Breakfast briefing: China's trade healthy

US consumer credit grows modestly; China's foreign trade swells and FX reserves rise; Australian rural economy healthy; Aussie credit rating upgraded; UST 10yr slips to 1.57%; gold up and oil unchanged; NZ$1 = 72.4 USc; TWI-5 = 73.9

8th Jun 21, 7:19am by David Chaston

Here's our summary of key economic events over the holiday weekend that affect New Zealand with news China's export trade boom is holding up well.

But first, American consumer credit grew by just +US$19 bln in April from March and less than expected. Compared with April 2019, it was +4.2% higher (with the 2020 comparison essentially meaningless).

Meanwhile, Janet Yellen has been pointing out that the enormous "US$4 tln Biden Budget" is over a ten year timeframe and involves increased spending of about US$400 bln per year. She said that while that may put some upward pressure on inflation, in terms of the size of the US economy that will be relatively minor.

China reported a May trade surplus of +US$45.5 bln which was slightly lower than expected as imports grew faster than exports. Their surplus with the USA was +US$31.8 bln as the improving American economy swelled it. It's deficit with Australia was -US$8.7 bln as the new "iron ore" is natural gas. Its May deficit with New Zealand was -US$830 mln. Of course, year-on-year comparisons suffer from the pandemic base issue. So it is best to compare with May 2019. In that basis, China's surplus is +9% higher and the surplus with the USA is much higher now than the 2019 +US$26.9 bln. Tariffs failed, and as any Econ101 student could have forecast; it was the American who paid the imposts. The US is transitioning to compete on product features and supply-chain security, a much more promising strategy.

China's May foreign currency reserves rose marginally to US$3.22 tln or 22.2% of GDP (11.2 weeks) but just slightly down from 22.4% of GDP this time last year.

In Australia, another services PMI survey for May confirms a fast-expanding sector and its strongest in 18 years. Prices are still rising abut perhaps the increases have peaked. Wages paid however are now rising faster.

And Aussie job ads are rising faster and are at a 12 year high, pointing to a continued rapid tightening in their labour market and a steady fall in their jobless rate (5.5%) but which is still higher than New Zealand (4.7%).

Australia's rural economy is firing on all cylinders, but hindered by China's concerted efforts to handicap it. Dams are filling and the mood is lifting as a bumper harvest drives a forecast record agricultural haul in 2021, a sharp turnaround from the past three years of decline. Production is expected to hit AUS$66 bln but exports are expected to fall to AU$46 bln. They expect things to improve next year however.

Ratings agency S&P has affirmed Australia's credit rating as AAA and improved its outlook to 'stable'. This is similar to the Moody's rating. Moody's also rates New Zealand as Aaa, but S&P rates New Zealand one notch lower at AA+ and with a 'stable' outlook.

Wall Street has opened with the S&P500 recording a small -0.3% fall by early afternoon trading. Overnight, European markets were mixed with only minor shifts. Yesterday, the very large Tokyo market closed up +0.3%, Hong Kong ended down -0.5%, and Shanghai recorded a minor +0.2% gain. The ASX200 ended its Monday session down -0.2% and of course the NZX was on holiday.

The UST 10yr yield starts today still at 1.57%. The US 2-10 rate curve is little-changed at +142 bps. Their 1-5 curve is also marginally firmer at +74 bps, while their 3m-10 year curve is as well at +157 bps The Australian Govt ten year benchmark rate is +3 bp higherer at 1.60%. But 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$1897/oz, and up +US$5 overnight.

Oil prices start today just marginally softer at just over US$69/bbl in the US, while the international Brent price are just under US$71.50/bbl.

The Kiwi dollar opens today marginally firmer at 72.4 USc. Against the Australian dollar we have firmed slightly to 93.3 AUc. Against the euro we are at 59.4 euro cents. That means our TWI-5 starts today at 73.9.

The bitcoin price is now at US$35,684 and down a minor -0.9% than this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.2%.

