Here's our summary of key economic events over the weekend that affect New Zealand with news the supply-chain stresses are not going away.
We recently noted that the USDA sees falling corn inventories worldwide. A key reason is that China is buying up big - and that is causing infrastructure clogging in their ports. China's corn imports quadrupled in the first four months from a year earlier, while millet (sorghum) imports jumped five times in April from a year ago. Barley shipments are up too despite none now arriving from Australia. These port unloading delays add to rising raw material costs that Beijing is struggling to control.
They aren't managing to take the top off high prices for iron ore or coal either. Both rose again last week. And shipping costs turned up as well over the past week. Congestion at China's ports is having a ripple impact globally, but especially in the region. This backup is worse than the March 2021 Suez Canal blockage, and will take longer to clear, some say.
Not rising however were vehicle sales in China in May. They sold 2.1 mln units in the month, down slightly from in April and -3% lower than for May 2020. This outcome ended a 13 month run of rising sales. But China is still far and away the largest market for vehicles, a quarter larger than the US. Meanwhile, the Chinese government has ordered car manufacturers to make sure 95% of every vehicle is recyclable by 2023.
And China has passed a law to punish companies that respect laws in other countries that curb exploitation in their supply chains. It's new anti-sanction law also applies in Hong Kong, likely another reason some companies may decamp. It was a Chinese law that was developed in secret, and only announced on Friday once it had been passed.
In the US, the latest consumer sentiment survey for early June is generally positive, especially among middle and upper income households. And especially for future economic prospects rather than current conditions. Rising inflation remained a top concern of consumers.
But not all prices are still rising.
This coming week, all eyes will be on the Federal Reserve as it meets and reports on Thursday (NZT). Their attitude to inflation will be the big talking point.
In Germany, wholesale prices were up almost +10% in May from the same month a year ago. This is unusually high for German industry and they are hoping that, because the key driver is the cost of fuel (+47%), it will pass soon.
The Russian central bank raised its key interest rate by +50 bps to 5.5% on Friday. It said more hikes would be needed to rein in high inflation, which is now running at 6.2% pa and is expected to shift higher. The rouble, which has lost two thirds of its value in the past ten years, fell another -1% in the past week but bounced marginally on the central bank move.
In Australia, we should note that today is a public holiday in most of the country (but not Queensland or Western Australia).
The UST 10yr yield starts the week with its yield fall arrested, unchanged at 1.45%. But there are heavy-hitters surprised at the recent fall in bond yields even as inflation is rising. The US 2-10 rate curve is now at +131 bps. Their 1-5 curve is now at +69 bps, while their 3m-10 year curve is stable as well at +145 bps. The Australian Govt ten year benchmark rate starts the week at 1.46%. The China Govt ten year bond is still at 3.15%. And the New Zealand Govt ten year is at 1.65%.
The price of gold starts today at US$1878/oz, after a week of relative volatility for the yellow metal.
Oil prices are still at their higher level US$70.50/bbl in the US, while the international Brent price is still just under US$72.50/bbl. These are two year highs.
The Kiwi dollar opens today at 71.3 USc and staying at the lower level it reached on Friday night. Against the Australian dollar we are still at 92.5 AUc. Against the euro we are still at 58.9 euro cents. That means our TWI-5 starts today at 73.1 and a two month low.
The bitcoin price is now at US$37,372 and up +1.6% from this time Saturday. Volatility in the past 24 hours is still high at +/- 3.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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62 Comments
Hi David.
Good discussion : https://www.interest.co.nz/opinion/110818/current-and-former-interestco…
Is this correct?"China has passed a law to punish companies that respect laws in other countries that curb exploitation in their supply chains." China is saying that Chinese companies operating in say NZ, and respecting NZ laws, could be in breach of Chinese laws? While this law is only about supply chains, now that it is in place, it won't take much to expand it to other areas. Are they nuts? This will surely see Chinese companies banned from foreign countries, if they fail to respect the laws of those countries. Is my understanding correct? This can easily be seen as countries effectively ceding sovereignty to China if the allow Chinese companies to continue to operate on these terms. The US will act for sure, as there are a lot of Chinese companies operating there.
