China sensitive about crop reporting; Japan and Australia take China to WTO court; Delta variant threat rises; another large supply chain threat; UST 10yr stays at 1.44%; gold and oil soft; NZ$1 = 69.3 USc; TWI-5 = 72

Here's our summary of key economic events over the weekend that affect New Zealand with news there are new or renewed threats to the global recovery emerging.

But first in China, reports are filtering out that Beijing is detaining and arresting analysts who report on crop yields. This sort of work is very hard to do unless you tour and observe crop regions first hand (which is how it is done is most countries). But independent reports have been snuffed out in China over the past few weeks. It does raise the question about why Beijing needs to be so heavy handed on this arcane, technical corner of market assessments.

China is looking to grow its passenger car market by +10% this year. And a key part of that is an expected nearly +50% surge in sales of new energy vehicles. This rise would put them on track to sell a quarter of all cars as NEVs by 2025. Lithium mining is set for an even bigger boost if this transpires and lithium mining is an especially dirty process at present. If SRI funds aim to avoid polluters, why should they think battery cars are 'green'? At present, Australia is the top lithium miner and China's NEV drive will benefit them most. Although most of the known lithium reserves are in South America.

Despite its drive to control commodity prices, China is still not getting iron ore or coal prices down. Threats against 'speculators' are growing, but so far it seems this latest rise is more a reaction to regulators limiting supply.

As we have reported previously, Australia is challenging the Chinese tariffs on barley aimed at it. Now Australia is doing the same at the WTO against the Chinese for the tariffs the middle kingdom has applied against it for its wine exports. Neither action will be resolved soon and if the decisions go against China they will almost certainly appeal, stringing out the 'illegal' tariffs. But Australia's action won't be impressing Beijing as it ramps up its efforts to stand up to them. Beijing isn't used to being challenged.

They are also annoyed at Japan who have started an action against Chinese tariffs on stainless steel products.

In Australia, an influential economist now says their official cash rate will start rising in 2023.

Separately in Australia, their largest home loan lender has told brokers that they will assess borrowers on the basis of a 6.77% mortgage rate. This is now well above the assessment floors of the other major banks in Australia where ANZ is at 5.1%, Westpac 5.05% and NAB 4.95%. (We have an update of New Zealand serviceability test levels here.)

In Germany, producer prices are zooming higher, with input prices up +7.2% in May from the same month a year ago. That is their steepest annual rise in 13 years.

In virus news, the Delta variant (B.1.617.2) that first emerged in India, is now in a serious surge in Russia and parts of Europe, especially in the UK where it is well established. A key concern is its ease and speed of transmission. This is the strain raging in Fiji now and the one causing concern in Sydney. It is also causing concern in the US.

In the US, a key Federal Reserve official said that he sees the first rate hike by the American central bank coming as early as 2022. This is way earlier than the recent indications from the Fed's own meeting dot-plot. Some people like the new shift. But it is a view that unnerved Wall Street, delivering an almost -1% retreat. Oddly, bond markets reacted by driving down yields, an unexpected shift.

Along the US-Canada border, there are two events to report that affect trade. First, the Americans are unhappy the Canadian government is keeping the border closed to people movements based on the pandemic risks. But perhaps more importantly, the Lake Ontario/St Lawrence Waterway levels are now so low they are affecting shipping in one of the world's busiest waterways. This is adding to supply-chain difficulties and adding to shipping costs with echoes internationally.

Canadians took out almost C$18 bln worth of new mortgage debt in April, the fastest monthly increase on record and enough to bring their total housing debt to almost C$2 tln and a +7.8% annual rise. (In Australia, and economy just slightly smaller than Canada, total housing debt exceeds AU$1.8 tln, and it is rising at about +6% pa.)

The UST 10yr yield starts today down -1 bp at 1.44% and giving up all of its gains since mid-June. The US 2-10 rate curve is holding at +119 bps. Their 1-5 curve is also unchanged at +80 bps, while their 3m-10 year curve is still at +140 bps. The Australian Govt ten year benchmark rate starts today at 1.51% and down another -2 bps. The China Govt ten year bond is still at 3.15%. And the New Zealand Govt ten year is now at 1.80% and unchanged at its higher level.

The price of gold starts at US$1764/oz which is down another -US$4/oz from this time Saturday.

Oil prices are a little softer at just over US$71/bbl in the US, while the international Brent price is just over US$72.50/bbl. The slow pick-up in drilling rigs in operation accelerated last week. In North America, there are now 300 more operating than this time last year, so they have now more than doubled in that time and are back to year-ago levels.

The Kiwi dollar opens today at 69.3 USc and starts this week a full -2c lower than this time last week, its lowest since November 2020. It is really all about a surging greenback. Against the Australian dollar we are little-changed at 92.7 AUc. Against the euro we are unchanged at 58.5 euro cents. That means our TWI-5 starts today at just 72 and a six month low.

The bitcoin price is now at US$34,555 and down another -3.0% from this time Saturday and -11% lower than this time last week. Volatility in the past 24 hours has been very high at +/- 4.2%.

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