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

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36 Comments

by stuart786786 | 8th Jun 21, 7:26am 1623093969

When Jacinda Arden says that no Kiwi wants the house price to fall ( keep rising) ....Is she wrong...or is she talking about herself.

https://www.nzherald.co.nz/nz/housing-pain-two-thirds-of-kiwis-say-hous…

It has been three months since introduction of LVR and housing policy still house prices are touching new height - Auckland house price sitting at 1.331 million still Mr Orr and his team reluctant to act - do they still feel that house price is affordable as interest rate is low for FHB - Are they justified in their policy of Wait And Watch AND believing that low interest rate are helping FHB despite house price jump by as much as 50% from already high prices in early 2020

https://www.newshub.co.nz/home/money/2021/06/housing-market-continues-t…

by Henry_Tull | 8th Jun 21, 7:37am 1623094673

It appears that the housing boom is what policy makers and political leaders see as pulling NZ out of covid (a view from last year) - you try & find a tradie now!

Consider the abscence of farming, primary exporting & business leaders from the new years honours list.

Missing also this weekend, the nation unifying remarks around D Day.

by Squishy | 8th Jun 21, 8:29am 1623097770

Lower interest rates, the cure for all of our economic problems.

by middleman1 | 8th Jun 21, 8:56am 1623099365

Henry. What possible relevance could a war 76 years ago between european white colonial oppressor nations have for we modern day citizens of Aotearoa? Stuff's puff piece this morning on Nania Mahuta providing a breathlessly waiting nation with 'some tantalising clues' about the role of Ti Tiriti in foreign and trade relationships is far more relevant than dry historic trivia such as D-day. And the timing of todays article is of course nothing at all to do with Mahuta being exposed on the weekend as 'paranoid and secretive' by Andrea Vance.

by Comyn | 8th Jun 21, 5:54pm 1623131646

Have you ever heard of the Imperial Japanese Army? Research it. They were to take NZ. The older Asian people here in SE asia talk about how brutal they were. Many mass graves of civilans are around my area. Wounds are still deep with the old folk. Your comments on white colonial oppressors are moronic. Many of the readers have have family members that fought or died in ww2 against tyranical ideology. Myself included who I loved dearly. You get to talk crap like that because of our forfathers (what ever the race) who fought against them. As for my white family or ancestors who are not here to defend against your bigoted comments. I say to you sir "you are ignorant and arrogant, hopefully one day you can get your head out of your arse"

by Foxglove. | 8th Jun 21, 5:58pm 1623131890

Steady on. You have not grasped the sarcasm laced into that comment.

by middleman1 | 8th Jun 21, 8:40pm 1623141616

FG. Asian based, scottish nom de plume comyn, caucasian ( or at least part), articulate, mature age, good vocabulary including ready familiarity with the vernacular, yet purports to not discern a pretty obvious sarcasm. Misunderstanding or troll ?

by Foxglove. | 8th Jun 21, 8:51pm 1623142281

Well he or she is well wide of the mark. From our exchanges you are not lacking in either knowledge or condemnation of the nature of warfare and its carnage. Oh well, certainly makes life interesting, what might be drawn out of the woodwork nowadays.

by KH | 8th Jun 21, 8:57am 1623099456

Language Henry Tull. Language.
a. House price rises = bust. or. B. Huse price rises = boom.
I vote "bust" although "crisis might be better.

by Audaxes | 8th Jun 21, 8:28am 1623097690

Klaus Schwab (WEF) has been shockingly literal about his wished-for utopia, summing up his vision as, “You will own nothing, and you will be happy about it.” - https://kunstler.com/clusterfuck-nation/reset-yourself/

by murray86 | 8th Jun 21, 9:07am 1623100072

You can be assured that there are a few, likely very vocal, who agree with her, but for the majority this will not be true. It will be spin to support the current policy position.

As discussed, to achieve improved equity across the board, house prices, and housing costs (not the same) MUST fall and dramatically. Home ownership and renting must be able to be choices, not a trap (the second) because costs are too high to break out. Labour, as the current incumbents, are failing terribly here.

by fortunr | 8th Jun 21, 10:15am 1623104117

The solution is simple: raise the OCR to 1% now.

by Carlos67 | 8th Jun 21, 12:10pm 1623111033

Yes it is actually is that simple, but they don't have the balls to do it.

by Audaxes | 8th Jun 21, 7:55am 1623095737

Meanwhile, Janet Yellen has been pointing out that the enormous "US$4 tln Biden Budget" is over a ten year timeframe and involves increased spending of about US$400 bln per year. She said that while that may put some upward pressure on inflation, in terms of the size of the US economy that will be relatively minor.