Extraterritorial sanctions imposed by the US on China and Russia etc are illegal under UN declared international law.
Anti-Foreign Sanctions Law a toolbox, deterrent: Global Times editorial
I wrote about this extensively when quoting a brilliant article by Irina Alksnis a couple of years ago. Recall this:
However, to hear this simple advice--not to mention following it--the United States need to stop, at least for an instance, and silence themselves. To stop shaking air with statements, declarations, demands, and threats, which come across as either strange, or outright silly because of their obvious inability to ever become a reality. But it is precisely, it seems, what the US is not capable of doing. As a result--the continuation of never-ending declaratory carousel: Moscow, Assad must go! Russians, we will provide for freedom of navigation in Kerch Strait! Russians, we will punish you for support of Maduro. But the most insulting for Americans is that only Russia can understand them. Because we remember the pain behind those words. Link
China is very much aware that now the Global South “accounts for almost two-thirds of the global economy compared to one-third by the West: in the 1970s, it was exactly the opposite.”
What's your purpose for pushing Chinese propaganda Stephen? From your Global Times article:
"It is worth mentioning that the latest law is about sanctions. Its "anti-foreign" characteristic highlights that it aims to safeguard China's rights and dignity. It also aims to protect Chinese institutions and individuals from the suppression and bullying of foreign forces. This law is a legitimate self-defense law for the country and is anti-hegemonic in nature. It enables China to stand with all countries and peoples of the world who suffer from hegemony."
Irony seems to be lost on anyone that believes that.
I am also against "Free Trade" which empowers corporation rights over and above sovereign government concerns for their citizens.
You know my byline - China got the jobs, we got the debt.
I suspect illegal US sanctions underwritten by the US Congress are also acting for global corporate interests.
I find US sanctions attempting to starve , Syria, Iran and Venezuela into submission reprehensible.
China is the only country with the might to counter these insidious self serving forces wrecking our lives.
The audacity underlying these headlines published in so called democracies without public censure astounds me.
Amazon had sales income of €44bn in Europe in 2020 but paid no corporation tax
"I find US sanctions attempting to starve , Syria, Iran and Venezuela into submission reprehensible."
I agree completely but I fail to see how promoting China, of all countries, is taking some sort of moral high ground. Their track record around the globe speaks for itself. They have different ways of achieving the same thing the US does and over a longer timeframe. They're not shy about voicing their ultimate desires and if they come to fruition I'd still rather live in a world where the States continue to be the global superpower than the CCP.
For balance do you post links critising the CCP's hegemonic involvement in African nations, SE Asian nations, Pacific Islands etc?? Or do you have a barrow to push while feigning concern about US geopolitical involvement? Because the what-aboutism, that you continually subscribe to anytime Chinese affairs are published, is casting a shadow over your stated reasons.
Again I agree completely but to think China is any different is naive. You of all people should know that. Xi might make a strong show about coming down on financial corruption but behind closed doors is just the same as other Western leaders. Their culture is ingrained with corruption.
I have a strong dislike for tax havens and the control multinational corps have but China isn't going to be the savior.
The naive divide and conquer strategy is hardly inspiring:
Reporters suggested to national security adviser Jake Sullivan on Monday that meeting with the mercurial former KGB agent without securing any commitments ahead of time looked weak and could be framed as a "reward" for his recent malign activity — as well as allowing cybercriminal groups that have in recent weeks targeted U.S. gasoline and beef supplies to operate from his soil.
Sullivan countered that the president views the meeting "as a vital part of protecting America's interests and America's values" and that a face-to-face meeting is necessary for dealing with Putin's specific leadership style.
Biden and senior White House officials have described the intent of the meeting as sending several warnings to Putin over the ransomware attacks by Russia-based groups, his massing of troops along his border with Ukraine, the misinformation campaigns in the United States and elsewhere, and other aggressive actions.
Biden will also likely press Putin on joining the G-7 nations' just-announced international infrastructure initiative aimed at pushing back on China's influence in the global community. Sullivan on Monday told reporters that Biden plans to press Putin to help him provide a check on China, which is a big ask since Moscow and Beijing are aligned against Washington and the West on many issues.
