Here's our summary of key economic events overnight that affect New Zealand with news reality of how far the US labour market has to go may be setting in.
American non-farm payrolls beat most expectations, rising +850,000 in June from May when a +700,000 rise was expected and the May rise was a revised-up +583,000. But as regular readers will know, these are seasonally adjusted numbers. The raw number has been far more favourable in the prior two months, basically gaining +1 mln each month with payrolls rising from 143.3 mln in March to 144.4 mln in April to 145.4 mln in May. In June they actually rose to 146.5 mln, another gain of +1.1 mln. These are all far better than the statistically adjusted levels. In a year, US non farm payrolls have risen more than +8 mln. However, compared to June 2019 they are still more than -5 mln lower. So while recent trends may actually be better than generally reported, they still have a very long way to go to recover the pandemic losses. It is this overall gap that has bond investors thinking the US Fed is probably a long way off raising their policy rate, further than what analysts had previously assumed.
US factory orders in May also came in better than expected with a +1.7% rise vs a -0.1% slip in April.
Canadian building permit data wasn't so positive. After four consecutive months of reaching new highs, the total value of building permits dropped an unexpcted -15% in May. Every component was down, with multi-family dwellings in Toronto accounting for almost 60% of the overall national decline.
Internationally, we got CPI data from South Korea and India yesterday. The South Korean index was essentially unchanged in June but remains well above their central bank's 2% target at 2.4% pa. In India, price data was for May and it was up over +6% pa with the drivers being much more than lockdown-related.
In Australia, bank mortgage lending to investors hit a six year high in May, up a startling +13% from April, and up +90% above May 2019 (May 2020 was pandemic affected). This is its strongest rise in six years. Falling vacancy rates and improvements in their labour market (which generally leads to more demand for rental property) are both green-light signs for investors. Overall housing lending was up +4.9% in May from April, and up +97% from May 2019.
Staying in Australia, the energy regulator reported that wholesale electricity prices fell below zero a record 3662 times last year as solar power generation surged, threatening the profitability of coal power plants. (see page 9) This situation also drove fast-tracked new rules to prevent wind and solar generators deciding to switch off to curb losses.
In Sydney, they have recorded 31 new locally acquired cases of COVID-19 and 13 of those people were active in the community for all or part of their infectious period. Five had not been linked to other outbreaks. Their lockdown is almost certain to be extended and tougher conditions applied.
Back in 2017, there was a 'scandal' about how much insurers and bankers were paid to meet sales targets. It resulted in the Sedgwick Review and institutions dramatically changed their compensation schemes as a result, cutting back sales targets sharply. However, in the third and final review published mid-week, the Commissioner found that although banks had made significant progress there were pockets of the industry resistant to change. “One significant bank continues to offer a maximum variable pay opportunity that exceeds 50 percent of fixed pay for a small proportion of its home lenders,” the report said (page 38.). That bank is CBA. (But while that may be true, its market share has slipped from 26.3% in May 2017 to 25.9% in May 2021.)
The Baltic Dry index ended the week at 3338 and its highest weekly close since May 2010. The iron ore price continues to defy Beijing, holding its high level this week. Ditto metallurgical coal. However, Beijing is successful depressing the prices of other semi-precious metals. Corm prices are remaining high but prices for rice and soybean as slipping significantly.
Wall Street is continuing its positive run with the S&P500 up another +0.7% so far an a new all-time high. This is a +1.5% gain in a week, capping a +17.5% rise for all of 2021. Overnight European markets ended basically flat except Frankfurt gained +0.3%. Yesterday Tokyo closed up +0.3%. But Hong Kong was down another -1.8% and Shanghai both closed down a full -2.0%. That means Hong Kong is down -2.4% for the week and only up +3.0% so far in 2021. Shanghai is down -2.6% for the week and basically at the same level it started in 2021. Tokyo however is now up +5.6% in 2021. Yesterday, The ASX200 closed up +0.6% for a flat weekly result. For all of 2021 it is up +9.3%. The NZX50 Capital Index was up another +0.2% yesterday for a weekly rise of +0.7% and a 2021 retreat of -6.0% and the weakest market we follow.
The UST 10yr yield starts today at 1.43% and down -5 bps from yesterday and down -11 bps in a week. Bond investors are not showing any confidence in the recovery. The US 2-10 rate curve is flatter at +1.19 bps. Their 1-5 curve is also also flatter at +79 bps, while their 3m-10 year curve is a lot flatter at +138 bps. The Australian Govt ten year benchmark rate starts today at 1.43% and down another -3 bps. The China Govt ten year bond is down -1 bp at 3.11%. And the New Zealand Govt ten year is now at 1.71% and down a sharpish -6 bps.
The price of gold is now at US$1791/oz which is up +US$17/oz from this time yesterday. But compared to this time last week we are now only +US$4 higher.
Oil prices are up less than +US$0.50 again today. In the US they are now at just under US$75/bbl, while the international Brent price is still just over US$76/bbl. However at these levels they now exceed the 2018 peak and are back to 2014 levels. More drilling rigs are being brought back into production.
