Here's our summary of key economic events overnight that affect New Zealand with news of rising risks but markets betting they won't come to anything.
Firstly, life expectancy in the United States declined by a year and a half in 2020 and the pandemic is largely to blame. In fact, more precisely, the US lack of response to the pandemic is largely to blame. It was a decline from 78.8 years in 2019 to 77.3 years (at birth) in 2020 and was the largest one-year decline since World War II, when life expectancy dropped by -2.9 years between 1942 and 1943. Hispanic and Black communities saw the biggest declines. (The last time it was measured in New Zealand, it was 81.8 years.)
And staying in the US, rents for single family homes are spiking higher all of a sudden. They are rising at a +6.6% annual rate, and some southern state markets show rises above +10%. Strong job and income growth, as well as fierce competition for for-sale housing, is fueling demand for housing where work-from-home options are preferred.
Rents and house price inflation are emerging as a key focus of Fed analysts.
There was a smallish US$26 bln US Treasury 20 year bond tender earlier today where the Fed took US$3 bln. Total bids were $58 bln. The median yield was 1.80% and that was down from 2.05% a month ago. But this is actually a rebound in yields from a few days ago.
In yesterday's report, we noted flooding of China's Yellow River, and especially in Henan province. If you have a moment take a look at this. And this. And making matters worse, there are reports the Chinese military is warning of the risk of an imminent dam collapse in the area.
And pandemic outbreaks are rising in China too. There has been massive disruption at Nanjing’s international airport in eastern Jiangsu province after 17 workers were found to be infected in the last 24 hours, leading to 80% of flights being canceled yesterday.
China has instructed steel mills to reduce output to keep 2021 production similar to 2020. That has capped iron ore prices. But demand is ramping up in the rest of the world, and the major Brazilian producer is having output issues. That means today's -3% dip iron ore prices are not expected to last.
In Australia, their retail sales fell by more than expected in June as various states entered lock downs and they will weaken further in July as the delta variant spreads further. They retail sales dropped -1.8% month-on-month in June. A large -3.5% month-on-month plunge in Victoria was a key driver as Melbourne was in lockdown from the beginning of the month until June 10th, but sales also fell -2.0% from May in New South Wales as Greater Sydney entered a lockdown on June 27. And a lockdown that started around the same time resulted in a -1.5% drop in sales from May in Queensland.
There are now official denials that the country faces a recession due to these lockdown shocks. But Australian Treasury estimates mentioned by their Treasurer say Q3-2021 will likely report a GDP shrinkage. They need a rebound in Q4 to ensure no second recession.
There were 110 new community cases in NSW today, and another 22 in the community in Victoria where their lockdown has been extended for another 7 days. Queensland and South Australia are now also reporting cases in the community, prompting a new SA lockdown. None of this gives confidence the Trans-Tasman travel bubble will re-open anytime soon. There were new cases in New Zealand, all caught at the border (mostly among ship crews), none in the community.
Wall Street has extended its Tuesday rise and is up another +0.8% in early afternoon trade today. Overnight, European markets rose about +1.8% is an even stronger surge, a bit less in Frankfurt (+1.5%). Yesterday, Tokyo was up +0.6%. Hong Kong slipped another -0.1%. But Shanghai was up +0.7%. The ASX200 ended yesterday up +0.8% and the NZX50 Capital Index ended up +0.5%.
The UST 10yr yield starts today at just on 1.29% and a +7 bps turn up. The US 2-10 rate curve has steeper by another 7 bps to now be at +109 bps. Their 1-5 curve is now at +66 bps 5 bps steeper, while their 3m-10 year curve is now at +125 bps and 8 bps steeper. The Australian Govt ten year benchmark rate starts today at 1.23% and up +4 bps. The China Govt ten year bond is at 2.95% and little-changed. The New Zealand Govt ten year is now at 1.56% and up +3 bps from this time yesterday.
The price of gold is now just on US$1802/oz which is down -US$8/oz from this time yesterday.
Oil prices have risen by +US$3 so in the US they are now just over US$70/bbl, while the international Brent price is now just under US$72/bbl.
The Kiwi dollar opens today just under 69.7 USc and up +½c. Against the Australian dollar we are firm at 94.7 AUc. Against the euro we are also firm at 59.1 euro cents. That means our TWI-5 starts today up +50 bps at 72.8.
The bitcoin price is now at US$32,183 and bouncing back a strong +8.5% since this time on yesterday. Volatility in the past 24 hours has been very high at just over +/- 4.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».