Treasury Secretary Janet Yellen on Saturday said inflation could climb as high as 3 percent this year as the economy recovers from the depths of the coronavirus recession. Link

by EdwardD | 8th Jun 21, 8:26am 1623097568

One of the most interesting things to come out of Wall Street, was the admission by CNBC analyst (Melissa Lee), that hedge funds were naked shorting. This must have stirred up the SEC as today they responded:
https://www.cnbc.com/2021/06/07/sec-says-its-monitoring-the-ongoing-vol….
As a GME stonk holder, I have been watching this situation as the apes have been saying that this illegal practice has been happening for some time. Here is a link to an item about the practice which was also released today:
https://www.youtube.com/watch?v=qbHmj6MU9E4

The major hedge fund involved is Citadel and it is obvious over recent days that Bank of America, their major backer, is worried and has declared no more shorting of GME. The same declaration has been made by a number of other financial institutions over recent days. Citadel have reason to be concerned as GME's shareholder meeting will be held on June 9th and a vote for the Board will take place. As part of this process, the apes of Reddit know that contract numbers will be recorded against proxy votes, so they will finally get to know exactly how many synthetic shares 'are out there'. Will GME issue a dividend? Not sure, but Citadel have reason to be concerned. This of course affects more than GME as Wall Street as a whole will be shaking.

The upshot of this is that the apes of reddit (a smart bunch), know that hedge funds have to cover and they can name their price. The stonk went up over $31 yesterday and the coming days look interesting.

by Groat | 8th Jun 21, 9:29am 1623101390

I bet serious mental health problems and suicide rates rise rapidly with all the suffering and hopelessness caused by Jacindas total abject trechery on house prices. Empathy is not simply a frown, real empathy is being empowered to make changes for the betterment of the people who have the least in society and actually making a difference. Our leader is a leader for the rich only and has a sole focus on making the rich much richer and has overseen the total abandonment of the poor and young. People with 10 houses in Auckland have made approximately 4 million dollars last year if they have sold. Thats in one year, PLUS all the TAX FREE capital gains 'earnt' during previous price rises caused by the RBNZ. These people should have taken a hit because of COVID and they still would have been in profit. Our leadership is showing serious corrupt tendencies and they have shown their bias. The Nats are as bad, there is not a party worthy of any vote. NZ is so unfair!!!

by Brock Landers | 8th Jun 21, 9:11am 1623100262

In New Zealand if you try to discuss any of the issues you'll immediately be labelled and attacked for questioning the myth that it's the best place on earth.

It's really quite bizzare and toxic. It's like problems don't get resolved because there is a cultural tendancy to sweep then under the carpet and pretend everything is fine.

by Groat | 8th Jun 21, 9:18am 1623100684

NZ is the best place on earth if you are part of Jacinda and Keys purple circle property elites. For everyone else its an oppressive, expensive dump were every single day is a struggle. The worst part is, it did NOT have to be this way. The RBNZ's sickening reward of greed made it so.

by Independent_Observer | 8th Jun 21, 9:32am 1623101533

Exactly - you say that house prices should fall for the benefit of financial stability and the prosperity of younger generations and you get called out and ridiculed as a doom gloom merchant. Crazy stuff. People have left their morals and principles somewhere back about 2013 and since then its all about me and my property portfolio.

And we wonder why we have such bad mental health and suicide stats - its because people are getting treated very badly and lose hope.

by fortunr | 8th Jun 21, 10:19am 1623104392

We have a government and a RBNZ effectively influenced by a parasitic minority of self-serving housing specuvestors.
A significant and sustained decrease in house prices is absolutely necessary for the longer term financial and economic stability and well-being of NZ.
It is time to progressively increase the OCR until the back of housing speculation is finally broken.

by Independent_Observer | 8th Jun 21, 10:28am 1623104904

Housing bubbles are one of those things where prevention is a much better plan than anything else.

