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G7 sets a 15% minimum tax on MNCs; China moves against bitcoin; Aussie mortgage growth strong; US payroll growth mixed; Canadian payrolls fall; UST 10yr slips to 1.56%; gold and oil unchanged; NZ$1 = 72.1 USc; TWI-5 = 73.7

G7 sets a 15% minimum tax on MNCs; China moves against bitcoin; Aussie mortgage growth strong; US payroll growth mixed; Canadian payrolls fall; UST 10yr slips to 1.56%; gold and oil unchanged; NZ$1 = 72.1 USc; TWI-5 = 73.7

Here's our summary of key economic events over the weekend that affect New Zealand with news there is an historic deal to tax multinational companies properly.

But first we should note that today is a public holiday in New Zealand.

The G7 has agreed to implement a global minimum rate that ensures multinationals pay tax of at least 15% in each country they operate, as proposed by Janet Yellen and the Biden Administration. Now pressure on countries like Ireland and other tax havens will grow intense to respect the deal. In addition, the G7 is rushing to set rules for digital currency issues, partly to counter China's lead in this area.

Meanwhile, China is moving to clean up and clear out bitcoin miners.

In addition, the Chinese central bank governor is backing a push for climate risk disclosure among Chinese banks. He did so after starting stress tests of financial sector.

The infant nutrition business in China isn't the pot of gold it was anymore and some international major players are exiting, Reckitt selling to a local investment company.

On Friday the Indian central bank reviewed its policy positions and made no change. India is in a tough COVID fight and that is battering their economy as well as their health systems. The central bank made no formal policy rate changes but it did turn dovish - the economic expansion they were expecting will now be a more subdued version in 2021. Their GDP forecast was trimmed from the recovering +10.5% to +9.5% and their inflation forecast was raised from +4.9% to +5.1%. These seem heroic adjustments in the circumstances but local analysts suggest they are realistic.

Singapore has reported uninspiring retail data for April, a clear sign normality is a way off for them yet. But Singapore still seems on track to achieve a +6% economic expansion despite recently going into another lockdown. The industrial sectors driving their growth are not likely to be affected too much by the new restrictions.

In Australia, home loan growth has been strong, according to the latest data for April. This is adding to the eye-catching trend that started in October 2020.

And with the publishing of Q1-2021 GDP data, we can now get a sense of the changing fortunes COVID has brought to various nations' economies. Australia is on the rise, now larger than Brazil and equal to Russia (which is falling behind). But to keep things in perspective, Australia is still only about half the size of California's economy. These comparisons reveal the fall in economic relevance of counties like Russia. Autocratic countries might have seemed immune to some of the initial challenges of the pandemic, but almost universally they have had stunted recoveries with future prospects uncertain. It hasn't been easy-going anywhere, but open and transparent economies have seemed to struggled through much better.

In the US, the widely anticipated May non-farm payrolls report for the US has come in decidedly 'average' with employment growing by +559,000 from April. This comes after a surprisingly weak +278,000 rise in April from March. In both months analysts had expected the gains to be very much higher, at almost +1 mln in each month. The net result is disappointment. The participation rate is little-changed. Job growth is bouncing along at a modest rate and may continue its uneven progress through their summer months. That is the revised expectation now.

Stocks rose and benchmark bond yields fell as this suggests policy makers will need to retain easy money policies for longer.

This hiring data is in contrast to the strong expansionary PMIs we have been reporting earlier in the week, both for factories and their service sector. Those other reports indicated healthy employment growth.

So how are the two reconciled? Firstly you should note that the reported payrolls are 'seasonally adjusted' - and perhaps the historical basis for this isn't quite right now, post pandemic. A look at the actual data reveals a more up-beat situation. In March, non-farm payrolls were actually 143,315,000 according to the unadjusted B.1 table. In April they rose to 144,412,000. In May they rose again to 145,345,000. That means in April, payrolls actually rose by +1,097,000. In May they actually rose by +933,000. These are far, far different changes than the seasonally adjusted numbers reported. Seasonal adjustment makes sense to get rid of the noise in month-on-month data, but when an economy is upended by a pandemic, perhaps it creates its own new distortion? Time will tell - the seasonal adjustment process has been reliable though many economic crises over the years, But the bald fact is, American payrolls have actually risen by more than +2 mln in the past two months. And in any assessment, that is significant and a lot more than how most news outlets are reporting it.

But then again, perhaps some of those PMI reports were overdoing it. The official April data on US factory orders has them slipping slightly, down -0.6% from March. Looking through the pandemic base effect, the April level is -2.1% lower than in April 2019. So either way, factory orders are weaker than you would expect in a recovering or recovered economy. Still, this is April data and the PMI and payroll data is for May, so we need to be careful about jumping to conclusions.

In Canada, they also reported May payroll data, and there was only disappointment there. In April they had a large drop in payroll employment (-207,000). Unfortunately the May data follows this with another -68,000 fall. Their participation rate, while higher than for the US, fell. Their jobless rate is a high 8.2%.

