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China faces key bond market test; China tax revenues recover strongly; global factory PMIs expanding; new US houses sell fast; UST 10yr at 1.56%; oil unchanged and gold down; NZ$1 = 72 USc; TWI-5 = 73.7

China faces key bond market test; China tax revenues recover strongly; global factory PMIs expanding; new US houses sell fast; UST 10yr at 1.56%; oil unchanged and gold down; NZ$1 = 72 USc; TWI-5 = 73.7

Here's our summary of key economic events over the ANZAC holiday weekend that affect New Zealand with news there is extra stress in "the bubble that never pops".

All is not well in China's NZ$1 tln bond market, and a key source of uncertainty is in their State-owned financial firms, especially those set up as 'bad banks' by Beijing to manage the banking system bad debts from a 1999 financial crisis. There were four such SOEs and one is in dire strife, so much so that Beijing executed its chairman for corruption in January. The other three are in bad financial shape too. This one, China Huarong Asset Management, is majority owned by China’s Ministry of Finance and is deeply intertwined with the nation’s NZ$75 tln financial industry. The pointy issue is that it looks like Beijing is sick of the endless bailouts that SOE firms get (not just these four) and may let this one fail. That could have a ripple effect that spreads widely. And it will end investors' presumed safety net that has been priced into Chinese bond values. The resulting repricing lower could trigger a tsunami of other company failures. However, not all analysts think this problem is unmanageable.

And short bets in the main Chinese share markets have hit a new record high. That is because demand for hedging against the risks of policy tightening, and further fallout from the antitrust crackdown on their big tech firms, are rising sharply.

Away from the stock markets, foreign investors boosted their holdings of Chinese bonds in the first quarter by +US$63 bln, or up +11% from Q4-2020. But the developing Huarong issue may interrupt those inflows.

More generally, tax revenues are rising sharply in the Middle Kingdom, with GST up +24% in Q1-21 from Q1-20, and personal income tax up +19%. Across all types of taxes, central government tax revenues are up +27% and local government taxes up +21%. They had a +¥120 bln surplus in the period (+NZ$25 bln), so no deficit spending here.

Prices for iron ore and coking coal ended last week with strong rises. Prices for key agricultural commodities rose during the week too. The Baltic Dry Index has raced to a new ten year high. But it is still a very long way below the extreme levels it reached pre-GFC.

In Japan, their factory PMI rose to a healthy expansion in April, and better than the good March result. New orders, and new export orders both drove this improvement. Unfortunately, their dominant services sector is still contracting.

In Hong Kong, business confidence pulled back from a deeply negative situation in January to one where optimists equal pessimists in April.

In Taiwan, industrial production rose sharply again in March, aided by the worldwide shortage of computer chips. But all that is at risk as the drought in the country deepens. The immediate prospects are not great. However, Taiwanese retail sales improved much more vigorously as well as the industrial situation.

The US PMIs were also very strong, for both the factory and services sectors. In fact, both components are recording their strongest expansion since these internationally-benchmarked PMIs started in 2007. This result has encouraged the Wall Street equity markets to new record highs.

Sales of new homes exceeded 97,000 in March, and far above the expected level, juiced because the existing home resale market is in low supply. This is a new high-water mark for their home-building sector, one that is actually struggling with timber supplies and other supply-chain issues, but still getting the job done. The March sales take their annual sales rate above 1 mln, also a new record high.

US rents have stopped declining. Overall, they turned up in March, the first rise in eight months. The rises are fastest in second tier cities; the major cities are still getting declines and some are double-digit year-on-year.

In the EU, they recorded a standout improvement in their factory PMI in April, its most expansionary since this series started in 1997. It was their tenth straight month of gains, and is being led by Germany. Their services sector isn't expanding, but it is now not contracting, so there is a stabilisation there which counts as an improvement. (The UK recorded a good, but lesser improvement in their factory PMI, and a better services improvement.)

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 146,708,000 have been infected at some point, up +1,729,000 in the past two days, largely driven by rises in India where nationwide super spreading events are underway featuring a "double mutant" strain. Global deaths reported now exceed 3,103,000 and up +27,000 in two days. Vaccinations in the world are also rising fast, now up to 1.006 bln (+30 mln) and in the US more than half of their population (223 mln) have had at least one dose as they keep up their fast rollout. More than a quarter have been fully vaccinated. The number of active cases there is stubbornly unchanged at 6,866,000 with +5,000 more new infections than recoveries.

