Here's our summary of key economic events over the weekend that affect New Zealand, with news both of the world's largest economies are getting activity expanding again.
China's trade surplus rose very sharply in the first two months of 2021 with exports up +60% and imports up more than +20%. That generated a huge +US$103 bln surplus and far above the expected +US$60 bln. The result was also far above how they ended 2020. Exports to the US were up +87%, imports up +60% resulting in a surplus with their main rival of some +US$51 bln, or half the overall result even if it was slightly less than last year. With New Zealand they ran a -US$1.2 bln deficit. With Australia it was a -US$10.9 bln deficit.
A proxy for Chinese factory activity is the copper price and that is now at its highest in more than ten years. It is signaling anticipated demand for new Chinese infrastructure projects. And the scale of their overall rebound can be found in road transport data which recorded a +45% rise in January from the same pre-pandemic month a year ago. But not everything is going to plan in China.
China has set an economic growth target of ‘above 6%’ for 2021, confirmed at a big Five Year Plan set piece meeting in Beijing. If achieved, it will make the Chinese economy 75% as large as the US, and closing in.
And China is realising that high housing costs are affecting its grim demographic profile, causing couples to limit births due to housing affordability stress. Expect to see a huge surge in new affordable housing projects in the next five years.
In South Korea, one of their largest conglomerates said it will invest NZ$22 bln over five years to develop the domestic hydrogen energy industry. It is a move attracting attention in Japan, China and Europe.
Meanwhile, in the US non-farm payrolls rose a better than expected +329,000 in February, and private payrolls rose +465,000. (Much of that difference was the shedding of -69,000 public teaching jobs in the month although other public sector payrolls declined too.) This was a very good private sector result, aided because the January levels were revised up strongly, but it still leaves a loss of -9.5 mln jobs since the start of the pandemic a year ago.
Now the question is whether this is the start of a substantial recovery in American employment to make back the pandemic losses. The Biden stimulus plan is the 'hope'. Congress seems steeled to push it through despite opposition from the Trump Rump. It has passed in the House. A slightly watered down version has passed in their Senate. The House needs to approve the revised version, which they will, and it will become law on Wednesday (NZT). Stimulus cheques could go out within days. It will juice the American economy with US$1.9 tln in new funding, with a substantial proportion going directly to citizens. The plan is that this juice will result in a much faster recovery in their labour market as their Spring season arrives.
Bond markets worry this may accelerate an already evident inflationary impulse.
Not so good was the January US trade balance which came in at -US$68.2 bln and very much higher than a year ago. The goods and services deficit over the last twelve months is now -US$705.5 bln and a new record. That is -3.3% of US GDP. The annual goods deficit is up to -$934.2 bln and on its way to a -US$1 tln shortfall between exports and imports. (Their goods deficit with China actually shrank in January from December.) Their services surplus was +US$228.7 bln and slowly shrinking.
The US and the EU suspended its trade dispute that resulted in tit-for-tat tariffs on aircraft sales.
In the European euro bond market, they haven't got the rising bond yield memo yet. Saudi Arabia has issued euro bonds at a negative interest rate - effectively being paid to borrow. They are the second sovereign to achieve that, the first being China in 2020.
In Australia, collapsing power prices due to the rise of low-cost renewable is expected to start shutting a growing set of coal-fired power stations, starting as early as this coming week. Many of these shutdowns could be permanent.
And staying in Australia, the NSW government is to end its COVID-19 eviction moratorium very soon and there are concerns it could force low-income renters into homelessness if they are not given money grants to pay their rent.
The latest global compilation of COVID-19 data is here. The global tally is still rising and at a fast pace, now at 116,639,000 and up +819,000 in two days, so no letup globally - in fact turning higher again. Global deaths reported now exceed 2,590,000 and +17,000 since Saturday. Vaccinations in the first world are rising however and in the US a quarter have now had this protection. That is quelling their daily death rate (+1500) and the number of active cases there is down to 8,846,000 (-56,000 fewer in two days).