The UST 10yr yield starts today still down at 1.56%. The US 2-10 rate curve is still flatter at +141 bps. Their 1-5 curve is also marginally flatter at +73 bps, while their 3m-10 year curve is as well at +155 bps The Australian Govt ten year benchmark rate is -1 bp lower at 1.57%. The China Govt ten year bond remains at 3.13%. And the New Zealand Govt ten year is holding at 1.86%.

The price of gold starts today at US$1892/oz, and unchanged.

Oil prices start today little-changed at just under US$69.50/bbl in the US, while the international Brent price are just under US$71.50/bbl.

The Kiwi dollar opens today marginally firmer at 72.1 USc but trading will be very light. Against the Australian dollar we have firmed slightly to 93.2 AUc. But against the euro we are at 59.3 euro cents. That means our TWI-5 starts today at 73.7.

The bitcoin price is now at US$35,990 and another -3.0% lower than this time Saturday. In China, under pressure from Beijing social media platform Weibo has blocked the accounts of some large crypto trading companies. Volatility in the past 24 hours has been moderate at +/- 2.3%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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16 Comments

"Autocratic countries might have seemed immune to some of the initial challenges of the pandemic, but almost universally they have had stunted recoveries with future prospects uncertain. It hasn't been easy-going anywhere, but open and transparent economies have seemed to struggled through much better."

I wonder if NZ's economic recovery is also stunted.

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Interesting but not surprising the relative demise of Socialist type countries with Australia doing better than Brazil and Russia.

But it's OK. In NZ we know how to do it better although no other country in history has succeeded.

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Apparently the immigration changes will make it more expensive to buy New Zealand residency. I'm interested in the real black-market price for job offers?

https://i.stuff.co.nz/business/125101418/employers-openly-talk-about-ch…

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Shocking lack of enforcement on that one Squishy. These 'employers' need deported. Each and every one.

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Deported? Even that appears hard to enforce. Those 'employers' will then go to the media and sob about how bad their family will do back in their own country, etc, etc. Anyone else getting tired of those sob stories in the media?

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In some countries you need to be an accredited employer to make offers to overseas candidates.

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In NZ, the bulk of that accreditation list would be made up of restaurants, fast food joints and cafes.

These employers scream louder drowning out the voices of those struggling to hire IT, healthcare and engineering workers with genuine skills.

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""​McClymont heard figures of 500,000 yuan (NZ$100,000) being thrown around by employers who were telling their employees: 'Look, this is what it’s going to cost you'."" This must be happening (ref Prof Stringer's report on widespread worker exploitation - from 2016 but never acted on) then why not simply sell residency to the highest bidder? Maybe adjusted for age and prospective income. At least the taxpayer would benefit - 50,000 new residents => $5 billion. NZ could even afford to employ over 30 labour inspectors to check on the non-citizen workers in our economy.

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These comparisons reveal the fall in economic relevance of counties like Russia. Autocratic countries might have seemed immune to some of the initial challenges of the pandemic, but almost universally they have had stunted recoveries with future prospects uncertain. It hasn't been easy-going anywhere, but open and transparent economies have seemed to struggled through much better.
The World Bank - May 26, 2021: 45th Issue of the Russia Economic Report

Russian GDP fell by 3.0 percent in 2020 compared to contractions of 3.8 percent in the world economy, 5.4 percent in advanced economies and 4.8 percent in commodity-exporting EMDEs.
Baseline Russian GDP growth is forecasted at 3.2 percent in 2021, followed by 3.2 and 2.3 percent in 2022 and 2023, respectively.

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These comparisons reveal the fall in economic relevance of counties like Russia.

List of countries by GDP (PPP) - Russia 6th largest and purported to surpass Germany in the near future. PPP is appropriate given Russia has virtually nil outstanding liabilities to the rest of the world, plus significant gold reserves. Hence the ruble exchange rate is meaningless.
Purchasing Power Parity: Weights Matter

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“Filing a patent requires lengthy documentation, clinical statistics and international national legal opinions. It normally would take months or even years to prepare and compile the application, rather than a few days.”

The investigation for the book discovered that Chinese military scientists also filed a patent application for a COVID-19 vaccine, different from the duplicative Remdesivir treatment, on Feb. 24, 2020.

The applicant is listed as the Institute of Military Medicine, Academy of Military Sciences of the PLA and the lead inventor is military scientist, Zhou Yusen.

Professor Nikolai Petrovsky from Flinders University in Australia, who has developed a COVID-19 vaccine, said the early timeframe left open the possibility the Chinese scientists were working on a vaccine before authorities admitted there was a coronavirus outbreak."

https://nypost.com/2021/06/05/trump-wanted-to-publicly-grill-fauci-on-w…

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Good sleuthing! The searchlights are finding the targets.

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Random question: Does anybody know an easy was for New Zealanders to gain access the Canadian Securities exchange (CNSE)? I'm looking to buy stock in a smaller Canadian company that doesn't appear on the NYSE.

Cheers.

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Interactive Brokers?

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Thank you!

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