The UST 10yr yield starts today at 1.56%. The US 2-10 rate curve is unchanged at 140 bps. But their 1-5 curve is stable at +74 bps, as is their 3m-10 year curve at +155 bps. The Australian Govt 10 year yield is down -1 bp at 1.68%. The China Govt 10 year yield is up +1 bp at just on 3.20%. But the New Zealand Govt 10 year yield is unchanged at 1.61%.

The price of gold starts today at US$1777/oz and that is down -US$4 since this time Friday.

Oil prices will start the week at just over US$62/bbl in the US, while the international price is just under US$65.50/bbl.

The Kiwi dollar opens today at just under 72 USc and firmer. Against the Australian dollar we are marginally firmer at 92.9 AUc. Against the euro we are unchanged at 59.5 euro cents. That means our TWI-5 is little-changed at 73.7.

The bitcoin price will start the week lower than this time Saturday at US$49,764 and down another -2.8%. That is now a fall of -23% in 12 days. Volatility in the past 24 hours has been a moderate +/- 1.9%. 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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40 Comments

ECB head not telling the truth and failing to provide evidence that negative rates help the economy.

Here is some serious empirical evidence about the actual link between interest rates and economic growth:

https://sciencedirect.com/science/articl
Link

US 5-Year Breakeven Inflation Rate takes a step down after last weeks 5 year TIPS auction.

China executed a bad man bank boss for corruption. their own world isn’t it. a modern day confirmation of Kipling, both warning and premonition methinks viz, - the East is East and the West is West and never the twain shall meet.

Thinking of our genius foreign Minister...
- diplomatic own goal (by 2 players)!

Unfortunately, the intervention of Prime Minister Ardern to clarify New Zealand’s position, and further media statements by Mahuta, have only made the hole the Labour government has dug for itself even bigger.

https://www.smh.com.au/national/drawing-a-snake-and-adding-feet-new-zeal...

The New Zealand Labour government has been in the headlines for all the wrong reasons. Foreign Minister Nanaia Mahuta gave an important speech last week, only her second in the role, that was meant to lay out her government’s position on matters of concern with China, without causing diplomatic offence.

Yet the outcome was that her words ended up offending New Zealand’s closest partners, while the Chinese state media launched a disinformation campaign against the speech that damaged New Zealand’s international reputation.

10
up

As far as I can tell, she offended right wing media from the 5-eyes partner countries, not the actual partners....

So Anne Marie Brady is a right wing, 5 eyed monster? The media partisanship on interest is hilarious. Can no one criticise this govt?

Proves her point the NZ has been compromised

Or a US policy shill?

So you’re saying she’s wrong about China?

That is an October 2020 link, more than six months old. She is still there. In fact she has written for this website just four weeks ago

As far as I can tell, she offended right wing media from the 5-eyes partner countries, not the actual partners....

Are you in the Office today?
Read the SMH item.
The the China play quoted has been to.

The Chinese state media’s reports on the speech ignored Mahuta’s critical remarks about China, a telling indication they had hit home. Instead they claimed her words signalled that New Zealand was critical of Five Eyes positioning on China, and that New Zealand was actually considering withdrawing from Five Eyes. This disinformation has been echoed in the international media and circulated widely on social media.

Hamfisted delivery of foreign affairs is a problem, we put up two novice players, both players light weight in the arena.

Listened to the foreign minister yesterday. She makes a fair point that human rights issues do not necessitate the 5 eyes framework for which to form a position. Nevertheless, she's not convincing in that the govt is after nothing more than a trading relationship whereby the NZ govt doesn't poke around the internal affairs of China, including human rights issues.

When is doesn't poke around = appeasement?
When has appeasement been shown successful?

Its the human rights, the HK territory grab, (Taiwan is the better of the 2 Chinas) the export of Fentanyl, the cyber & social media action - IP extraction......

https://en.m.wikipedia.org/wiki/Appeasement#:~:text=Appeasement%20in%20a....

At the beginning of the 1930s, appeasing concessions were widely seen as desirable - due to the anti-war reaction to the trauma of World War I (1914–1918), second thoughts about the vindictive treatment of Germany in the 1919 Treaty of Versailles, and a perception that fascism was a useful form of anti-communism......