The new G-7 agreement, dubbed "Build Back Better World" by Biden and his allies, will direct "hundreds of billions of dollars in infrastructure investment for low and middle-income countries that need it," an administration official told reporters Saturday morning.
"This is not about making countries choose between us and China," the official said. "This is about offering an affirmative, alternative vision and approach that they would want to choose." Link
"The new G-7 agreement, dubbed "Build Back Better World" by Biden and his allies, will direct "hundreds of billions of dollars in infrastructure investment for low and middle-income countries that need it," an administration official told reporters Saturday morning.
"This is not about making countries choose between us and China," the official said. "This is about offering an affirmative, alternative vision and approach that they would want to choose." "
Competing with China for influence/control in low and middle-income countries? What interest does China have in those countries then in the first place? Not much better than the West.
I do agree with your sentiment against the US, I just don't think allowing ourselves to be "bought" by the CCP is the way to counter it without causing more of the same issues, or worse.
US BAU in favour of corporate welfare (global crony capitalism) at the expense of everyone does need a competitor to enable better terms of engagement. I am indifferent if it is China, if that's the only choice to create a balance between the haves and the have nots.
I see where you’re coming from. My concern is that the scales will tip the other way too far and the current have nots will still be in the same boat or worse.
Not long finished “The Panama Papers”. Might have to read “Treasure Islands” by Nicholas Shaxson again.
We’re fodder no matter what happens.
I saw what NATO did to Libya. When the media scrutinizes the slave markets in downtown Tripoli and the misery that befell that once prosperous country like they do the Uighers I might pay attention to PR narratives. China bashing is just the latest iteration of failed foreign policy from a military alliance fresh out of ideas on how to make lives better for their own taxpayers and more interested in securing funding to counter real or imagined bogeymen. Sick of these conflicts.
Heard on the radio this morning that the new impost on SUV's is not a tax , but is in fact a fee .... well done Mr Minister of Transport .... a fee .... not a tax .... yessss .... we wouldnt want Jacinda & Robbo to be guilty of breaking another election promise , would we ... suck it up farmers & tradies ... it's just a fee ....
(Added comment to GBH above: It nets the Govt zero - it's not a tax. It's an attempt to change habits, in those perhaps less disciplined/ enough to do so on their own initiative. The joke is that their Overton Window is not wide enough; the move will be overtaken by events.)
"and they are hoping that, because the key driver is the cost of fuel (+47%), it will pass soon".
It is 10 years since I first pointed out, on this site, that energy underwrites money, 100%. Essentially, at a certain point on the way down the EROEI ladder, we weren't going to be able to afford ourselves. That threshold seems to have been crossed; it now takes more than $1 of debt to 'generate' (funny how economics stole real words from physics) $1 of GDP (and that's a fudge measure as it is). There also seems to be no leeway to lift interest-rates above zero in real terms, despite a flood of inflation threatening. And relativities (it's not my game, maybe other who play there can elucidate) of measures - currencies, yields - seem to be a bit unrelated to what is coming.
I've put this link up before; it rewards careful reading:
https://ourfiniteworld.com/2021/05/27/dont-expect-the-world-economy-to-…
... it is an inconvenient truth that we keep finding more and more of these " finite depleting resources " ... and , that our use of them is far far more efficient than it once was ... the internal combustion energy is a remarkably efficient energy conversion system ....
Indeed and the Aussies are light years ahead of us on this journey. Don't forget the distribution networks in your thinking however as that might be a key lesson to learn from the Aussie experience.
https://renew.org.au/renew-magazine/solar-batteries/solar-and-high-grid…
HT - total, total, total bollocks.
Is your big vehicle - it will be, I'm guessing, compensation being what it is - made from technology? I suspect it's steel, plastic, rubber, aluminium, copper, maybe a few other trace elements.
Technology is not stuff. Your big vehicle will roll to a halt with an empty tank, exactly as a 1904 De Dion would. Seriously, that is a totally flawed mindset. Reminds me of Julian Simon, who succumbed to Entropy a while back.
GBH,
When you refer to 'finite depleting resources', I think you really mean oil. I agree that we are not about to run out of oil, but what is not in dispute is that more and more of what is left is harder and thus more costly to extract and refine. That applies to most of the US 'tight oil' and all of the Canadian tar sands oil.
