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US life expectancy slips; US rents surge; China's flood risks rise with pandemic spread; Japan exports surge; recession fears grow in Australia; UST 10yr 1.29%, oil up and gold down; NZ$1 = 69.7 USc; TWI-5 = 72.8

US life expectancy slips; US rents surge; China's flood risks rise with pandemic spread; Japan exports surge; recession fears grow in Australia; UST 10yr 1.29%, oil up and gold down; NZ$1 = 69.7 USc; TWI-5 = 72.8

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 Japan, exports were up a very strong +49% in June on a year-on-year basis, similar to their May gains. Compared to June 2019, these exports are up +9.7% which is also a very strong metric.

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 ».

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47 Comments

10
up

Rents and house price inflation are emerging as a key focus of Fed analysts.

Unfortunately it only remains a topic for discussion and more discussion.....

Fed attitue and reaction is biased. When it was to support house price it went with least regret policy (no mention that it is not rbnz job / mandate to support house price), but when it comes to controlling ever rising price is quick to follow wait and watch policy with anniuncement that controlling house price is not their job though when had fear of fall (*not actually falling), reacted overnight.

Can anyone deny this double vested personality of people working in rbnz as definitely they all belong to elite class on investors / speculators - conflict of interest.

A friend asked me a few months back "what is a Maori". My reply to him is, I think, of interest as the principle runs across disciplines.

I said when you have control of the narrative you can just make it up as you go.

The issue I'm seeing in this forum is that most of you think you can pick and choose your truth. Most see flaws in say that coming from the RBNZ. The truth is that all the narrative is controlled. If you think you are smart enough to pick and choose which bits are truth and what is lies, then you aren't.

The thing with having the ability to make it up as you go as it means you don't actually need any long term planning.

Where the danger lies is that if all you have is a narrative that isn't backed up by anything real (in a world running out of real), a narrative that is all stories, then all it takes is a strong counter narrative and you come undone. Expect to see that sometime in the next year or two.

Lucky that your friend has you to give him the ground truth!

Whatever appends we know it will be blamed on covid.

12
up

I'm quite happy to mix conflicting narratives together.

Ever increasing house prices are a slow twisting grind on the population of NZ that raises poverty and suffering for the vulnerable.
vs
The thought of decreasing house prices will weaken middle NZ and undermine general confidence in employment and the future.

An unexpectedly strong counter narrative tends to trigger the media ( and most of us) to just double down on our chosen narrative. I think we just want to see our narrative acknowledged from time to time.
The awesome thing is that on interest.co.nz I get to see different narratives mixed in together via the comments, but also the opinion pieces, top 5s, news and news reaction articles. A taste of all sides along with the general swell of feeling that tends to say our housing market is f..ed. Its good. Keep it up.

"..when you have control of the narrative you can just make it up as you go." totally accurate, and on this topic, countering the narrative, no matter what you say, runs the risk of being accused of being racist. Don Brash being a perfect example.

But that comment is applicable to many areas of politics as well, and the MSM is critical here. The MSM are in a powerful position, and have opportunities and responsibility to ensure that any discussion around a narrative is balanced. The problem is this just doesn't happen anymore, if it ever did.

A constant daily scramble for safe, liquid US Treasury collateral at the Fed's O/N Reverse Repo window at the 0.05% funding rate floor eclipsed by today's 119 day Cash Management.Bill auction at a median 0.045% yield, remains entrenched.

This right here is the reason why we are on the hunt for more escalating warnings, out looking for the big ones many of those which have not yet happened.

The dollar, for example, is moving up but taking its time doing so, not quite in the fashion of the acute shortage. Only a single RRR out of China thus far. Japan’s 10-year government bond has only flirted with zero, and reached it during Asian trading this morning, though not yet negative. And despite Monday’s pretty dramatic dive in UST yields, I wouldn’t qualify it yet as a “collateral day” (I need to come up with a new term for this).

In short, if we had already observed those warnings then we’d have expected before today that the deflationary pressures including collateral had already crossed a threshold, of sorts, from mildly irritating where repo and general funding was difficult to roll over into outright more dangerous where rolling over becomes near impossible. The global dollar system not yet having passed through into that stage, not yet having triggered those other key alarms, this indicates that this system still has sufficient elasticity and space to absorb imbalances.

Not normal, of course, and getting iffier as these negatives pile up, but not yet to the point beyond the edge of manageable. It’s not that bad – yet. Link

Anyone who believes a story/narrative without evidence is a fool. Not sure how that answered your friend's question.

the "narrative" that ultimately matters is the supply chain ...
its where the rubber hits the road
we can only spin the story for so long

http://charleshughsmith.blogspot.com/2021/07/how-breakdown-cascades-into...

"The recent relatively mild logjams in global supply chains of essentials are mere glimpses of precariously fragile delivery-supply systems. These can be understood as bottlenecks that only insiders see, or as unstable nodes through which all the economy's connections run. Put another way, the economy's as a network appears decentralized and robust, but this illusion vanishes when we consider how the entire economy rests on a few unstable nodes.

