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China records strong recovery, but powered by dirty energy, debt; US economic confidence higher; Fed eyes tapering; global pandemic not easing; UST 10yr at 1.59%; oil steady, gold up; NZ$1 = 71.5 USc; TWI-5 = 73.4; bitcoin slumps

China records strong recovery, but powered by dirty energy, debt; US economic confidence higher; Fed eyes tapering; global pandemic not easing; UST 10yr at 1.59%; oil steady, gold up; NZ$1 = 71.5 USc; TWI-5 = 73.4; bitcoin slumps

Here's our summary of key economic events over the weekend with news the bitcoin price is tanking sharply today, losing all of April's big gains.

But first, China has turned in the expected 'very good' economic data anticipated by analysts. The Q1-2021 GDP rose +18% above their pandemic affected Q1-2020 levels. Their fixed asset investment levels were even higher on that basis (+25%) and also as anticipated. However, industrial production there undershot expectations at +14%.

Some analysts are warning of data accuracy with this latest Chinese release, but they do see the momentum continuing there. Excessive leverage remains a key risk.

Electricity production rose sharply, consistent with the economic momentum. In March it was +12% higher than in March 2019 (which avoids the twisted base effect of a year-on-year comparison). But it is coal-fired electricity generation that is driving these gains, up +26% in two years. Sadly, clean energy generation is very variable, with lesser gains for nuclear (+9%), wind (+11%), solar (+4%) and hydro (-9%), all on the March 2019 basis.

The iron ore price has pushed back up to its recent highs, and on rising volumes. Chinese coking coal prices are rising too. (These greatly benefit Australia and gives them leverage in the political disputes between the two countries - at least, room to ignore Chinese attempts to punish them.) Anticipation of rising demand emanating out of the US is behind the moves up. Many other commodities are rising too, including copper.

And the prices paid in China for some key agricultural products (corn, soybean, rice) are also showing signs of rising again, something that will be bad news for global food prices (if you are a consumer). Their catering sector is recovering fast, and that probably means millions more hotpot meal orders, with fast rising demand for beef and lamb, not to mention dairy products.

Chinese retail sales out-performed the expected year-on-year rise, up +34% when a +28% rise was expected. And there is an expectation that this will improve sharply around their upcoming May Day holiday, a five-day long weekend and retail spending spree.

China’s holdings of US Treasuries rose in February to the highest since mid-2019. These holdings increased by +US$9 bln to US$1.1 tln, the highest total since July 2019. It was the fourth straight monthly increase, and the longest buying streak since 2017. China is the second-largest foreign holder of US government bonds after Japan, who reduced its holdings slightly.

China will need these savings. It will need to spend ¥2.2 tln (NZ$ 500 bln) each year until 2030 just to transform their energy sector in order to reduce carbon emissions. That is nearly 3% of GDP every year, just for that one industry to meet the goal set by Xi Jinping. They are unlikely to use those reserves however; most of that is expected to be borrowed.

In the US, new housing starts rose strongly in March, bouncing back after the surprise February hesitation, and are now at an all-time record high. New housing permits rose as well, and new housing completions rocketed higher.

Reflecting that optimism, American consumers reported higher confidence in early April from surging economic growth and strong job gains due in turn to record stimulus spending, low interest rates, and the positive impact of vaccinations. The UofM Sentiment Index rose to its best level in a year on the strength of recent gains in current economic conditions, while future economic prospects remained unchanged from March. This is opposite of the usual pattern over the past fifty years, when recoveries were paced by larger and earlier gains in expectations.

Last week, the US Fed 's balance sheet rose to almost US$7.8 tln at a time when the Fed boss started talking about tapering bond purchases. Clearly they don't need to pump in as much monetary support in a rising economy, especially as fiscal support is kicking in now, but how markets will react when they do pull back will be interesting

In Australia, Citigroup says it will sell its retail banking operations there, ending a 35 year presence and part of a pullback from 12 other markets as well, from the Philippines to South Korea. In this region Citigroup is focusing just on Singapore and Hong Kong.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 140,955,000 have been infected at some point, up +1,491,000 in just two days. Global deaths reported now exceed 3,014,000 and up +22,000 in two days. Vaccinations in the world are also rising fast, now up to 893 mln (+30 mln) and in the US more than half of their population (204 mln) have had at least one dose as they keep up their fast rollout. A quarter have been fully vaccinated. The number of active cases there dipped to 6,877,000 and down -20,000 in two days. In New Zealand only 0.6% of us have been fully vaccinated, although 136,000 doses have been given now.