From all the figures i have seen, the EROI of oil and indeed of coal has been falling for many years now and that makes sense. We naturally extract the easier to get at stuff first. I have little doubt that more will be found, but at ever greater cost. At what point does it become uneconomic to do so?
This problem also applies to the many important minerals that underpin our economy. At some point we will run into real limits to growth and I think it may well be within my grandchildren's lifetime.
Its far more complex than that though bobbles, you need to look at the entire life cycle of the car and work out the "Efficiency". Right from the manufacture, maintenance, running cost and where that energy is coming from and what it cost to produce and the end recycling cost. There are too many variables and they keep changing over time anyway its an impossible calculation. Even if the EV is charged from 100% renewables you still need to look at what the solar panels and wind turbines are costing over time to produce and recycle. You can get 30 years out of an ICE, can you get 30 years out of an EV ? I think the answer to that is a NO.
We were simply talking about engine efficiency. If you want to talk about total lifecycle costs of the product, then there plenty of scientific studies on all of these. But classically, you talk about only one side of the equation with your stab at "solar panels and wind turbines", but don't happen to mention drilling rigs, fuel refineries nor oil transport fleets and all their lifecycle costs. Suggest examining both sides of the equation if you really want to understand it.
Electric cars are in their infancy and we are just ramping up battery tech now as the cars get better and better. Tesla is chasing (and pretty close to, it sounds) a million mile battery, which would mean a battery that lasts far and away more than 30 years of equivalent driving in an ICE vehicle.
even of this were true .. which its clearly not, we run into Jevons paradox
http://3kbo302xo3lg2i1rj8450xje-wpengine.netdna-ssl.com/wp-content/uplo…
The problem is one of economic viability
Debt gets stuff out the ground
Most Oil reserves will never be used ... like coal on the west coast
My concern about the move is that large transport trucks are not seen anywhere in this. The Government seems to be nailing middle NZ to the benefit of the wealthy. I suspect far more could be achieved at much less cost by forcing a lot of the road transport back to rail?
Nation building news.
Here is James Shaw reflecting on the Kawakawa public meeting.
https://mobile.twitter.com/BenDooley8/status/1404011135230124035
Shaw saying on camera his concern is that Kawakawa was wiped up by Pakeha Farmers from down South.
RNZ reported rather:
The government has acknowledged wrongdoings in the implementation of the controversial Significant Natural Areas land classifications that were the focus of an impassioned hīkoi in Tai Tokerau.
https://www.rnz.co.nz/news/national/444575/deputy-prime-minister-backs-…
In one of Northland's biggest-ever protest hīkoi, outraged Māori and farmers presented a petition to FNDC councillor Moko Tepania, calling for the council to stop, rather than pause on SNAs.
See you all at the Field Days.
If everyone thinks they will be disadvantaged by your policies then it is your policies that need revision.
The Green party, far from being a northern light, are walking themselves further into the fringe - "subversion something much more surreptitious, such as eroding the basis of belief in the status quo or setting people against each other."
The safety Shaw feels in his FUD efforts comes from his assuredness in the complete ineffectiveness of the media in NZ (excepting Interest), at least this assumption is well-founded.
JAO - not necessarily so.
If resource-depletion coupled with population-increase is driving per-head resource-access downwards (it was inevitable that this would happen) then legislation attempting to fit that closing vice - particularly if evenly-spread - could indeed disadvantage everyone, consumption-wise.
Agreed but boiling a frog does nothing for the frog. Better in my opinion to have stand out failures in the hope of the bigger conversation. According to the news last night re-sperm counts we may be a leading light on population management. The counter view would be our sad and quick rolling-over on getting immigrants from poor countries to pick our fruit. This suggests we will simply change the mix of our population and maintain or current low or perhaps move even lower in our per capita productivity
If only all the wasted energy fretting about peak oil could have been tapped. Can someone tell Grant?
"The world hit a transport milestone in 2017, though most people wouldn’t have noticed it at the time.