As alarm grew about the rise of fascism in Europe, Chamberlain resorted to news censorship to control public opinion.[5] He confidently announced after Munich that he had secured "peace for our time".[6]...

HK was always going to be China's it like saying Stuart island is not part of New Zealand. HK residents need to get over it, they have had 30 years to leave if they didn't like it.

Waiheke as a reluctant part of Auckland.

Stewart Island... like calling you Car-loss... hardly an economic powerhouse and tourist mecca to the same scale as HK

I personally see this as the govt taking a moderate stance when it comes to our largest trade partner, cautious, and time will tell if this is the right track.

The fact you put so much weight into what foreign media says is curious.

How do you form your opinions, or do you take Stuff as read, accept assigned the opinions from them & the like.

I try to form my opinion from the 'news' element, rather than the 'opinion' section.

My point was that you seem to think it matters what some talking heads in Australia are going on about, or think it's significant that the Chinese media twisted something.

I also listened to Mahuta yesterday on Q&A. The thing that I took away was her warning to exporters - start diversifying - find alternative markets (other than China). At the moment she is obviously walking on a tight-rope, but I believe that she knows that it is only a matter of time before she has to choose which side she is on.

What side she is on? How about what side New Zealand is on for the sake of all New Zealanders, ie the team of 5 mill as espoused by this government. What concerns me about this government, and for that matter the previous one too, is that what suits them, individually and collectively, is thought to suit all of us. Oh yes we elect them, but the dog in the water pre election, is a different animal to the dog out of the water post election.

The interest dot co banner announcing a 4.4% fall in the price of Bitcoin and 'more news to come' is bit dramatic. Unless of course there's something behind the price movement that interest dot co knows about. The internet seems littered with fake news about Bitcoin at the moment.

Its taking a big dive JC, fasten your nappies and get into the brace position. Apparently its happened several times before so nothing to worry about, you know that history always repeats thing. The only issue now with the price of it over $50K, big swings are huge in real dollar terms so your going to need balls of steel.

Let me remind you of the last four months retraces:

-31% in January which lasted 19 days

-26% in February which lasted 7 days

-18% in March which lasted 12 days

-27% in April which lasted 12 days

Now climbing again. Expect 100k by end of May with a retrace to no less than 72k. And you're right Carlos, after the next halving swings in the hundreds of thousands are going to be wild.

Well it did plunge 4.5% rapidly this morning. I'd be interested to know Interests insight into why, or at least have it highlighted. It's not fake news at all. Coming from someone who isn't too bothered either way, the bitcoin brigade on Interest seem hyper sensitive of any negative news.

Not really - I find the anti Bitcoin brigade more hi strung personally. Its a long term holding , all the short term dips are just noise.

Wake me up in 10 years.

Nah will let you sleep some more -dreams are still free I believe?

I prefer "vigilant hibernation"

Many would argue the same is true of housing. That short term dips would be just noise. It would be interesting and important to report it none the less.

What short term dips - I thought housing only went up in NZ?

The 'plunge' is not the fake news. There is more emotional claptrap dressed up as news, positive and negative, surrounding Bitcoin. Right now, the price has eclipsed that 4% plunge. Meaningless in the scheme of things.

Weak hands are headed for the exit

I find it amusing the British on their high horse about Five Eyes/NZ response - but meanwhile happily continue to export to Saudi Arabia?

This week a report by UN experts warned that Britain could be complicit in war crimes through its arming of the Saudi Arabia-led coalition intervening in Yemen’s civil conflict.
https://www.theguardian.com/commentisfree/2019/sep/06/britain-slaughter-...

Mahuta is just doing a Putin; say one thing, do another. Clever she didn't really lay out what their branch 'is' going to do.

David, your commentary on oil prices suggests a US vs. an international price but what I think you are actually referring to is the West Texas Intermediate crude price versus the Brent crude price(?). Spot prices vary simply on the basis of the quality of crude being quoted not where the actual market is. Anyway, crude prices are certainly holding up and yet things like air travel have yet to rebound from the Covid disruptions.

Well the BTC price is up 8% in Japan after the hooplah this morning. I can't remember the last time I've seen it rise this much in a day.

Well the BTC price is up 8% in Japan after the hooplah this morning. I can't remember the last time I've seen it rise this much in a day.