The UST 10yr yield ended last week at 1.59%. The US 2-10 rate curve is slightly steeper at 143 bps. Their 1-5 curve is marginally steeper at +77 bps, as is their 3m-10 year curve at +158 bps. The Australian Govt 10 year yield is is up +1 bp at 1.70%. The China Govt 10 year yield is holding at just on 3.19%. And the New Zealand Govt 10 year yield is now at 1.64%.

The price of gold starts today at US$1777/oz and that is up +US$33 in a week.

Oil prices are still just over US$63/bbl in the US, while the international price is still at US$66.50/bbl.

The Kiwi dollar opens today at just under 71.5 USc. Against the Australian dollar we are little-changed at 92.4 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 is just on 73.4 to start the week.

The bitcoin price will start today sharply lower; in fact, it's lowest of the month at US$55,318 and -10.4% lower from this time Saturday. And that is -15% below its peak on Thursday. Volatility in the past 24 hours has been extreme at +/- 8.6%. 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

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63 Comments

Good thing Bitcoin is a store of wealth free from government interference and manipulation, any price decreases in FIAT terms should be welcomed as it enables more people to get on board.

13
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Sounds evangelical

someone go to crypto-church on Sunday?

Slow clap

10
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You know the reason Bitcoin's price fell is because of rumours that the US government is investigating companies that may have been engaging in money laundering using Bitcoin? And that there a chance US and other countries move to regulate and/or ban Bitcoin, or place limits under which it can be used?

So the exact opposite of what you said.

I didn't know that was the specific reason the price had fallen, however my comment was tongue in cheek.

by Nzdan | 13th Apr 21, 9:10am
Nothing stopping Governments from creating their own blockchain currency and at the stroke of a pen making other blockchains illegal.

I thought it was obvious satire yet Poe's Law and all that.

Given that people literally write exactly that without it being satire...

“Any authority which starts regulating [the market] with a ban will end up frustrated [since this] encourages fintech startups to move abroad,” said economist Ugur Gurses.

In what would be one of the world’s strictest policies, India will propose a ban on cryptocurrencies and fines on those trading or holding the assets. China banned such trading in 2017, slamming the brakes on a freewheeling emerging crypto industry.

“Headlines like this at this point tend to send a bolt across the bows,” said Joseph Edwards, head of research at crypto brokerage Enigma Securities in London, while noting that similar regulatory moves in Nigeria and India “didn’t even move the needle”.

BTC is a response to over-reaching central banking systems destroying wealth. Attempting to ban it is pointless. And the market went parabolic on Saturday so some degree of walkback was inevitable and it happens most Sunday nights anyway. Very few alts gave up more than they'd gained in the last week, and my beloved Nano held onto a big green candle the whole way through.

Nano may be my next purchase. Or am I too late?

Honestly at this point I don't know with Nano. It's so far from its all time high but there's a lot of people who haven't been able to sell until the spam attack fix in V22 is rolled out who might decide to head for the exits. Just be prepared to be stuck with it for a bit.

I plan on going long anyway. ADA, DOT, LINK, BNB, SOL at the minute. going to add Theta, MTL and XLM next time around I think. But Nano caught my eye last week

Let me put it this way: If I could have swapped my Nano for VTHO this weekend, I would have.

Honestly at this point I don't know with Nano.

So why are you spruiking it on a public forum?

Do you actually understand what 'spruiking' means? Generally people spruiking something don't talk about what's wrong it.

Since when has the weakness of crypto stopped people from spruiking? I remember the fan boys on interest referring to XRP as some kind of excrement coin. Doesn't mean that it is not a good risk / reward trade. Be humble and accept that much of what you're doing is not your own good judgment and is more about group behaviour.