The Kiwi dollar opens today just on 70.3 and a +¾c recovery since this time yesterday as the US dollar fades. But compared with this time last week this is still -30 bps lower. Against the Australian dollar we are unchanged from yesterday at 93.4 AUc. Against the euro we are much firmer at 59.3 euro cents. That means our TWI-5 starts today unchanged at 73 but that is still -50 bps lower than this time last week.
The bitcoin price is now at US$33,399 and down a trivial -0.3% from this time yesterday. Volatility in the past 24 hours has turned lower at +/- 1.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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47 Comments
A long way to go.....
Article on Gurdian explains long way to go...but where.... and how fed is screwed in either direction :
https://www.theguardian.com/business/2021/jul/02/1970s-stagflation-2008…
What a terrible article - who would describe inflation in the 1970s as unexpected?!? Nothing to do with OPEC countries constraining oil supply to punish the west (and US in particular) for backing Israel then? Nothing to do with most developed economies having index linked wage structures - creating price / wage spirals then? And the 2008 crisis was nothing to do with 'public debt' - it was ALL about private debt and the removal (by Clinton) of key regulatory instruments that had previously kept the banks in check.
https://nationalinterest.org/feature/welcome-great-housing-crisis-2021-…
In US house price went up by 15% and are worried and here in NZ house price went up by more than 30% and still no warning or urgency to act.
Will Mr Orr personally take responsibility for the the shit that he had done in professional capacity - accountability. Compare size of US economy with NZ and are concerned with 15% and here in NZ hardly any economy and double the number still Mr Orr is on with his wait and watch policy.
Jimbo
I totally agree with you. As with most actions, along with the benefits there is always consequences; unfortunately many on this site can't see beyond a singular issue.
Stuart's response is an example of that.
- "how (sic) prices" is not a measure of the current strength of the economy to which you refer.
- dealing with a pandemic is not about dealing with long-term sustainability.
I totally agree with you. As with most actions, along with the benefits there is always consequences; unfortunately many on this site can't see beyond a singular issue.
Yes. Many can't see beyond the singular issue of housing. But in some ways, house price action has just illuminated how broken the monetary system is. Also, the 'strength of the economy' could be just a fiction. When many of the sheeple feel 'richer' because of the rise in asset prices, their consumption behavior doesn't change or they may even spend more. But essentially what has happened is the destruction of the value of labor for young people and low- / mid-income people. The old farts at the end of their working lives are more likely not to give a rats.
But I wouldn't be too smug. This isn't over by a long shot. Orr and Robbo will think they're on top of things and have it under control. However, the system is cracking under all the manipulation and the metaphorical butterfly flapping its wings could be devastating. I suspect this will be in the form of a financial crisis globally.
youngdumbandbroke,
When use the words fiat debasement, what precisely do you mean? Can you illustrate for me just how the currency is being debased?
I see this description regularly, but never accompanied by an explanation. When coins were debased by being clipped and Newton went to hangings of convicted clippers, the currency was being literally debased. How does it work now?
Debasement is devaluing the currency. Low interest rates mean that the cost of money is cheap and therefore it’s value is diminished. That’s why asset values have skyrocketed since 2008. What incentive is there to hold cash when deposit rates can’t even keep pace with inflation? Better return on investment would be to leverage that cash and buy property. In my hometown, house prices have gone up by at least 24% yoy for the past 3 years. Has the value of those properties gone up or has the value of our currency gone down? I’d argue the latter
Anyone Remember That Whole SLR Cliff?
What is the SLR coming back for UST’s and bank reserves alike like? In this specific case, higher costs being deliberately imposed on the safest, most liquid parts of US banks’ balance sheets given what they’ve done over the past year. Understanding this, might Jay Powell be saying the same thing as he would imposing NIRP: you don’t like higher (balance sheet) costs on low-paying highly liquid and safe instruments, too bad, go out and find better returns by raising your loan book!
What ended up happening instead? Banks and other financial firms went right back to buying the safety and liquidity of UST’s anyway!
The SLF “cliff” raised the balance sheet costs for holding those plus bank reserves, and to the day I wrote this LT UST yields have been dropping as those higher balance sheet costs have been factored by the financial system anyway and incorporated into higher UST prices – not more and accelerated selling of safety.
Why?
The reason NIRP has only failed is that banks don’t chase nominal returns – ever. Balance sheet decisions are made on a risk-adjusted basis, both assets as well as liabilities. In fact, risky liabilities can and have influenced asset decision-making; especially since, oh, around August 2007.
If Jay really is trying to use the SLR cliff as a macroprudential cattle prod, of sorts, and I do believe he is, the Chairman at least begins with a good reason. Lending since the first GFC has been a huge drag, and one that has actually been amplified (no surprise) in the wake of Powell’s awful performance during GFC2.
Quite simply, it doesn’t matter that holding UST’s (and bank reserves) is now more costly, the perceived risks of holding anything else must be higher. And getting worse all the time.
