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Huge rises in American incomes, spending and confidence; Large improvements in US PMIs; Taiwan GDP surges; EU in double-dip recession; UST 10yr at 1.62%; oil down and gold unchanged; NZ$1 = 72.3 USc; TWI-5 = 73.5

Huge rises in American incomes, spending and confidence; Large improvements in US PMIs; Taiwan GDP surges; EU in double-dip recession; UST 10yr at 1.62%; oil down and gold unchanged; NZ$1 = 72.3 USc; TWI-5 = 73.5
Dead zone. After many years of snails-pace Auckland Council "projects", Queen Street is losing many retail tenants, and is no longer an attractive retail destination

Here's our summary of key economic events overnight that affect New Zealand with news of a new bifurcated world, where this time the US is back on top.

In the US, they reported a huge (+24%) spurt in household income in March from February, based both on Federal stimulus payments and rising employment. They also reported a +4.7% rise (large in itself) in household spending in March from February. Prices rose at a +2.3% annual rate. Some now think this is just too much juice.

Consumers now report a booming economy.

In the industrial heartland centered on Chicago, their regional factory PMI is very strong indeed, coming in far better than the strong result expected. New orders surged, plans to hire more staff were reported by more than half those surveyed, and prices rose sharply. The overall PMI is their highest in almost 40 years.

In China there were two factory PMIs reported overnight. The private Caixin survey was reported an expanding sector with the strongest increases in output and sales for four months. New orders increased but supply chain issues are holding them back from even better results. The official version of this survey was more restrained, reporting a smaller expansion from the modest March one. Both these surveys reveal a timid expansion compared to the booming American one, quite the reversal of fortunes between the rivals.

But infrastructure 'investment' is still important in China. Their 26 leading excavator makers sold a total of 126,941 excavators in the first quarter, surging +85 year on year, although some of that will be base effects of the pandemic.

Stung by the return of the pandemic, Japanese consumers are increasingly depressed ahead of the Olympics, with downcast views quite separate from their business counterparts.

Singapore business confidence rose in March but is still at a low level.

There were more GDP results reported overnight for Q1 2021. In Taiwan, they saw their economy grow at a fast +8.2% clip from the same quarter a year ago. But Germany reported a -3.0% decline on that same basis. Overall the EU said its economic output shrank again by -1.8% on the same basis, slightly less than expected. Their bounce back has left them worse off than before the pandemic started. For them, its a double-dip recession and also a very sharp contrast to the US. Part of the problem is the EU's aggressive carbon tax, "a gift to rivals" who don't manufacture in the EU. The call is out for high import tariffs to protect the locals who have to pay it.

Canada also reported GDP results, and it is now back to pre-pandemic levels. The data is for February, and things have progressed from there.

New upstart airlines are cropping up in North America, Europe, South America, Africa and Asia, as the end of pandemic's suppression of travel is in sight. More than 90 new carriers, most with funding already secured, have plans in place to take off before the end of the year. The mainline airlines that have seen a recovery in demand are not seeing a similar recovery in profitability, and that makes them as vulnerable as the failing airlines.

The OECD is reporting that global foreign direct investment flows decreased by a massive -38% in 2020 to just US$846 bln, their lowest level since 2005. Both Japan and China pulled back sharply. The US maintained a steady level of investment.

In Australia, the Chinese ambassador has gone after Australia saying their are trying to "coerce" China to their will. Apparently, this ambassador doesn't understand the irony of his remarks. China is a giant compared with Australia, with 15 times more economic heft, but he is painting them as the victims of an independent Australia.

In China, they say Western sanctions targeting Xinjiang are no more than “a piece of waste paper” and their real purpose is to hamper Chinese companies internationally. “Their real purpose is to conduct an ‘industry genocide’, to sabotage the participation of Xinjiang in the global value chain.” It is acknowledgment that consumer pressure through the bands and buying chains is having a noted impact on this trade. And cotton is not the only trade shrinking on international pressure. Huawei is too.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 150,793,000 have been infected at some point, up 933,000 in the day, largely driven by rises in India where nationwide super spreading events are underway featuring a "double mutant" strain - and a huge global risk. Global deaths reported now exceed 3,171,000 and up +15,000 in a day. Vaccinations in the world are also rising fast, now up to 1.111 bln (+26 mln) and in the US more than half of their population (235 mln) have had at least one dose as they keep up their fast rollout. More than 30% have been fully vaccinated (101 mln people). The number of active cases there remains stubbornly unchanged at 6,825,000 with just +6,000 more new infections than recoveries in a day.