The UST 10yr yield is up another +2 bps at 1.58% taking the weekly rise to +14 bps. The US 2-10 rate curve is up again to 144 bps. Their 1-5 curve is also a little steeper at +72 bps, while their 3m-10 year curve is marginally steeper too at +154 bps. The Australian Govt 10 year yield is unchanged at 1.78%. The China Govt 10 year yield is also unchanged at 3.28%. The New Zealand Govt 10 year yield has also held over the weekend at 1.94% for the week it has risen by +10 bps.
The price of gold starts today up by +US$1 from yesterday, now just on US$1700/oz. In a week it has fallen -US$43/oz or -2.3%.
Oil prices are up at US$66/bbl in the US, while the international price is up more to just under US$69.50/bbl. These are their highest levels in more than two years.
And the Kiwi dollar opens at 71.6 USc which is -110 bps lower than this time last week. Against the Australian dollar we are at 93.2 AUc. Against the euro we are at 60.2 euro cents. That means our TWI-5 is at 73.8 and actually only marginally lower in a week.
The bitcoin price will start the week up at US$51,141 and a rise of +4.6% since this time on Saturday. Volatility in the past 24 hours is still high +/- 3.8%. 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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70 Comments
foxglove.....Try in 25 years time Auckland WILL sound like India. From what I have seen and read for every Indian immigrant we accept today there will be an average of 5 new immigrants living in NZ within 10 years as a direct result of us (stupidly, in the vast majority of cases) accepting that one "new NZer".
I have travelled through India for months, rented my houses to more Indians than anybody else and love the food. I have no issue with Indians (or any other specific race of people). What I do have an issue with is the damage done by accepting so many people into our country especially when the vast majority are poor, unskilled "net negative immigrants" that will be a major contributing factor in us creating an exclusive and divisive society. On the whole mass immigration (especially of a certain type) helps (many of) the rich but is a huge and destructive negative force on many of our poor kiwis. We need to be kind and inclusive.... to our own bloody people!
Sounds like the changes that have been washing through NZ for about a decade now - but I'm guessing we can just fling open the doors even wider when things get back to the new normal. Average Kiwis are kidding themselves if they think their well-being will be a concern when that happens, it's all about importing that sweet GDP growth-by-headcount.
Some eonomist once said you cannot combine a welfare state and open border immigraton. I can vouch for that within my own family there are some who would prefer living in their country of origin if all things were equal. But they are not - specifically health (an auto immune problem) and education (applies to all the grandchildren). I suspect Denmark has realised this - reputedly they are both very liberal politically and very cautious with immigration.
About that other epidemic - "SAN FRANCISCO (AP) — A record 621 people died of drug overdoses in San Francisco so far this year, a staggering number that far outpaces the 173 deaths from COVID-19 the city has seen thus far.
...Last year, 441 people died of drug overdoses — a 70% increase from 2018 — and 2,610 potential overdoses were prevented by Narcan, a medication commonly sprayed up the nose to reverse an opioid overdose, according to data from the city Medical Examiner’s office and the DOPE Project."
https://www.jems.com/patient-care/overdose-deaths-far-outpace-covid-19-…
You can read all about it here frazz - so you avoid asking lame questions. You’re welcome.
https://www.cdc.gov/drugoverdose/epidemic/index.html
https://www.cdc.gov/nchs/nvss/vsrr/drug-overdose-data.htm
Uninterested.....I moved back to NZ a year ago and my wife got PR. She is mid 40s and will probably never work or pay tax in NZ. However, I have signed her up to kiwi saver where the tax payer will donate over $500 a year to her. Once she is 65 she will get regular Govt super donations courtesy of the NZ tax payer. All you tax payers should just be hoping that your donations to her are not increased through divorce or her elderly mother or Aunt deciding to migrate here as well. She has been (wrongly) allowed to live here as a "net negative migrant".
While Govt regulations and decisions are based on global inclusivity and self- promoting virtue signalling rather than on common sense and what is best for Kiwis we are destined to repeat the errors of our past.
refa... I agree that it is not as long as the spouse can, and agrees to, pay all cost associated with that person for the first ten years. Why should you pay for my wife to get medical care, Govt super and kiwi saver contributions when she will never pay one cent in tax. It is not right. And arranged marriage and residency should never ever be allowed. There should be no automatic right to anything.
