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China tackles excessive leverage; China PMIs flat; wide variances in GDP growth reported; US goes on a recovery spurt for both households and factories; UST 10yr at 1.63%; oil and gold unchanged; NZ$1 = 71.6 USc; TWI-5 = 73.6

China tackles excessive leverage; China PMIs flat; wide variances in GDP growth reported; US goes on a recovery spurt for both households and factories; UST 10yr at 1.63%; oil and gold unchanged; NZ$1 = 71.6 USc; TWI-5 = 73.6

Here's our summary of key economic events over the weekend that affect New Zealand with news of some remarkable improvements in American income and spending activity.

But first, we should note that China is on its week-long "Labour Day" holiday now. Its financial markets will be closed Monday through Wednesday. But for most, it is expected to be a period of enthusiastic domestic travel.

At the same time, China is claiming "remarkable results in stabilising leverage and promoting growth" by reducing its country-wide leverage ratio by -2.6% in Q1-2021. It fell to a still-sky-high 277%, with their government ratio at 45%, households at 72% and business enterprises at an eye-watering 160%. (For perspective, New Zealand's government ratio is 33%, our households are our problem at just over 100% due to housing debt, and our business enterprises at only 56%, for a total country level of 189% of GDP.)

In China there were two factory PMIs reported over the weekend for April. The private Caixin survey reported an expanding sector with its best increase 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 over the weekend 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 higher 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.

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 large +4.7% rise 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 also 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.

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

In Australia, the Chinese ambassador has gone after Australia saying they are trying to "coerce" China to their will. Apparently, this ambassador doesn't understand the irony of his remarks.

Back 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 brands 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 152,378,000 have been infected at some point, up 1,585,000 in two days, largely driven by rises in India. Global deaths reported now exceed 3,196,000 and up +25,000 in two days. Vaccinations in the world are also rising fast, now up to 1.151 bln (+40 mln) and in the US more than half of their population (241 mln) have had at least one dose as they keep up their fast rollout. More than 30% have been fully vaccinated (105 mln people). The number of active cases there has fallen to 6,785,000 with -40,000 fewer new infections than recoveries in the past two days.

The UST 10yr yield starts today at 1.63%, up +1 bp overnight. The US 2-10 rate curve is little-changed at 146 bps. And their 1-5 curve is still at +80 bps, as is their 3m-10 year curve at +162 bps. The Australian Govt 10 year yield is down -1 bp, now at 1.69%. The China Govt 10 year yield is unchanged at 3.19%. The New Zealand Govt 10 year yield is also unchanged at 1.66%.

The price of gold starts today at US$1769/oz and that is up a minor +US$1 since this time Saturday.

Oil prices are little-changed today at just under US$63.50/bbl in the US, while the international Brent price is just over US$66.50/bbl.

The Kiwi dollar opens today at 71.6 USc and unchanged since Saturday. Against the Australian dollar we are still at 92.9 AUc. But against the euro we have recovered to 59.6 euro cents. That means our TWI-5 is now at 73.6.

The bitcoin price is now at US$56,871 and virtually unchanged since this time on Saturday. Volatility in the past 24 hours has been moderate at +/- 1.7%. 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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15 Comments

RE:US Prices rose at a +2.3% annual rate

According to the monthly estimates produced by the BEA (the quarterly figures were released yesterday alongside the GDP data), in March 2021 the PCE chain-type price index (seasonally-adjusted) was 2.32% more than it had been in March 2020 when it was already on its way down into GFC2 deflation. Compared to last February, prices are up almost exactly 2%, hardly the monster hiding supposedly in plain sight.

And that’s with the full weight on gasoline and energy.

Without those, or food prices (yes, I know food prices are rising; but other goods prices are not rising near as much and the prices of many services are still being heavily discounted; inflation is not one or the other, it is sustained increases in all of them together), the core PCE advanced by just 1.83% year-over-year. Further establishing my parenthetical aside, the Dallas Fed’s trimmed mean deflator last month was up all of 1.67%, indicating, on balance, only a small proportion of consumer prices rising in the way most often described.

Everything else besides categories like food must instead be rising at rates that don’t even match up to the past few years; such as 2018. Link

Comparing NZ and Japan, household debt to GDP was never as high as it is in Japan (peaked at 71% in 2000) compared to NZ (reached 97% in Q2 2020), despite Japan's massive bubble. Interestingly the average proportion for debt to GDP on an annual basis for both countries up to its peak was similar (about 70%) (assuming NZ has reached its peak).

"At the same time, China is claiming "remarkable results in stabilising leverage and promoting growth" by reducing its country-wide leverage ratio by -2.6% in Q1-2021. It fell to a still-sky-high 277%, with their government ratio at 45%, households at 72% and business enterprises at an eye-watering 160% "

This is what an economy that has some manufacturing looks like. We would dream to have that much useful debt in a productive sector of the economy. Eye-watering indeed, tears of jealousy.

Well China has our manufacturing. What do you propose to do about that?

We are in a pickle for sure, much like sending our finest breeding stock over we have a fine history of punching ourselves in the face. With them able to manufacture at a cost far below ours it is hard to think what we might do to right this situation. We can't even tax the carbon on transport lest we punch ourselves in the face again.

What I was pointing out was that far from being a bad thing, ("eye-watering") debt in productive sectors is to be desired, and that NZ's debt makeup is in-fact a near worse-case for productivity.

Yes. Again you have identified the problem. The economic scraps left to NZ seem to be immigration, housing ponzi, third world economy extraction and export of raw commodities and flood of tourists. Pretty much what we have been doing. China isn't going away.

Justanopinion,
We did not send 'finest breeding stock' to China. We sent surplus yearlings, which once in China are mated to the 'finest Holstein semen' from the USA.
KeithW

The relationship between bank size and the propensity to lend to small firms: New empirical evidence from a large sample

Achraf Mkhaiber and Richard A. Werner (@ProfessorWerner)

https://www.sciencedirect.com/science/article/pii/S0261560620302370?via%...
Link

A great reference Audaxes, its almost as if the current banking cartel is not good for NZ...

"Australian banks are making $580,000 in New Zealand every hour"
"Combined, the banking sector made $5.77b in 2018, a new record for the sector, according to KPMG, or $1202 per New Zealander"

https://www.stuff.co.nz/business/117025775/making-bank-big-four-banks-ca...
https://www.newshub.co.nz/home/money/2019/03/the-astounding-profit-austr...

Your data is years out of date. It has fallen a long way back from then. Details are here. It is now $782 per capita, a fall of -35%. It is likely to go lower.

European double dip recession? Due in part to aggressive carbon tax? Whatever happened to"decoupling" economic growth from burning carbon? Europe does need to apply a tarrif to burners to level the playing field, otherwise they'll destroy their economy, others will happily burn to supply them and we fry the planet anyway!

Raising import duties surely doesn’t fit well with the free trade mantra of the globalists. What next import duties to offset cheap labour, poor safety regulation, poor environmental controls etc.

Sounds good!

“Their real purpose is to conduct an ‘industry genocide’, to sabotage the participation of Xinjiang in the global value chain.”
Also the irony, they sure are qualified to talk about genocide....

So the US engages in massive deficit spending - trillion after trillion after trillion - and our financial media are falling over themselves to portray a US economy going gangbusters.
If the US government gives every citizen $1 Million then *GDP GROWTH* (a measure of spending in the main) with be so epic. They might as well give it a crack, our financial media will be absolutely salivating at the economic miracle.