Everything is supposed to be going right, and the US economy, in particular, leading the world to mend. Except, in US bond markets only beginning with Treasury investors – a class who includes these banks bearing SLR surcharges – there’s only deep and profound skepticism being consistently priced into these very instruments.
This is paid advertising but P^wer Finance is suggesting the tokenization of housing in NZ. Basically, the 'asset rich (houses), cash poor' will be able to sell off 'ownership tokens' in their homes to raise money. By doing so, the homeowner gets to raise capital but they also relinquish the entitlement of the full value of the home (someone else may own 5% of the home's tokens) and capital gains when the house's value is realized on sale.
https://www.nzherald.co.nz/brand-insight/new-thinking-needed-to-solve-h…
Paid media and they're upfront. I don't have a problem with that.
I like their idea of tokenization but we need to see how they flesh the idea out. The old farts will probably see something wrong with it, but in some ways they're likely to be better off with it than reverse mortgages where the banks could really turn the screws.
Three or 4 years ago there was a project proposal by the principal of one of the Auckland Apartment Real Estate Agents to form a company that would seek subscriptions from the public and buy houses which would be shared in proportion to the number of shares purchased
Never got off the ground. Died a quiet death within 3 months
Most REAs are show ponies, snake-oil salespeople, or little more than ticket clippers. They don't really come up with original business ideas nor do they have the chops to pull off innovative solutions. I suspect you're referring to the guy who has the Auckland apartment agency. The tech industry is best positioned to come up with innovative solutions and have a proper understanding as to how smart contracts and tokenization could work. The RE industry, the banks, and Robbo, etc are not entrepreneurial in the slightest.
The reason China is driving coal price higher...
China is securing its economy on fossil fuels while weakening the West by selling unreliable renewable solar and wind.
Also its China thats keeping all those "green new jobs".
Geo Politics: How can policy makers be so dim, dumb and dangerous for their constituents?
US Crogessional Testimony by Alex Eastern.
before the House Natural Resources Committee.
Alex, a philosopher, has written:
https://www.amazon.com/Moral-Case-Fossil-Fuels/dp/1591847443
Koch-funded Cato Institute. Surprise, surprise.
Yes, not just low but entirely predictable. Now WHY would dear Henry have to go there?
Answer; because he needs to peddle alternative facts. Sad
I particularly liked: "There are huge amounts of fossil fuels left, and we have plenty of time to find something cheaper.:" That, Henry, due to exponential growth and deteriorating EROEI, is clearly incorrect.
Fazzz: More scaling great heights.
Think of it as you puffer jacket movement.
Like the North Face moment Kathmandu must be in fear of.
https://youtu.be/NOXazRz5Of8
Each Tesla has 900lbs of oil & gas products.
Remember your organic chemistry.
Plastics are organic.
Thats the curse of the activist. Not your fault, neither are the coal powered EVs littered throughout the country.
But during July it would be best if no EVs were charged on the grid, people rather, need the heat to keep warm & well.
https://www.plastics.org.nz/environment/educational-resources/general-p…
Plastics are derived from organic materials such as crude oil, natural gas, salt, coal and, in more recent years, from bio-matter.
Many thousands of different polymers are created through combining different organic chemicals together in a number of ways.
https://www.spectator.co.uk/article/new-zealand-s-worrying-battle-over-…
I read NZ Herald daily and check TVNZ for news a couple of times a day and listen to the radio but I didn't realise this battle was happening.
Lapun are you seeing the Australian/NZ edition too.
https://www.spectator.com.au/2021/07/kiwi-saboteur/
For New Zealand’s Prime Minster to be talking such nonsense – in fact, such a complete untruth as ‘bold action on climate change is a matter of life and death’ – is more than ominous.
Then in locally funded press.
https://i.stuff.co.nz/national/politics/opinion/300348036/jacinda-arder…
Since her re-election, we have been witness to what power when combined with ideology looks like.
Think about the construction of the item & nature of the comparison, when many others would offer a most unsuccess lense.
Regarding your sources.
This may have something to do with it.
https://www.nzonair.govt.nz/funding/journalism-funding/
https://www.nzonair.govt.nz/documents/657/210429_PIJF_General_Guideline…
Faafoi, a former journalist, rejected any suggested the Government was trying to buy favours, given other sectors were also struggling.
- everyone also saw Faafoi struggling in his job to describe as discussion the Speech law he promotes.
https://i.stuff.co.nz/business/124222560/govt-injects-55m-more-into-pub…
It is not a big issue for me. I don't know anyone who is transgender nor even anyone who admits to knowing someone who is transgender. Problems related to severe physical handicap are more relevant and I suspect far more common than the incidence of being transgender. As an elderly male it makes little difference to my life who or even what can legitimately claim to be 'a woman'. But the disagreement between women's groups and transgender people groups is publicly interesting and when our govt choses to change a relevant policy then it is worthy of debate in our popular media. I only came across this matter by accidentally reading an article in a foreign publication. I really shouldn't be getting my NZ news from foreign publications.
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