Breakfast briefing: Fast V-shaped recovery gathers steam

US jobs growth strong; US services sector expands faster; Singapore retail recovers; Scotland voting; Aussie services expanding; NZ Parliament pokes the bear; UST 10yr at 1.58%; oil and gold up; NZ$1 = 72.1 USc; TWI-5 = 74

6th May 21, 7:20am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news of more evidence the pandemic recovery is V-shaped, in fact it may be one of the fastest recoveries from a recession in modern times.

In the US, the ADP Employment Report, the precursor report to their non-farm payrolls report due on Saturday, revealed a good rise in filled jobs, but not as big a rise as was anticipated. The gains however were broad based, across all firm sizes and across all sectors. Only the tech industry shed jobs, and that slip was small. At this time, analysts are expecting the rise in non-farm payrolls to be almost +1 mln for April (+978,000). This ADP report showed a gain of +742,000.

One reason there might be an undershoot is that todays release of the widely-watched ISM services PMI came in under expectations, even if the expansion it was reporting was strong. But the internationally-benchmarked Markit services PMI reported a stronger expansion. Both surveys featured strong rises in new orders, and strong inflationary pressures.

Singapore's retail trade is showing a good recovery.

In the UK, a regulator said there is a strong prudential case for some “floors”, or minimum expectations on risk-weights from in-house models that banks use in their assessment of capital support for mortgage lending.

In Scotland, they are about to have an election tonight that will be a crucial indicator on whether they have a second independence referendum. The polls say the result is too close to call.

In Australia, their services sector is powering out of its funk with strong new order growth, strong rises in employment, and a notable uptick in cost inflation.

And we should note that yesterday the New Zealand Parliament has unanimously declared that “severe human rights abuses” are occurring against the Uighur people in Xinjiang, China. It was unanimous because the Government succeeded in getting the word 'genocide' removed from the declaration. It is a development that will not improve trade relations with China, but so far China seems to have ignored the statement publicly. China is on holiday this week.

On Wall Street, the S&P500 is doing better today, up +0.3% in midday trade. Overnight, European markets recovered and were up +1.8%. Shanghai and Tokyo were still closed for public holidays yesterday, but Hong Kong traded -0.5% lower. The ASX200 was up +0.4%, while the NZX50 Capital Index gave back -0.5%.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 154,534,000 have been infected at some point, up 796,000 in one day, largely driven by rises in India. Global deaths reported now exceed 3,231,000 and up +14,000 in one day. Vaccinations in the world are also rising fast, now up to 1.195 bln (+16 mln) and in the US almost half of their population have had at least one dose as they keep up their fast rollout. Almost one third have been fully vaccinated (107.4 mln people). The number of active cases there has fallen to 6,720,000 with -11,000 fewer new infections than recoveries in the past day.

And in a worrying development, it is becoming clear that being infected with the coronavirus greatly increases your chance of becoming diabetic, among other risks. Long-tail risks from COVID infection are chronic.

The UST 10yr yield starts today at 1.58% and unchanged overnight. The US 2-10 rate curve is little-changed at 143 bps. But their 1-5 curve is flatter at +75 bps, as is their 3m-10 year curve at +158 bps. The Australian Govt ten year benchmark rate is down -2 bps at 1.66%. The China Govt ten year bond is unchanged at 3.19%. And the New Zealand Govt ten year is up +5 bps at 1.74%.

The price of gold starts today at US$1785/oz and that is up +US$8 since this time yesterday.

Oil prices are up another +US$0.50 today at just under US$65.50/bbl in the US, while the international Brent price is up a bit more at just over US$68.50/bbl.

The Kiwi dollar opens today at 72.1 USc and back up +¾c since this time yesterday. Against the Australian dollar we are up at 93.1 AUc. But against the euro we are up at 60.1 euro cents. With these across the board gains it means our TWI-5 is now back at 74 and where it was this time last week.

The bitcoin price is now at US$57,429 and recovering a very sharp +5.9% since this time yesterday. The yo-yoing continues. Volatility in the past 24 hours has been very high at +/- 4.7%. 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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37 Comments

by Pietro | 6th May 21, 7:27am 1620242868

Too much good news for anyone to shake a stick at?

by Foxglove. | 6th May 21, 8:08am 1620245319

Ah, not shake but poke according to the above context. Interesting development, indication perhaps of a bit of a shuffle back into line, with our traditional contemporaries?

by Henry_Tull | 6th May 21, 9:37am 1620250662

Exactly.
Better to compare the present & future to the past (hint, its better)
Avoid comparing the past to the present & future (hint, sad face).

by powerdownkiwi | 6th May 21, 1:20pm 1620264029

Only those needing to channel one of the top 10 hack deniers, would write something like that. Selective because?

https://www.beforetheflood.com/explore/the-deniers/top-10-climate-denie…

What's your agenda on behalf of?

by middleman1 | 6th May 21, 10:51am 1620255066

Ardern did more of a quickstep (back into line) as opposed to a shuffle after Mahuta's flaky speech on China which invoked guidance from the universe and ancient gods as her mystical inspiration. The dear leader has almost certainly been leaned upon. Her current tilted serious face finger waving at Bejing is in marked contest to her previous smug fence sitting act. Perhaps the nice Mr Pfizer from New York rang her for a friendly little catch up.

by powerdownkiwi | 6th May 21, 7:51am 1620244263

"it may be one of the fastest recoveries from a recession in modern times."