One such node is the delivery of gasoline and fuels. It's such an efficient and reliable system that 99.9% of us take it for granted: there will always be plenty of gasoline at every station, the tanks of jet fuel will always be topped off, and so on.

The 0.1% know that this system, once disrupted, would knock over dominoes all through the economy..."

Ah, the good old doublespeak and ministry of truth at work

Breakfast briefing: Risks up, except in investor behaviour

Why investor behaviour is not fearfull :

1 : Many many young have entered stock market and have only seen upside
2 : Many who have lost their jobs or are on reduced earning are playing (not investing) in stock market.
3 : Many retiree or near retirement are forced to look at alternate investment as been forced out of FD.

Finally Housing : As it can never go wrong as have personal assurance from prime minister of the country - Jacinda Arden and support of reserve bank governor - Mr Orr that he will never go against the ponzi.

Besides in NZ, only economy is housing economy that gives fast, easy, big money with safety.

What are you supposed to do as a fearful investor?
Gold? Cash and term deposits at 1%? Crypto? Bonds? There is no volatility protection, there is maybe only a chance of nailing the trick-shot and timing your sell just before this month's dip.

“housing economy that gives fast easy, big money with safety” fair enough but then again to those just residing in their own home, their only property, apart from the security that means little unless they are prepared to sell and go down a notch or two. Imagine most would neither see nor want that as an option and the fact that their home may have sharply increased in value doesn’t mean it provides any income and it just sits more or less, pro rata on the market as previous.

Correct, and there is a high chance your next home is probably increasing faster than the value of your current one; so your debt position once commissions etc on selling your current abode is probably worse.

Given the incredible amount of money tied up in housing it would make sense for the most selfish generation to want to extract some of that value before they die I would think reverse mortgage type arrangements might become vastly more popular in the future, this would allow them to have their cake and eat it too something that is very popular with them.

Depends, the healthy and fit can relocate as they see fit and just maintain that's all anyone else has to do to afford a house - pricing locals out of another market as well. The unwell and those who need to be close to family (i.e. those looking after grandkids or who just want to be close to them) will be expected to dip into their own equity to make ends meet.

Cheap credit has basically given free reign for our already high living costs to balloon and government is intent on clipping the ticket by taxing the inflation component of our meagre earnings, while maintaining population settings that both increase housing demand and yet refusing to fund the infrastructure required to support them, either through provincialism (Wellington First) or incompetence. Reverse mortgages are a symptom of this, just like expecting young people to live off tomatoes to the point of malnutrition, or just 'lowering your expectations and moving further out'.

We have normalised our own debasement and we shame those who cannot swim against the tide. We deserve what is coming.

Councils are at fault too. Some make it clear when residents are unable to afford their ever increasing rates demands, that residents should borrow, or accept council structured debt to fund them. We need to call for this to stop. Councils should be forced to live within their means, and be constrained to the CPI at a max, for rates increases.

Gm, in a lot of unfortunate cases that already happens in an involuntary manner. Friends of the family one surviving spouse went into dementia at an early age and still lives.All that couples former savings including the house value has gone into paying for that care save for $230K odd that can be retained but that too is being soaked up with extras. No complaints at all but if not for those savings the tax payer would be doing the funding as it has to for all those that have not saved over $230K.

FYI Foxglove it later came out of my fathers rest home that 2/3 of everyone in there was NOT paying for their own care. Clearly people had squirreled
the family home away well in advance (7 years) where it could not be touched and they had less than $230K in assets.

In more serious news - "The world’s biggest coffee supplier is facing some of the coldest weather in more than 25 years, dimming hopes for the harvest and threatening to raise prices for the popular beverage.
...The odds for La Nina’s return are at 45% between August and October, 55% from September to November and 62% from October to December, according to the U.S. Climate Prediction Center. "
https://www.bloomberg.com/news/articles/2021-07-20/wild-weather-in-bigge...

Love the new image! Reminded me I need a coffee

The Kiwi dollar opens today just under 69.7 USc and up +½c
More negative forward pips reported in the NZD USD Foward Rates market - here and here.

RBNZ injecting NZD liquidity via FX Swaps to tame rate hike expectations. View here XLS (Standing Facilities Tab)

The US data on reduced life expectancy is sobering. In males, some 68% of the reduction is assessed as due to COVID; in females it is 90%. The Hispanic life expectancy, which is still higher than for whites and blacks, has dropped the most. American deaths from COVID now exceed 600,000. The differences between black and white life expectancies are stark with black male life expectancies of 68 years similar to those in many developing countries that have poor health services.
Keith W

An insurance funded health sector was never intended to serve the many and infirm.

. . so , on the law of averages , Donald Trump ( 75 years & 1 month ) now has a life expectancy of 2 more years & 3 months .... instead of 3 years & 9 months from here ....

That's so sad ! .... anyone remember where we put the shovels ?

Ask the government, they are getting them ready.

Gummy,
Given that Donald is an American white man who has reached the age of 75 years, he has a remaining life expectancy of another 11.1 years.
KeithW

... dang .... he'll be back ... rock on 2024 .... geeeeez ...