It is sickening that, out of total kindness, we allow pieces of garbage like Menedez March to live here and then within such a short time frame he openly criticizes our immigration policies and procedures and uses the system to open the door to more (probably completely underserving, net negative immigrants) who, if he tires of their "services" will be eligible for Govt assistance and welfare at the NZ tax payers expense. Bob Jones summed him up perfectly, "a little turd" and a turd that should have has the door to NZ slammed firmly in his face. I wonder which deserving kiwi is languishing overseas, without an MIQ spot, simply because the turd and his boyfriend were allowed to jump the MIQ queue?
Uninterested... and marriage visas need to include the NZ spouse being financially responsible for their partner (and their kids) for at least 10 years. They should have to have paid at least 100K in tax before obtaining Govt super or Govt contributions to kiwi saver. They should not be allowed to use our welfare system and should be forced to purchase medical insurance for the next ten years before PR applications are even considered, No insurance, no visa.
So as a citizen it is your rights to expect the tax payer to pay for another person? If it is so impractical why do they do exactly this in many countries including the USA?. You are liable for 10 years and rightly so. Anything a foreigner receives from NZ should be regarded as a privilege not a right. Sounds like you would get on well with Ricardo. M M as he reeks of entitlement as well. If it wasn't clear what he was two months ago it should now be obvious to all.
"So as a citizen it is your rights to expect the tax payer to pay for another person?"
In the bulk of cases that's not going to happen though is it? Most spouses want to work, contribute and do something meaningful. If your suggestions were followed then many of NZ's returning diaspora would be marginalised or wouldn't be able to return at all - which is perhaps your intention.
"If it is so impractical why do they do exactly this in many countries including the USA?"
USA is hardly an example of a country with good immigration policy. Worse, by preventing the spouse from working they are unable to contribute to the tax base, take longer to integrate, with flow on effects like higher risk of depression, etc.
"Anything a foreigner receives from NZ should be regarded as a privilege not a right."
You were suggesting that they receive nothing, so neither privilege nor right. I suggest that a (legitimate) spouse be considered as a unit with their partner - that's the reality of how most relationships work.
I was only thinking this this morning - house prices are at a point where most couples will need to be working fulltime (with no career breaks) to keep up with mortgage payments - this will be exacerbated when interest rates go up. This means more couples having children later or having fewer children. It will also put pressure on retirement ages as people will retire later.
Add to this the potential for young kiwis and low income kiwis to buy housing elsewhere in the world - NZ has a real potential to lose its youth overseas -specifically to Aussie. The subsequent coutcome in 20 years could look very much like Japan an older retiring population that is paying minimal tax and not enough income earners to support the pension system and social systems.
Australian power prices collaspe giving with one hand and taking with the other
http://ectltd.com.au/wp-content/uploads/Electricity_Subsidies_The_Facts…
Changed from paywall
Here's a question for the morning, the day, the week...
Some respected geopolitical commentators are starting to question the conventional wisdom that China won't invade Taiwan.
Here's my question - wouldn't it be economic, if not existential, suicide if China did that?
Even if the USA didn't step in with it's military, one would think there would be extreme sanctions from at least the wealthy nations of the world.
That would whack China...
Is Xi that deluded???
Tough nut to crack. Defensives well prepared since 1950s. Treacherous seas and climate provide only a couple of months window. With satellites, no surprise attack, islands on approaches heavily fortified. The island has high density urban population anything from the air would inflict massive civilian casualties. Taiwan has enough to counterstrike quite some damage.
A good point about autocracy. An invasion of Taiwan would not be based on a considered judgement of the long term advantages for the expansion of the Chinese empire - it would happen when president for life Xi is under threat at home - say a pandemic that is not under control, a banking collapse, economic growth stalling, etc.
Foxglove. Agree. We boomers were raised on accounts of conventional WW2 pacific island invasions and tend to be influenced by images of massive fleets sitting off bombarding and discharging the huge number of troops and material required over extended periods of time. Such a scenario would not be possible today with the Falklands as an example where a handful of A4 Skyhawks in poor condition flying at the extreme edge of their range nevertheless managed to inflict severe damage. The Chinese are well aware that the US submarine fleet is so superior as to be unchallengeable at this time.