That year, consumers bought more than 85 million automobiles, a sales volume that declined in 2018, and again in 2019, and then plummeted in 2020 due to COVID-19. Meanwhile, sales of electric vehicles rose, and rose again, making EVs the auto industry’s only growth market — and meaning that we almost certainly hit peak internal combustion engine car sales four years ago."
https://www.bloomberg.com/news/articles/2021-06-10/peak-internal-combus…
If the discussion about Peak Oil HAD been reacted-to (because the only variable when you're depleting a finite resource is time, and our whole society was - and largely still is - dependent on that finite resource) we might have been further down the track.
Interesting to see a spinner link to spin :) The truth of that article is in real numbers, not relative growth-rates; usually percentage-quoters are playing games, in their case pushing optimism. The reality is that we are still ADDING ICE vehicles to the fleet - the question is whether they become stranded assets? What the article doesn't mention is oil supplies: but the link I supplied up-thread does (4 - World Oil Supplies). A telling graph.
Chatting to friends in the UK they are having a hell of a job trying to hire staff. They are almost offering 1.5x the wages pre-pandemic because all the Eastern Europeans left the UK when they where fired from their low wage jobs. Employers are accepting that higher wages are baked in within some economies now.
Overall the working age population is now declining across many countries while the number of people dependent on workers increases. The Labour market is just starting a new trend due to demographic changes.
Great program on Aljazeera yesterday on the "Fast Fashion" clothing industry that has popped up in Leicester in England. An undercover camera caught employers paying 3 pounds an hour and to even get the job you had to work for a couple of weeks earning nothing as a "Trial period". On top of that it was a zero hour contract so you could turn up to work and it could be all over by 1pm. The clothing brand was BooHoo so if you have a conscious stop buying it. Bottom line is you NEVER have trouble finding staff, its all a question of how much your paying them.
"The Labour Government is now displaying its “true colours” with trade unions driving employment law changes and favouritism to vested interest groups, such as their urban liberal elite supporters in central Auckland with the dedicated cycle harbour bridge. Similar to the Climate Change Commission report, there is a total absence of rigorous financial and economic cost/benefit analysis to support such policy decisions. Will New Zealanders accept lower standards of living to lead the world on climate change policies?
Given the combination of the aforementioned economic restraints and Government ideology driving policy, it is no great surprise that offshore investors have continued to absolutely ignore New Zealand and the Kiwi dollar in 2021. Foreign investor participation in our equity and bond markets continues to fall."
Bloody well put Roger https://www.interest.co.nz/currencies/110826/roger-j-kerr-says-us-dolla…
"there is a total absence of rigorous financial and economic cost/benefit analysis"
Agreed -- you're describing the whole field of economics, perfectly.
It simply avoids measuring real stocks and sinks - to its cost...... I guess the irony isn't lost, anyway; maybe we can sell it?
https://www.scoop.co.nz/stories/SC2106/S00012/inside-the-climate-commis…
"Importantly, models are simplifications of the real world. They build on assumptions – about future technology cost, growth of population and the economy, for example – which are inherently uncertain as they are projecting several decades into the future. A seemingly reasonable set of assumptions is taken for a baseline, and the alternative policy scenarios analysed with the models, so only the policy impact is measured when comparing the scenarios.""
Like you know the "whole field of economics". The arrogance beggars believe sometimes. I am sure that in the "whole field of economics" there are "economists" who think just like you by the way.
Even if we had no "economics", yet if we had same technologies, I wonder if we would have been in a different position. Economics did not discover technologies using fossil fuel, they did not discover transportation methods, internet, etc. They did not push us towards "unsustainable" lives as you would see us be. All you say and argue for is also discussed hundreds of years ago by Malthus that is rate of consuming resources is faster than their replacement (you have your fancier "energy" for it, but the underlying concepts remain the same), thus population (and their consumption) would collapse to the level consistent with available resources.
I respect a few; Steve Keen, Herman Daly, a fellow in NZ, not many. They could point out, loudly and clearly, the impossibility of continued growth. It appears they - and their teachers - don't.
My favourite is Soddy - https://www.amazon.com/Wealth-Virtual-Debt-Frederick-Soddy/dp/0317532189
Written in 1926 by a Nobel prize-winner - in chemistry. Says a lot, I'd suggest.
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