I'm quite capable of speaking for myself, thanks, I don't need your overwrought and uninformed generalisations and speculation about what my motives for owning something might be.

We're just smooth brains who likes shibecoin

I'm quite capable of speaking for myself, thanks

Well walk the walk, don't talk the talk. I gave the example of XRP and said that that the risk / reward payoff has been good despite the fan boys referring to it as 'sh*tcoin.' Why do you want to talk about altcoins and not state the reason why you like / don't like / changed mind on it? It is a public forum after all.

Don't you get it? We just like them bro

OK got it. And I understand that if enough people 'like something' about an altcoin, its price can go up, regardless if it has no apparent value beyond sentiment. That is the nature of the beast. I'm not saying that is wrong. In fact, it's a strategy to bet on the behavior of others.

Dont worry because the drop is temporary before bitcoin heads to new all time highs in the stratosphere... the bitcoin ponzi is better than the house ponzi

Nb: sarc

If China and the US start pumping, its going to be very hard for that not to impact exporting countries like us and Australia in a very good way.

14
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Over $10b in leveraged BTC positions were liquidated over the weekend. It’s nice to see a clean out of the degenerate gamblers, with no bailouts from central bankers. Wouldn’t it be nice if other asset classes were allowed to follow free market price discovery like this. This will ensure a good platform before the next leg up as strong hands will be buying this dip.

No plunge protection team out here in the free market

No multi-million dollar bonuses handed out to reward the biggest gamblers for losing their bet but securing government bailout (for the greater good)

Over $10b in leveraged BTC positions were liquidated over the weekend

Source? I believe it was closer to $1 bio of long positions.

Twitter.

Agreed. Crypto is likely the future to some.degree but many invest without true understanding. If used as a source of payment then AML checks are going to be made somewhere, sometime. My bet is that the US are going to send Palantir in to deep dive, but are first waiting for the criminals to execute enough transactions to hang themselves...
Btc transactions are not anonymous - when the big deep dive happens things will get sexy.

Powered by dirty energy is said China. Nicely put. Not much news lately about those creaky suspect giant hydro dams? Giant country casting a giant shadow.

BTFD

Is that the same coal we burned a record amount of last year to make up our electricity shortfall?

Chinese retail sales out-performed the expected year-on-year rise, up +34% when a +28% rise was expected.

Once again today, bond markets shrug off the stunning numbers. While 34.2% sounds unquestionably robust, especially given its slight acceleration from the month before, even the NBS poured cold water all over the excitement. Here’s the very first sentence in the Chinese government’s press release announcing its retail sales estimates:

In March, the total retail sales of consumer goods was 3.5484 trillion yuan, a year-on-year increase of 34.2%; an increase of 12.9% over March 2019, and the two-year average growth rate was 6.3%.

Using an average rate for the 2-year change is still giving it the benefit of the doubt; more appropriately, the compounded 2-year increase was 5.8%. Either one, when you look at the numbers this way an entirely different interpretation of the Chinese economic situation emerges: Link

US Financial Markets Have Become A Giant Mirage Built On A Foundation Of Fraud

The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown International, which has an eye-popping market value despite totaling $35,748 in sales in the last two years combined, according to securities filings.

“Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey … HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing,” Einhorn said in a letter to clients published Thursday.

What on earth is going on here? They have total assets of $1.6m of which $1.4m is cash - and a market cap of $101m. Is this a Reddit trade?

Might be the deli where Tony Soprano used to hold business meetings.

Lived near there some twenty years ago. Not a town that you would want to stop for anything. Still cheap land, cheap labour a great port and rail network, and the biggest retail market in the world right at your doorstep,

Some mind blowing inflow numbers into the US markets
https://www.mauldineconomics.com/frontlinethoughts/tsunami-warning

How does RBNZ "look through" increases in the minimum wage going forward.