WASHINGTON -- The U.S. will bolster its conventional deterrence against China, establishing a network of precision-strike missiles along the so-called first island chain as part of $27.4 billion in spending to be considered for the Indo-Pacific theater over the next six years, Nikkei has learned. Link
Insane that Americans think their far-flung military installments will continue to be tolerated. They're going to get their asses handed to them in Asia. West Asia is already locked and loaded. Link
It is about ideology and power, and China sees the nationalists, who are both democratic and have something like the seventh largest economy in the world, due to their proximity and history as being a very real threat to their power and control over their population.
Hong Kong is a clear example of how they think. Another view is to consider strategies. China would probably like the world to believe they won't invade Taiwan. That would lead them to relaxing, probably even reducing their defence postures. But consider this, the US Office of Naval Intelligence has informed US leadership that the Chinese Navy (PLAN) now out numbers the US Navy in ship numbers. Capability is a different question, but make no mistake, China will be arming those ships with the very best weapons it can produce. And China's ship building capacity is huge - in 2019 China manufactured more ships than the US did during 1941 - 1945, four years of war! China is making it very clear that it's ambition is towards a blue water Navy. So this is not just about the South China Sea, which equates more to littoral type seas (shallow).
Unless china's political ideology changes dramatically, or the west's view toward deterrence steps up, it is arguable that war is virtually inevitable, just a matter of when.
Excellent commentary Murray, clearly very knowledgeable.
What's your pick on China's strategy?
I am not picking them to invade or even blockade short term (I think the latter is s genuine possibility though), I think the posturing will harden though. And as you say the military build up will continue.
Have they got where they need to get in terms of control of third world states and their resources? Perhaps yes.
I hope the NZ government is thinking about these things.
China has not got to where it is today by playing by the rules that the west imposed on itself. It has clear aspirations of power, but as it's population becomes more wealthy, that population also begins to get restless, so the government is backing itself into a crack. It is not a democracy, and because of that it restricts information and entertainment internally (NetFlix is banned inside China) so much of the population is curious about, and gets it's information and view of the world through pirate broadcasting and streaming channels. Just recently due to international pressure on intellectual property, China shut down an illegal movie streaming site, and are moving on others. Despite their best efforts China leaks like a sieve, information going in as well as out. So medium term? China will want something to distract it's population, and history tells us wars are great for that!
But a war will be horrendously expensive, and China does know that their ideology is at odds with the rest of the world. But they also know that China is one of the oldest civilisations in the world, and based on feudal systems, and I think they believe they will survive and grow stronger. I don't believe their view is to peaceful co-existence, where economic wealth benefits everyone. Their actions tell us that. Their ambition is to unchallenged dominance. I fear war is inevitable, and possibly at the cost of the planet we live on. The only question is when will they consider themselves ready to test the resolve of the west?
And don't forget the wild card - Russia. China and Russia have exercised their militaries together several times over the last few years. This doesn't mean they are friends, but Putin has similar ambitions, so they may well have divided up the spoils already.
Pirate broadcasting?? Uhhh no... basically doesn't exist in China and would be shut down rather fast if it did. VPNs are the way many Chinese people access outside world through the great firewall of China. The Chinese govt has the best VPN detection system in the world (seconded only by Netflix's), but it's still not very effective and is a continual battle between VPN providers and the Chinese govt. After years living in China I could still access the same VPN service almost without interruption at the end of my stay, that I signed up to at the start. Around their plenary events and PNC meetings, the great firewall of China becomes a bit more active and sometimes you get interruptions.
China isn't overly expansionist - it definitely doesn't want extended wars, it's population wouldn't support it as you say. Even it's escapades in the South China sea are more about securing sea lanes than anything else. Expect them to back off once they have the overland routes secured through to Europe/Middle East/Africa sorted out with their "go west" policies (including Belt and Road). Taiwan has been part of China for 400 years or so minus a few interruptions (Japan etc). The Kuomintang fled there to escape the Communists during Mao's takeover. China sees Taiwan as full of it's own brothers and sisters, so I very much doubt will try and take it back by force. They play the long game, so will just undermine the leadership bit by bit and keep growing economically so that eventually they will be on a level footing. Once a sympathetic enough population and party comes to power, they will reunify peacefully IMO. But reunification would mean final victory, so there is some motivation for it. The links between families and cultures between Taiwan and the mainland are too strong for a hot war I suspect, it would mean civil war or a bad insurgence, which is definitely not wanted. Better to do it similar to what's happening in Hong Kong.