Wall Street is lower in afternoon trade, with the S&P500 currently down -0.7% and giving up all of yesterday's gain and unable to hold its record high. It is heading for an unchanged weekly result. Overnight, European markets were very mixed again, with London up +0.1%, Frankfurt down -0.1% and the others down about -0.5%. Yesterday, Shanghai ended down -0.8% but Hong Kong ended down almost -2.0%. Tokyo fell -0.8%. In Australia the ASX also fell -0.8% while the NZX50 Capital Index rose +0.1%.

The UST 10yr yield starts today at 1.62%, down -3 bps overnight. The US 2-10 rate curve is little-changed at 147 bps. And their 1-5 curve is flatter at +80 bps, as is their 3m-10 year curve at +162 bps. The Australian Govt 10 year yield is now at 1.70%. The China Govt 10 year yield is down -2 bps at 3.19%. The New Zealand Govt 10 year yield is up +4 bps at 1.66%.

The price of gold starts today at US$1768/oz and that is unchanged since this time yesterday.

Oil prices are down -US$1 today at just on US$63.50/bbl in the US, while the international price (Brent benchmark) is just over US$66.50/bbl. Big oil companies returned to profitability during the first quarter. Rig counts are up.

The Kiwi dollar opens today at 71.6 USc and almost -1 lower than this time yesterday. The downshift is against most cross rates. Against the Australian dollar we are down at 92.9 AUc. Against the euro we are lower at 59.1 euro cents. That means our TWI-5 has dropped -50 bps to at 73.5.

The bitcoin price is now at US$56,962 and +8.2% higher since this time yesterday. Volatility in the past 24 hours has been extreme at +/- 4.8%. 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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22 Comments

A Record 34% Of All Household Income In The US Now Comes From The Government

If – when - Uncle Sam is the only game left in town, that’s all you really need to know.

And so here we are all over again. Thirteen almost fourteen years after first modern (deflationary) contact, government deficits have surged and today only threaten to explode that much more. Ruinous, maybe; bankruptcy on the horizon, no sir, not even close. Government bonds only trade more as if they were as good as gold.

The more things changed, the more they have stayed the same, including our own version of, “The Federal Reserve System repeatedly referred to its policy as one of ‘monetary ease’ and was inclined to take credit – and, even more, was given it – for the concurrent decline in interest rates, both long and short.” Repeated every day in the financial media.

Even now, after an “historic” selloff in the bond market in the first few months of 2021 and with GDP in America rising at what’s claimed to be awesome and strong rates, money is not letting prices rise (enough) anytime soon. The Fed still says it is being “accommodative”, and the market instead buys out Uncle Sam at almost any price.

Top-down is not the same thing as stability. On the contrary, it is merely another form or symptom of the same underlying sickness – and, contrary to current imagination, this is not an inflationary disease. When government bond prices rise and stay up in a way that consumer prices are not able, no matter what insanity overtakes the government, a clear sign of being on this other wrong track. link

The number isn't representative of the future situation however as "stimi" cheques are finite.

"US juices itself excessively" Indeed and the same could be said for NZ

ditto most of the worlds centrals banks..

Has anyone noticed that the number of unused vaccines in New Zealand is very high? We have used about 232k doses but now have about 450k available to use, a number that is increasing rapidly: https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-nov...

There was a “comfort piece” on TV1 news last evening extolling the establishment of vaccination units and the arrival of trained vaccinators. Well in good, and good to see, perhaps things will catch on and catch up. Question remains though, why were these locations and staff training not planned well in advance. Yes, yes NZ is not in the dire straits of some other nations, but there was no reason to procrastinate and not undertake realistic basic planning much earlier, especially when there is large amount of notice and a government department that should be responsible for and on to exactly that.

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What do they mean arrival of trained vaccinators? Giving injections is a basic nursing skill. At most a half day training needed, there are thousands of nurses who regularly give flu vaccines. As a nurse I despair of this government.

"As a nurse I despair of this government" - crikey well maybe head to India and lend a hand if NZ government leaves you so depressed?

Exactly HtP, but that’s what they touted not me. A friend in his 80s was summoned two weeks ago, because he has a relative working at the border, to a facility at a hospital, one nurse had been vaccinating by herself since 7.00am and said to him she would be going to at least 9.00 pm if to achieve the numbers stipulated by the MOH. Other nurses were on stand by to catch the fainters one supposes. It was by my friend’s experience, an outright bloody shambles and to my mind that then, would have been a better valued news item for TV rather than the fluff last evening.