"Stunning Divergence": Latest Bank Data Reveals Something Is Terminally Broken In The Financial System

There was a remarkable disclosure in the latest JPMorgan earnings report: the largest US bank - an entity that historically has best been known for making loans to the broader population - reported that in Q1 its total deposits rose by a whopping 24% Y/Y and up 6% from Q4, to $2.278 trillion, while the total amount of loans issued by the bank was virtually flat sequentially at $1.011 trillion, and down 4% from a year ago.

So much for the efficacy of QE. Nontheless the difference between the collective deposit book value and loan value is approximately accounted for by inert bank assets (reserve balances) lying idle at the Fed.

Just to put it out there in case anyone missed it on Aljazeera, China produces 1/3 of the total emissions on the planet and the USA and China combined produce 1/2 of the total. What you can clearly see is that unless the top emissions producers start cleaning up their act, there is no point in us even worrying about trying to clean up ours.

See tragedy of the commons.

If we don't all act, nobody will. It's a great excuse for everyone to do nothing.

problem is that doing something here generally exports the carbon emissions elsewhere

If we reduce our livestock numbers that reduction will be picked up elsewhere

Stop oil exploration in NZ doesnt change the demand just exports the supply elsewhere

sure getting electric scooters, skateboard, motormowers etc is great if they are charged at offpeak times otherwise they can be essentially fueled by burning coal, as this is new energy demand.

The best thing you can do to stop emissions is to stop buying crap out of china, buy quality that lasts, repair if possible, dont replace unless necessary. Walk or use a bike.

Problem is that the world is fixated on growth so governments want more consumption and that means more energy.

Easiest way to drop emissions is to halt immigration, less people, less energy consumed...

powerdownkiwi can take over from here....

A few points:
1. China should be compared to what figs they produced in 2019. Comparisons to first quarter of 2020 clearly useless.
2. Debt: you ask what will happen when Fed pulls back. This is a joke. They can't. Stocks would crash. That is all fed cares about
3. Virus and vaccines: we are now told (Q and A WHO expert yesterday) that vaccine does not stop transmission and also that booster shots will be needed annually and possibly for variants, so we need to keep doing social distancing etc . Er? For how long??? No one has an answer . So much for the great saviour of vaccination
4. Virus infection figs need to be split really into that which includes Brazil and India and a separate total which does not.
5. Has Australia banned those 2 countries from coming in? if not, Tasman bubble not going to last long is it?
6. How long is bond market going to stand all this debt when inflation hits 5-6% or more?? hence severely eroding their return and also threatening return of their money period

No 5. Indians Incoming to Aussie would require 14 day quarantine then another 14 days outside before jumping on the trans Tasman bubble. But yes still adds risk.

margin debt exploded in USA over last 5 months.
No risk of course. Nothing to see here.
For those who do not know, margin debt is borrowing on repo on fumes.
1928-29 was similar.

Skipping down the street hand-in-hand with the speculative extreme in valuations is the speculative extreme in leverage. Margin debt – the amount of money that investors have borrowed in order to buy stocks – is now at the highest level in history, not only in absolute terms, but also relative to U.S. GDP. Notice that spikes in the ratio of margin debt to GDP are distinct markers of speculative extremes like 1987, 2000, 2007, and today. As Jim Grant wrote decades ago, “The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” Link

Great article!!!

Note for GR & PM dept.
Road map for Covid recovery.

Bank lending directed to business investment increases gdp without inflation.
Banking lending, unbridled to asset purchase & consumer consumption creates asset bubbles and inflation & society the poorer.

Richard Werner, plus empirical evidence.
https://youtu.be/TkCU_n0h4Qc

Any VSEconomists want to claim otherwise?

Henry...

Im not an economist.... but I kinda claim otherwise.. in regards to a covid recovery... ie. the economic paradigm as it is now.

New money (credit) can enter an economy via a particular sector, AND...once it has entered the economy ( in this case thru lending to business) it can flow wherever it will... it flows like water.
Surplus profits will get invested in assets.....and Id suggest even some of the loans made to business...