Let's just hope Xi doesn't become crazy in his old age as Mao did and start lashing out. The absolute worst thing that has happened in Chinese leadership circles in the past decade is Xi changing the rules so he can be president for ever. That should terrify everyone, even mainland Chinese.
And China does have a democracy, just not as we know it. It operates a hierarchical democracy within the CCP. Low level members vote for higher level members and so on and so on up until the Politburo (though this is rumoured to be more "straw poll" than real voting). There are also several factions within the CCP which people may not understand, really it's a multi party system operating within a single party. This is seen as a strength by most Chinese political scholars. But one that can have deadly consequences for members.
Except Blobbles that Taiwan is very strongly Democratic and it's population will never accept a communist jack boot to rule them, no matter the view of the communists. And China has continually tested Taiwan militarily since 1950. Acknowledging the family connections, but it is those the mainland see as a threat as there will be an information conduit they will have difficulty in controlling and censoring.
As to the VPNs, unless they are legal, then they are to all intents and purposes 'pirate', and they provide a conduit of information into the country that the CCP does not want.
Finally your arguing for a democracy when there isn't one. Only people in the party get to vote, and they only get to vote for someone in the party. By any measure that is not democracy. When the ordinary people get a completely free choice as to who will govern them, then that will be democracy.
There are global ambitions certainly. Genghis Khan’s lads mopped up China after he had conquered right thru to eastern Europe. Biggest empire the world has ever seen. But China for basic reasons is an armed force geared to massive sweeping land manoeuvres. Mongolia used to be China’s state but Stalin got in there and Russia not likely to be passive about any annexation. The obvious option is Sth Korea, China has plenty of history there. Technically Nth & Sth are just under a truce. Nth could be prodded into starting it up, then China to the rescue. Beyond the east China’s only real ally of any worth is Iran and they could have a go at Israel if China has got their military powered up. Hat would be very close to precipitating buttons being pushed.
Foxglove. China suffered enormous casualties and incurred massive costs in the Korean war and will be well aware that a repeat will be even more costly. Any invasion under a pretext would trigger a US response. Which in turn would see China instantly lose its international merchant and fishing fleets and the trade and resources upon which it is heavily dependent. Xi would have to be backed into a very tight corner before he would support an incursion by the belligerent Pyongyang toad.
Don’t disagree but you have to remember that generation that fought is largely gone and replaced by a population subjugated and primed by a regime, to the point that a seventy year old, and all younger generation, know and believe nothing more than the regime’s dictates. History can be massaged accordingly. This is the thing though, China can only expand westwards, they have had a scrap with Vietnam mainly to test Russian backing there and skirmishes with India, sufficient alarming for India to now man up their presence. Personally it’s hard to visualise anywhere that they can move on without escalating a major theatre of war.
Yes, I think your summary is correct. But even with westward expansion, only limited incursions such as Kashmir are feasible. No doubt the clever chinese have fully worked that out and settled on soft power projection accompanied by modest sabre rattling as the only realistic outlets for their global power aspirations. I'd go even further by suggesting that in our technological age hyper attritional 'major theatres of war' are no longer possible, nuclear exchanges aside.
Yes 70 years is significant. Look at WW1 when the various European Empires [British, French, German, Ottoman, Russian & Austo-Hungarian] clashed. It made no sense and it was a mega disaster for all involved. Was it triggered by the ignorance brought on by the long peace after the Crimea and Napoleonic conflicts.
Xi may walk a fineline between his population and his desire for global superiority.
Most of China's Armed Forces are aged between 20 and 40 - this is a problem becasue this generation is the only child generation and becasue of Chinas social structure - only children often support their parents in retirement.
Quite simply chinas population will not be happy to lose their children to a war. Xi would have to come up with a pretty comprehensive justification to sacrifice its "only children"
Justification is easy, some bullshit about the empire, and Taiwan's rightful place in it.