Same with government borrowed money - it sits idle on the RBNZ's Crown Settlement account.

A local anecdote, at my DHB they have really started cranking vaccines in the last week. Open to all staff, easy to book and only took 15 minutes out of my day. Well organised, simple, and they still had red flavoured lollypops for me. Queue was huge the first day it was opened to all, clearly a lot of demand.

Virtually all of my immediate colleagues have had it this week, although we're mostly scientists so probably less representative of the anti-vax crazies in the general population. Happy to report nothing more than a sore arm in anyone I've spoken to. In three weeks we'll go back and finish the job.

Consumers now report a booming economy.

Disappointing some, US real GDP managed to come in 6.2% higher in Q1 2021 when compared to Q4 2020. This was slightly less than the “consensus” which had figured around 6.6% growth and then the more optimistic calculations including the Atlanta Fed’s GDPNow tool that had only yesterday pointed to 8% (with some outlier whispers dialing up double-digit gains).

Even so, the data was either amazing or confusing, depending upon your perspective which can change under different types of analysis. The US economy has performed better than had been figured a year ago, but what exactly does “better” mean for the long run? Enough better?

To start at the top, the sequence of -5.1% in Q1 2020 (the first of the recession) followed by the big shutdown and GFC2 yielding -37.7% in last year’s Q2, then +28.8%, +4.2%, and now +6.2% leaves seasonally and inflation adjusted output just about 1% below the Q4 2019 prior peak. More to the point, it’s still nearly 4% less than where the economy “would” have been had there not been a recession in the first place (or had a full recovery materialized before the first three months of this year).

Is this a sign of success, even of having created too much? That’s where the questions only begin given that much of these increases are not the economic results of organic processes. These are artificially boosted estimates of an artificially “drenched” system indicated in the huge hand of Uncle Sam (GDI’s view of it, stipends, was still more than $400 billion SAAR in Q1).

On the one hand, only 1% below peak and “just” 3.7% less than baseline (even if that baseline wasn’t good). On the other, trillions in “stimulus” and this is as close as the government (not the Fed) could manage? Why not bursting upward above either of those comparisons before now? Link

Japan's weeklong holiday (Golden Week) has started and many Japanese are saying put or continuing to work instead of travel. Watch the trading volumes on cryptocurrency ramp up massively and it appears to have already started with huge volumes in Japan favorites such as XRP and the price up 15% in the past 24 hours.

Incidentally, Japanese-Korean gaming company Nexon added $100b on bitcoin to their balance sheet just before the start of Golden Week.

https://finance.yahoo.com/news/japans-nexon-spends-100-mln-012342139.html

I suppose I could counter and send a reminder that some very large financial institutions put billions of mortgage-backed securities on or near their balance sheets just prior to 2008.

That ended well.

I’m not attacking bitcoin etc – just suggesting that just because various big balance sheets are loading up large doesn’t necessary signify financial credence for the class long term.

Of course it doesn’t hurt it at the moment either.

I suspect Nexon are putting BTC on their balance sheets for entirely different reasons than a rotten financial industry feasting on its own creations.

“a rotten financial industry feasting on its own creations” – no arguments here.

Good Morning from #Germany where the financial repression intensifies. Real yields (10y Bunds-inflation) plunged to -2.2%, lowest in a year after inflation jumped to 2% in Apr from 1.7% in March. Real yields are now NEGATIVE for 60 consecutive mths, another fresh historic record. Link

In Australia, the Chinese ambassador has gone after Australia saying their are trying to "coerce" China to their will.

Does Australia have a choice?

My wife and I now have firm dates from our DHB-Tauranga- for both our first and second jabs in mid May and early June. We are both over 65.

Where is the PM and Government defending the separatist structure they wish to deploy?

https://www.rnz.co.nz/news/political/441575/government-plans-may-lead-to...

Today she said the proposed plan will create "separate systems of governance" which will lead to worse outcomes for everyone.

And on que a little hit piece via newshub.

Question. How can one against separation, segregation, have those comments interpretated as racist?

KD is noted as being disappointed with the speach & the speaker, but addresses no elements of the speach, offers no understanding of what he sees as bad thinking or bad ideas.

https://www.newshub.co.nz/home/politics/2021/05/kelvin-davis-attacks-jud...

Well he would say that wouldn’t he. Mandy though, said as much, more convincingly. What a bunch of mealy mouthed platitude utterers, we have in government, and no better in opposition unless they are going to put their money where their mouth is. God defend New Zealand!