We're now in the 'anything else' alternative.

by murray86 | 8th Jun 21, 10:36am 1623105393

The "prevention" opportunity fell in Helen Clark and Michael Cullen's tenure (or is that 'sinecure' because they did SFA?)

by EdwardD | 8th Jun 21, 12:10pm 1623111026

Well said. I have to post here as my mind is still reeling. This morning I dropped into our local Council to pay my rates and water bill. Yes, I'm old-fashioned and still pay in cash (so shoot me). I was second in line from a lady, who was also paying her rates. I had to step back further as frankly, I was embarrassed and saddened when the lady started crying as she explained that she couldn't afford to pay her entire bill. The man behind the counter didn't appear to notice the distress the ratepayer was in and his response was that she may want to think about a reverse mortgage. These 'speculators' who are investors are running a business and should be taxed on their assets. If not, they should at least be means tested for their superannuation as NZ is certainly turning into a land of the haves and the have nots.

by murray86 | 8th Jun 21, 12:46pm 1623113198

You make a very good point Ed. Local council rates are generally NEVER less or at the rate of inflation, so for any home owner, the shear cost of ownership is always increasing, and usually well beyond any rate their income might be. I cannot recall a rates increase ever matching or less than inflation. Unless that trend is stopped, no one except the elite will own property, but they will always make sure their tenants pay the bill. It really looks like we are moving back to a system of landed gentry and tenant serfs.

by Foxglove. | 8th Jun 21, 3:12pm 1623121936

That is a telling story. A clerk at the front desk of a council has absolutely no right to comment on any rate payers financial situation let alone make recommendations. That is disgraceful conduct, arrogant and dismissive by a public servant and it reveals what thinking lies brooding behind the curtain. The council simply cannot be unaware that their system of calculating rates on property value is as oppressive as it is inequitable and has now compounded to a point that it is unsustainable for many homeowners. Also in their cynical way, the council eyes the recent escalation in property values and resultant equity, and see fit to grab some of that, even though no additional income has been generated for the homeowner therefrom. Hence the reverse mortgage. Hence the virtual freudian slip by the clerk. This concept and philosophy actually dovetails exactly with the Greens wealth tax proposal.

by Carlos67 | 8th Jun 21, 9:40am 1623102058

Everything is fine Brock for the majority of people in NZ. Interest.co.nz is like a product review, typically all you get are the negative reviews. Anyone happy with something typically doesn't bother to waste their time and they just move on. If I owned 10 houses I really wouldn't be sticking my neck out on here you will loose your head. If you cannot "Make it" in NZ then you have the option of moving countries.

by Independent_Observer | 8th Jun 21, 10:01am 1623103266

No point in addressing any of the issues then eh Carlos if the majority of people are all good! Nothing bad ever happened if an oppressed minority was ignored by the leadership of a state....(um hold on, let me re-check history....haha)!

by Carlos67 | 8th Jun 21, 12:17pm 1623111455

There is no point trying to address all the issues because for people, enough is never enough. If EVERYONE really cared we wouldn't find ourselves in this position to start with. You have to be able to separate reality and idealism and stop living in fantasy land because its not going to change out there if fact its guaranteed to get worse as the worlds resources diminish. Simply too many people on the planet and people forget we are just animals. When the chips finally get down you will literally have to fight to survive.

by Independent_Observer | 8th Jun 21, 12:24pm 1623111867

And people are already in that state (fight to survive) - and enough have given up, hence the depression/suicide stats.

I'm not suggesting idealism, but I'm pretty sure society was better in the 80's and 90's before everyone become obsessed with houses and their prices. And people could afford to buy a house, single income, in their early 20's without Mum and Dad providing the deposit. So was that nirvana then and we've gone to hell since then? Or a return to something similar is just 'idealism'?

by Independent_Observer | 8th Jun 21, 9:35am 1623101702

I agree Groat - I've always wondered if there was any correlation between depression/suicide and run away house prices. Its one of those key things that people need for personal and financial security and its being taken away from them - for what looks like the benefit of people who own multiple properties and little other (there is no benefit for people who are FHB or only own one home).