In my view, a debt based economy needs a certain % of credit growth just to tread water and not fall into a recession.
In NZ ,lending to business would be very limited, as we dont have the household wealth ( without the household borrowing), to buy all the new goods that business might produce...
Not hard to see why NZs' basic economic policy is... Immigration + credit growth = GDP growth
In NZ, a policy of lending to business, instead of households, will NOT generate GDP growth, (so obviously there wont be inflation if we make that policy choice... ) Business would have to borrow massive amounts ( see business debt vs household )

I agree with Milton Friedman more than I agree with Richard Werner.... For me it is Monetary inflation , that drives the different kinds of inflation.... ie ... The fundamental cause of the different kinds of inflation is , essentially, a Monetary thing.

New money can enter the economy via a particular sector....
If it is via a sector, where does your money come from - Whats an example via, and the via's source?

Are you relying on the premise that banks create credit as they write loans, taking the borrowers promissory note as an asset and the "funded loan" as a customer deposit held as a liability.?

Im relying on the idea of what Credit is.. It is simply an IOU note. When the bank creates credit it is basically a promise to pay the holder of that credit note..."money on demand".
(If the borrowers ends up buying a house and the seller has an acct with the same bank and deposits the sale money into his acct, then the bank does not need to "settle". )
The ability to create credit does not give a Bank"free licence" to create as much credit as they like, just as a business cant extend credit beyond certain limits .... commonsense.

Someone posted a letter reply to questions they asked the reserve bank... one reply, to a question was this:

.." Banks are both intermediaries and money creators when they facilitate credit. When a Bank lends money to a customer, the money that is lent will be a mix of their own Capital, customer deposits, money borrowed from other financial institutions, and newly created money (credit)."

This is pretty much my view as well. Credit is basically an IOU note.... ie a promissory note, from the Bank to the borrower. We accept these credit notes as money.
They finally get "settled" , between Banks thru the RBNZ payment system..
BUT not all of them.... Most of them end up as deposits in peoples accts, because we accept them as being "as good as" money...

thats my view..

Thanks. The you tube link should be good watching for you.

Like other contributors I am noticing more failures to sell at auction locally, in hibiscus coast.
Listings also down 11% in last week.
Does not look like May will be lash hurrah for 2021. Normally may rises after an April lull.
Looks v much like March was top for sales this year, til November at least.

How about some price predictions Mike ? Total stock on the market doesn't really matter, all that matters is the price that its selling for. Which direction do you see the market trending price percentage wise from May 2021 ?

Re house prices in Auckland.
When there are more buyers than sellers, prices rise (October 2019 to March 2021)
When the reverse applies, prices are flat to falling (March 2017 - August 2019 and also 2008-10)
Now, question: how long do you think that the excess of buyers of the last 8 moths, will continue buying at that rate? And why would they buy at that rate on a linear basis? This is not a linear issue. The boost to buyers was artificially induced, as was their withdrawal in the earlier period.
Cycle norm should be driven by demographics but instead it is messed about by government and RBNZ goosing or restriction methods. The primary driver of inflation in prices 2012-16 was Chinese capital inflows which were then stamped on by China in the first 6 months of 2017. In early 2019 we also got ban on FB and AML.
Current surge is caused by flow of QE into banks who lend more as a result, plus taking off LVRs last year.
This artificial and temporary boost is now receding and no more interest rate cuts will be arriving to revive it again in next year or two. So, inevitably and logically, both sales (buyers) and prices will retreat. Sales faster than prices. So, we can and should expect that prices RATE of INCREASE will fall with increasing rapidity, from now on until it reaches below 3% pa. When do I expect this? Over the coming 18 months. More rapidly if we get a financial crisis in world markets, which is entirely likely given their overvalued state and margin debt levels. SO, more rapid falls in house price rate of increase after October 2021. Simple cooling until then

mikekk...
I think the biggest driver in the current surge, is the ultra low interest rates... they will be with us for a while yet.
Reserve Banks are well enuf aware of the dynamics .....and use the wealth effect of realestate as a policy tool... in my view.

https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-01.pdf
https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-01.pdf

A new record for me for daily losses (most in one hour). Nice recovery though - have recovered about 65% of the loss