That's a linear comment. Exponential growth within a bounded system, means two things. One, it will not continue. Two, the next cannot be compared to the last. I've long wondered at the large number :) of people who speak - and therefore presumably think - in linear terms. Why did we evolve that way?

Here's a more relevant piece:
https://dothemath.ucsd.edu/2021/05/to-what-end/

"Money has displaced critical thought, by conveniently expressing a sloppy version of societal values in a flawed system that fails to appreciate the value of Earth (see Box 19.1 in the textbook): failing to place proper value on its irreplaceable biology and one-time resources. Indeed, the future is formally devoid of worth in our economic schemes via the construct of the discount rate, or opportunity cost. How can we possibly expect responsible behaviors to result from such a backwards system?"

But it's our fastest recovery? That's all?

by Audaxes | 6th May 21, 8:31am 1620246693

She (Yellen) says government spending will bring up some “modest” inflation and then rates will have to rise to cut it off. The bond market disagrees; no inflation is being forecast despite very much having factored all that government spending (some markets unlike Economists don’t just ignore Japan) and more. This reflationary period so far in 2021 by far the weakest and least impressive of the bunch as if to put further emphasis down on it.

And that’s with not one, not two, but three thirteen-digit fiscal “rescues” already in the books in the short space of thirteen months as well as whatever will become of “infrastructure” under Biden/Yellen.

If she were in any way correct, yields would already have gone up so much more which wouldn’t have constrained inflation, rather accelerating rates thereby confirming it.

That’s the part these people never get. They pretend they are in charge, that their “big things” actually mean big things. When you realize that central banks (and central governments) are not central, you then see how bonds aren’t following any lead, they’re simply provable, well-established skepticism as to all those things.Link

by VeryInterested | 6th May 21, 10:27am 1620253648

Ah yes, the interest rates will have to go up statement which was promptly changed to interest rates won’t go up after the markets dropped significantly.
Today J Powell was asked a question on the back of positive economic news “When will the economy be able to stand on it’s own feet?”
Answer by JPowell “I am not sure what the exact nature of that question is”
Basically, refuses to acknowledge that the US FED and gvmt will need to continue to pump trillions of dollars into the ‘fake’ recovery. Money printing will not stop without cataclysmic Consequences so in the mean time off you go and load up on more debt while it’s cheap. People with lots of debts have fewer choices when it all goes horribly wrong.

by Hamish | 6th May 21, 8:05am 1620245124

So the reconnecting with ourselves, each other, nature from lockdowns was just a blip. Back to the weekly sales at the malls.

by ham n eggs | 6th May 21, 10:06am 1620252398

sitting at home doesnt pay the bills
actually that used to be the case
anythings possible now

by GV 27 | 6th May 21, 9:44am 1620251092

Interesting chats last night, set against the idea of the Great Reset that just won't go away. Supposedly, the dismantling of the monetary system as we know it, and the rollout of technology and data-driven innovation that supposedly already exists, but is just waiting for the environment to change around it before being launchd.

Fanciful? Absolutely. Any more stupid than the situation we find ourselves in now? Not by a long shot.

by mikekirk29 | 6th May 21, 8:15am 1620245729

V shaped recovery to prev growth rate in 2019-20?
Japan and Uk and EU distinctly not on that path.
Trajectory of GDP growth in NZ according to the measure shown in interest graphs under weekly projected by an independent group show growth in this measure was headed down to 2.5% from 3.9% over two years up to Oct 2019. With weak immigration and gov failure to spend fast enough it seems unlikely that there is much in the tank for next 9 months apart from housing and prices there and buyer frenzy now in retreat also. Not to mention inflation

by kpnuts | 6th May 21, 8:18am 1620245893

Knife edge polls in Scotland --- you should be careful re reporting on the English controlled press and polling companies propaganda and simply repeating it -- THE SNP are likely to win 58-60 of the 73 constituency seats -- but with the PR system only 4 of the remaining 57 "list" seats -- Smart Scots know this - hence the Greens and Alba( set up specifically for this reason) both very pro independence and returning to the EU polling much higher than normal! -- They will add another 15 seats to the Independence side - giving a majority around 25-30 seats for Indi!