The only people grinning at the moment are property investors - although they're whinging like children about the loss of interest deductions!

by Groat | 8th Jun 21, 9:42am 1623102143

Take it from my personal experience IO, there IS a direct correlation and its not just because of the struggle now, its because of the absolute impossibility of any hope of a future. The governmnet is complicit in stealing some peoples futures to make already fortunate peoples lives even more rosy? Its twisted and evil and there are no other words for it. Anyone who does not want house prices to drop, unless they are a recent FHB and have just bought, are immoral sociopaths who like seeing people suffer.

by Independent_Observer | 8th Jun 21, 10:05am 1623103517

Yip having lived in the US and watching their property bubble explode, then moving back here and watching NZ create one that is on a completely difference scale (ours is far bigger!) has been sad to watch. And people can't see how they've changed. Its like empathy and humility are no longer required. That life is hard so I just focus on me and my wealth...stuff everyone else...and who cares about the impact caused by me buy a 3rd, 4th, 5th property...that was a young family I just outbid at the auction for my 3rd rental...who cares!

by stuart786786 | 8th Jun 21, 11:14am 1623107675

Groat you have nailed it : ........and its not just because of the struggle now, its because of the absolute impossibility of any hope of a future........

Government and RBNZ should have shown shown concerned - bend the cane but do not bend to a level that it breaks and this is what Jacinda Arden and Orr are guilty off.

Atleast John Key was smart enough to know, when to stop or how much to bend.

by Alter Ego | 8th Jun 21, 9:46am 1623102413

I do believe next big Gang related crimes will be fraud-u-lent, it is the most obvious crime that the blind leading the blind Citizens need to see.
That the World cannot see the true cost of our criminal actions by Banks, Politicians and debt expansionist idiots is beyond all understanding.
Betting on Housing is a no-brainer.
Believing in funny munny, crypto and never ending Interest Rate Falls a Life Sentence in stupidity.
A cost we may all one day regret.

by Henry_Tull | 8th Jun 21, 9:48am 1623102488

In Greens business. Business is business, like the book fiddling Green School loan.

A woman known for severe neglect of animals donated $53,970 to the Greens over 2019 and 2020, but despite saying it wasn't aware of the abuse, the party - known for its strong stance on animal welfare - won't be giving the money

https://www.newsroom.co.nz/greens-wont-be-returning-54k-donations-from-…

Green Party co-convenor Penny Leach said: “Unfortunately, we cannot predict that donors may be sentenced for animal welfare charges after they have donated. The awful news was made known to our team when we were contacted by a journalist.”
(makes you wonder for whom the news was awful?)

However, the SPCA and local community had been aware of her neglect for at least two years prior to her prosecution. In 2020, Andrea Midgen, chief executive of the SPCA, said “the defendant had a history of taking on more animals than she could handle which created a pattern of malnourished and diseased animals despite SPCA intervention”.

SPCA inspectors visited Fraser repeatedly throughout 2018 and 2019 – at least once in response to calls made by locals about the poor condition of her horses.

by Henry_Tull | 8th Jun 21, 12:31pm 1623112306

More on Greens judgement and how they do business:
When the outside real world reality collides with the Greens crippling view & plans for NZ.

Equinox targeted Waikato Comancheros and Waikato Mongrel Mob Kingdom members. They are alleged to have worked with offshore entities to import large quantities of meth and MDMA which was distributed across New Zealand.

Senior members of the Mongrel Mob, Head Hunters and Comancheros gangs have been arrested in a massive police operation targeting organised crime.

https://i.stuff.co.nz/national/crime/300327041/senior-gang-members-arre…

Other attendees at the hui, which took place on May 1 at a Waikato Mongrel Mob gang pad in Hamilton, included Greens co-leader Marama Davidson, Green MP Elizabeth Kerekere and Anjum Rahman, from the NZ Islamic Women's Council. It included a panel and Q+A session, with key themes being human rights and discrimination.

https://www.newshub.co.nz/home/politics/2021/06/human-rights-commission…

12:15pm - The Waikato Mongrel Mob Kingdom's public relations liaison Louise Hutchinson has tweeted, calling the police announcement is a "total smear campaign".

"Lol do you seriously believe all the bullshit that the @nzpolice @NZPCommissioner spin about the Waikato Mongrel Mob Kingdom this is a total smear campaign driven by the NZ Police, politicians and mainstream media!"

https://www.newshub.co.nz/home/new-zealand/2021/06/major-police-operati…