I maintain that an invasion or blockade of Taiwan would be extremely counterproductive for China.
But that hasn't stopped autocratic maniacs doing similar things in the past in the name of their mighty ego...
I don't quite understand your point.
Whether it's an old fashioned land invasion (almost certainly won't be) or missile launch, or blockade, it's an act of aggression. Which will have severe consequences - militarily, economically or both.
There is no rational reason for Xi to do it, it's like a mild version of MAD.
However, we have seen throughout history how evil, power hungry and autocratic men can do irrational things in the name of some sort of higher purpose (religious or secular). I don't have enough faith in the evolution of humanity to be confident those mistakes will not be repeated...
China still do it old school. "China has admitted for the first time that it suffered four casualties in hand-to-hand clashes with Indian troops at the disputed border of Ladakh in June 2020.
On Friday, Chinese media reported that the People’s Liberation Army (PLA) lost four men during its clash with Indian forces in the Galwan valley during which 20 Indian soldiers also died."
https://www.independent.co.uk/news/world/asia/china-india-border-clash-…
Meanwhile, in the US non-farm payrolls rose a better than expected +329,000 in February, and private payrolls rose +465,000,
The most remarkable and illustrative part of the payroll reports continues to be the hours series. Even with more leisure & hospitality workers back in the mix, the total number of aggregate hours worked – in the private economy – somehow declined on a seasonally-adjusted basis; that is, according to the BLS calculations, there were fewer hours worked (-0.5%) in February than January.
Unadjusted, total hours last month were down a whopping 6.3% year-over-year. To put that into perspective, this is just about the same level of contraction as the worst eight months of the 2008-09 Great “Recession.” Given this figure, no wonder there weren’t many other jobs added besides in revived bars and restaurants (and it looks more like ADP); there was, apparently, no work for possible new workers to be staked. Link
Perhaps she could delegate more. Does she really need to be at all those press conferences?
The answer of course is no, but the answer politically is yes. She and her party know that she's their shining light, get her out there in front of the media as much as possible...
PSA:
No update on vaccination counts from New Zealand. Last count was about 9400 on March 2.
No data is being published.
Australian data is being published daily, they are making progress, but still not doing particularly well against their own targets.
77000 as at Sunday March 7, but NSW data was two days old.
It is hard to see the NZ vaccine rollout being a success at this point. There is still no target and they are not measuring progress against it. The data is being drip fed which smacks of political interference.
It's really not that hard to do if they wanted to... we recently had a census telling us how many houses were empty, how many people in a house and how big those houses were. If Stats NZ wanted to calculate the housing shortfall (as of 2018), they definitely could.
But they have not been directed by the minister to do so. Therefore they don't do it.
You get one guess as to why they have not been directed to calculate the housing shortfall in NZ... despite the rhetoric of those at the top of the gubbmint, they are falling into the same old trap. "If we don't measure it, it won't show how bad a job we have done".
Roger....It makes depressing reading (for a kiwi) but CNN Covid-19 vaccine tracker website has detailed and regularly updated info. I will post another summary of it tomorrow. Numbers do not lie.
sneak preview: New Zealand 16 days, 9 000. South Korea 10 days, 315 000. LOL
Professor John Gibson -Waikato University – Economic policy, productivity and the global economy- 3 doses of healthy skepticism.
Excellent presentation. Covid response - and the massive cost for ..what?
Just when you thought you had your debts finance you find out you will have to repay (deflationary), or borrow more (higher % rate?):
Telecoms giant Telstra, construction group CIMIC and the Australian Rail Track Corporation are caught up in the collapse of Greensill Capital and could be chased down by banks and insurers to pay tens of millions of dollars of bills sold to Credit Suisse’s supply chain finance funds.
Invoices for payments owned by the three companies were among the top 10 holdings at the end of January of four supply chain finance funds worth $13 billion
https://www.afr.com/companies/financial-services/telstra-hit-in-greensi…
German city Osnabrueck fears it will lose $22 million invested with Greensill Bank after Germany’s financial regulator warned last week of “an imminent risk” to the lender.
Osnabrueck is the third German municipal authority to disclose last week that it faced possible losses from the bank
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