Both Labour and Conservatives will struggle to hit the 20% mark ... and they are only pro the Union as they know England cant survive without Scottish Revenues!

by realterms | 6th May 21, 9:52am 1620251537

> England cant survive without Scottish Revenues!

The motives of the pro-union parties are various and not above suspicion, but this is not it. Net transfer goes the other way.

by stuart786786 | 6th May 21, 8:22am 1620246148

Bernard Hickey article :

https://thekaka.substack.com/p/dawn-chorus-the-brilliant-and-perverse?t…

Everyone can senses that it seems Mr Orr has made a personal commitment that despite what happens, speculators will not be targeted ( High time he explains his love for interest only loan) . No one is telling him to stop it completely but IO should only be used incase of emergency (like last year) and not allowed for new purchases by investor ......reason why speculators should be banned, is known to one and all.

by Audaxes | 6th May 21, 8:30am 1620246614

In the UK, a regulator said there is a strong prudential case for some “floors”, or minimum expectations on risk-weights from in-house models that banks use in their assessment of capital support for mortgage lending.

The Bank has consulted on possible changes such as mandating a risk-weight of at least 7% on every home loan, and an average weight of 10% across a portfolio of loans, to iron out the differences between banks.

Cripes, UK banks have hardly any skin in the home loan segment of their business - the default risk falls directly on depositors and other creditors.

NZ residential property standard risk weights can be reduced by implementing 'the internal models based approach'. ANZ has reported a figure as low as 27%.

by Tom Valen | 6th May 21, 8:39am 1620247189

'Last Wednesday, Federal Reserve Chair Jerome Powell showed how simple questions do not always get simple answers. When speaking to the media after the latest Federal Open Market Committee (FOMC) meeting, some difficult questions were asked. So much so, Powell had to repeat one question to himself, asking:

"When will the economy be able to stand on its own feet?"

He immediately followed with:

"I'm not sure what the exact nature of that question is."

The final question asked was in regards to market intervention:
Q. "If you get out of the markets, there aren't enough buyers for all of the Treasury debt? And so, rates would have to go way up. Bottom line question is what do we get for $120 billion a month that we couldn't get for less?"

Powell never explained what exactly “we get for $120 billion” a month, but assured us the Fed was looking to reach its goals, and this was part of its plan. However, he did comment on purchases, saying:

"But if we bought less, you know, no. I mean, I think the effect is proportional to the amount we buy… And we articulated the, you know, the test for withdrawing that accommodation. And we think, you know. So, we're waiting to see those tests to be fulfilled, both for asset purchases and for lift off of rates. And, you know, when the tests are fulfilled, we'll go ahead as, you know, we've done this before."'

by EdwardD | 6th May 21, 9:01am 1620248484

I'm certainly glad that he "knows".

by Tom Valen | 6th May 21, 8:50am 1620247837

Commodities rose for a record 16th straight day today.

#CostPush
#WinterIsComing

by Squishy | 6th May 21, 9:36am 1620250570

We'll just print our next round of QE on edible paper, that should save us.

by rastus1 | 6th May 21, 8:52am 1620247943

Why commodity price increases don't cause inflation. So many opinions contradictory opinions on if it's coming or not.

https://www.forbes.com/sites/georgecalhoun/2021/05/05/commodity-price-i…

by Tom Valen | 6th May 21, 9:09am 1620248947

Vested interests and economics eggheads will invariably push back against the changing narrative. There is still a belief that central banks are omnipotent and that their unorthodox actions will not result in inflation. The reputation of an entire professional group is now on the line.

https://www.nytimes.com/2021/05/03/business/economy/commodity-shortages…

'Widespread Commodity Shortages Raise Inflation Fears'
'For products as diverse as lumber and microchips, price increases are filtering through the economy.
Economists and policymakers are carefully tracking the shortages as they hunt for signs of inflation, and companies are increasingly worried that the price spikes may not be temporary.'

by rastus1 | 6th May 21, 9:34am 1620250481

Tom you might the Tony Greer interview on Real Vision. Covers inflation and the claim its only going to be transitory-

https://www.realvision.com/podcast/realvision/episode/7e797142-63ea-11e…

by ham n eggs | 6th May 21, 10:17am 1620253075

"The reputation of an entire professional group is now on the line"

Economists?

https://ourfiniteworld.com/2021/05/04/how-the-worlds-energy-problem-has…

"Our political leaders started down the wrong path long ago, when they chose to rely on economists rather than physicists. The economists created the fiction that the economy could expand endlessly, even with falling energy supplies. The physicists understood that the economy requires energy for growth, but didn’t really understand the financial system, so they weren’t in a position to explain which parts of economic theory were incorrect."

and on inflation..

