govt's failing. But that's kind of fair enough, given she's the leader.
But to be fair she has a hopeless team.
It's like if Messi came and captained the Wellington Phoenix.
You can only achieve so much if your team is rubbish.

Up
0

But also one could argue that there are no excuses when the number $470k is involved.

Up
0

https://ejmagnier.com/2021/02/27/bidens-message-to-iran-in-iraq-and-syr…

And so it begins. The MSM, lauding growth while studiously avoiding the consequences, backed Biden via an instinctive, shallowly-thought-out 'anti-Trump' stance. No questioning of what Biden represented, or HRC before him. And so the military-industrial complex, speed-dating with the Elite, lead us forward; reported glowingly and unquestioningly: We own the oil, so those living on top of it must be terrorists. We've taught ourselves (incorrectly) that we just need money, but the unfortunate physics fact is that we need the oil. All hail the next Shah (named because the citizens of Iran are to be shahfted?). China - and to a lesser extent Russia - won't allow US re-annexation of Iran, China can't afford to let the energy go, and certainly not to the US. Watch this space.

Up
0

Meanwhile the USA ignores that the Syrian Government and it's supporters did the heavy lifting in crushing ISIS. And the PMUs gave thousands of lives to liberate the city of Mosul from ISIS.
And yet the USA bombs them. Why?

Up
0

"The USA" may not be the country you think it is? Cui Bono?

The Top 1% of Americans Have Taken $50 Trillion From the Bottom 90%—And That's Made the U.S. Less Secure....The $50 trillion transfer of wealth...has occurred entirely within the American economy, not between it and its trading partners.... this upward redistribution of income, wealth, and power wasn't inevitable; it was a choice...a direct result of the trickle-down policies we chose to implement ...

https://time.com/5888024/50-trillion-income-inequality-america/

Up
0

KH....have they found those weapons of mass destruction in Iraq yet? (pronounced eye rack of course).

Up
0

What planet are you on ? Asaad will be done for war crimes for killing tens of thousands of their own civilians. Syria is a total nightmare right up there with Yemen.

Up
0

Planet earth Carlos. Let me ask you this. What is your estimated civilian body count from the carpet bombing of Raqqa by the USA. Add in for good measure the civilian bodies from the USA bombing Mosul. Both were large city areas, and were systematically destroyed street by street over long periods.
Will you include the USA in your war crimes.
And yes, Syria is a total nightmare.

Up
0

If we are forced to choose between China and Australia, it has to be Australia.
Culturally Australia is our only real mate.
Oz stopped people drowning in the Indian Ocean (there were about 2000) and that irritates Ardern. But I'm with Oz on that one.
Ozzies can be annoying, but they are family.

Up
0

Suspect, just about in all cases, every big brother is annoying.

Up
0

Choose?
We don't get to choose!

We don't get to do anything we aren't told to do.
And let me give you a clue - neither does Australia.

Up
0

Agree.
The west needs to pivot away from China urgently.
There will be some shorter term economic pain, but it will be worth it.
Whoops, I forgot! We only care about the short term!!!

Up
0

When did the west ever pivot away from a payday?

Up
0

True, we are greedy self-interested fools

Up
0

A book title

Up
0

Sounds like Australians are really enjoying RBAs punch bowl. Lap it up, plenty more easy money to be made in property.

Up
0

Property brothers in arms!!!

Up
0

This will be interesting - how Biden responds will be a real signal of where he stands on progressive (or not) ideals;

https://www.nytimes.com/2021/03/01/business/elizabeth-warren-wealth-tax…

Up
0