"If business leaders had stopped to look at the history of coal depletion, they would have discovered that expecting high prices when energy limits are encountered is incorrect. The issue that really happens is a wage problem: too many workers discover that their wages are too low. Indirectly, these low-wage workers need to cut back on purchases of goods of many types, including coal to heat workers’ homes. This loss of purchasing power tends to hold coal prices down to a level that is too low for producers. We can see this situation if we look at the historical problems with coal depletion in the UK and in Germany."

by Advisor | 6th May 21, 9:09am 1620248986

High commodity prices take away the incentive for resource-rich countries to invest in R&D and capital expansion.

400 truckloads going to the port of Tauranga each day but we're still going through a worsening timber shortage. The government would rather have the affected workers either leave for greener pastures or sit on the dole and become lifelong Labour voters, than work on an industrial policy.

Australian lithium miners are another classic example: they're content in digging holes in the ground and exporting the dirt overseas for 50c a pop, instead of processing the minerals into a more usable form and making $100 on the same mined quantity.

by Believer1980 | 6th May 21, 9:15am 1620249313

Thanks for sharing the article. I have to say that offcourse we have not had CPI but in my humble opinion this is because all the money printed by the US, the UK and the Euro Zone are absorbed by China (and to a lesser extent South Korea, India and other developing countries), fueling China's massive, rapid and gigantic economic growth. So consumer prices have remained static as China is improving its manufacturing (technology, workforce, experience etc) year after year and is still capable of putting out more output.
As long as money printed in the west translates into actual increase in outputs in the East, there should be no CPI changes. But should the flow of free trade become disrupted, or China economic expansion hit its limits, then we will see real inflation.

by youngdumbandbroke | 6th May 21, 9:31am 1620250293

Way I see it, if producer costs go up they have to pass it on to the consumer at some point. They can't absorb the inflation forever

by Squishy | 6th May 21, 9:45am 1620251133

You've seen announcements this week from Nestle, Colgate-Palmolive, Kellogg's, P&G etc. that they're going to be passing through costs to consumers.

I've been expecting to see a slowdown in building as material costs rise.

by middleman1 | 6th May 21, 11:04am 1620255884

Squishy. 'expecting to see a slowdown in building as material costs rise' ... one of our (quite large) family businesses supplies the construction industry and we had the same expectation as you. But there is little sign of it as building continues to boom in most places. Price rises from manufacturers started late last year and have continued unabated. They continue to pour in almost every day. There is not a lot of resistance from tradies and won't be until transport logistics are unjammed and supply is no longer constrained. It's a sellers market where having the stock available is more important than having the sharpest price.

by Hamish | 6th May 21, 9:46am 1620251170

Good luck there with the public service wage freeze coming.
I'm still trying to figure out exactly why this card has been played and now. Smells fishy.

by Advisor | 6th May 21, 10:19am 1620253177

Seems like a big gamble with our borders shut.

The worst part is this will have grown our pay gap with Aussie a lot more in three years' time.

by realterms | 6th May 21, 10:21am 1620253309

Surprised me too. Against a general trend of "good" (if overhot) financial news in NZ.

by Ngrrk | 6th May 21, 12:28pm 1620260939

I suspect it's being played because the nurses are in negotiations for their collective bargaining agreement whilst the police are about to begin theirs.

We will witness a mass exodus of health professionals to Australia. I have already left and it was the best decision I could have made. My only regret was leaving it as long as I did.

by Vivid | 6th May 21, 1:31pm 1620264670

Ngrrk, I'm considering the same move. Are you in a health care career? Any advice to someone considering the move? How long ago did you make the move? I'm a GP in early middle age.

by Ngrrk | 6th May 21, 2:27pm 1620268040

Hi Vivid. Yes, I'm in the health care sector. We moved a short time ago. Found jobs easily and will finally be able to afford our first home. There are so many opportunities, as a GP you will be snapped up right away. Look online. Just do plenty of research about the area you want to live and maybe come for a holiday to view the place before making the move. Alternatively, you could locum until you find somewhere you like. Good luck!

by Tom Valen | 6th May 21, 9:12am 1620249163

https://edition.cnn.com/2021/05/05/investing/premarket-stocks-trading/i…
'Janet Yellen just proved markets can't handle the truth'
"It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat," Yellen said.
Her comments rippled through markets, feeding a selloff in tech stocks that could take a beating when rates rise. Step back: The content of what Yellen said wasn't revolutionary. The US economy is on track to stage a full recovery from the pandemic this year as demand bounces back and the employment situation improves. As the economy strengthens, the Federal Reserve will eventually have to raise rates, which can't stay at rock bottom levels indefinitely.
"Markets were unhappy at this statement of the blindingly obvious," said Paul Donovan, chief economist of UBS Global Wealth Management. "Rates will clearly rise in the future."'

by Tom Valen | 6th May 21, 9:49am 1620251383

The head of the Reichsbank in 1922: "Don't worry, this is all transitory".