Trump is a symptom not a cause though, isn't he? His many shortcomings are all a bit of a sideshow and distraction.

A big chunk of voters thought he was the best choice on offer, not once but twice. Why?

He is unlikely to make 11 more years in his physical shape and his brother is already dead. The odds are stacked against him. I think he will be lucky to make it to the next election. The gates of hell await.

. . I'll sharpen the shovels ... just in case he loses the Trumpian grin , and becomes a grave man .. .

Honestly he is already living on borrowed time. I'm surprised he survived his term in office. I felt certain he'd piss some wacko off enough for them to try to do something! But then again he did, lots of them, but he wasn't the target!

COVID again! If it wasn't covid it would probably be heart disease, diabetes or sitonyourarseandwatchtvitis.
It has been predicted to go down well before covid based on the shyyyt lifestyle and food choices of the western blob.

... lard-arsity is to blame .... poor diet choices , slack of exercise ... the era of the Western blob is upon us : lard-arsity rules ....

Eating processed meat raises risk of heart disease by a fifth

https://www.theguardian.com/food/2021/jul/21/eating-processed-meat-raise...

... I am sceptical that salt & saturated fats are the bogey men of our diets as this report alludes to ... I'm in the anti-sugar camp ... avoid sucrose as much as possible ( Trump excepted ... give that man a muffin ! ) ....

rastus
Issues such as heart disease and diabetes are included in the analysis. Cirrhosis of the liver also contributed to the reduction in life expectancy but these other factors were minor. There were some other factors, such as less influenza and pneumonia as causes of death, that stopped the reduction in life expectancy from being even greater. The report has credibility but it does assume that recorded causes of death are accurate. The paper is worth a read, easily accessed from the link David has provided.
KeithW

My point is that covid is part of life now. It keeps getting pulled out as if it is different than everything else going on and we continually get the “ if it wasn’t for covid this wouldn’t have happened” nonsense/excuse.

If it wasn’t covid it would be something else - such that we have over reached and stressed very thing that supports a healthy life. Time we all woke up that this is not about covid but is about the life system as a whole.

No. COVID is different. And the Delta variant has further changed the situation.
New cases for today are well over half a million, and deaths today well over 8000 and climbing.
Most countries (approximately two thirds) are now in a phase of cases growing.
The age distribution of deaths is dropping, largely because the elderly have already been vaccinated.
As an example, today's deaths in Fiji include two pregnant women.
Yes, once everyone is vaccinated then the situation will change but we are currently far from that position.
The Australian experience tells us how challenging it is to outrun the Delta variant once it is in the community.
KeithW

"Yes, once everyone is vaccinated then the situation will change"

Seriously Keith ... do you believe this dribble
Tune into something other than the one source of information

ham n eggs
I use multiple information sources.
Wherever possible I go back to the original papers and I look at the assumptions built into an investigation. And then I do my own synthesis as to the weight to be put on particular information.
This approach is based on the fact that I have been working in science (and also economics) for close on 50 years, and I am still doing so - I have just this week had a refereed paper accepted for an international public health journal. Both my masters and PhD degrees (both a long time ago) were on integrative science and combining reductionist science within a systems perspective. Sometimes I will be right and sometimes I will be wrong, but I always try and base my perspectives on the available evidence. To quote from Lord Keynes in response to a detractor: 'When the evidence changes, so do I. What do you do, Sir?'. The trick to not having to do that too often is to always test the evidence in the first place.
KeithW

fair enough ... but the evidence is becoming pretty clear
the vaccines dont stop either transmission or catching covid ... and they certainly arent opening any borders
so how anyone can conclude they will change the situation I'm unsure

there are plenty of places to look

https://threadreaderapp.com/thread/1415989536933490688.html
"In Europe we are seeing surges at many places where most of the population has already been vaccinated. At the same time, the 15 least vaccinated countries don‘t seem to face any problem. At some point, denying this problem will get painful"
"Israeli Covid cases among the vaccinated age groups shows that the Pfizer vaccine has zero effect in stopping infections. But hospitalisations are low, so the vaccine works against sever illness.. https://mobile.twitter.com/RanIsraeli/status/1417792136670498821

https://www.scmp.com/news/hong-kong/health-environment/article/3141864/c...

Like everything else now, the discrepancy between the official line and what is happening is an ever longer bow

ham n eggs
If you want to claim the vaccines are ineffective then you need to present evidence showing that for each country the proportion of vaccinated people who get infected is the same as the proportion of unvaccinated people who become infected. And you won't be able to show that because the evidence is to the contrary. Threaderapp and twitter are not the places to start.
KeithW

No argument that it’s different. But it is inevitable. As a scientist you will be well aware that excessive population growth of any type end with a collapse. If we beat covid then along comes the next doom.
We had a choice of population control which has not happened.
We are left with either war or famine/disease.
Take you pick however beating covid will solve not much.

For all those people on here that claimed a benefit increase was needed desperately and who couldn't see that it would be instantly gobbled up by landlords (essentially leaving beneficiaries the same as they were before)... has stuff got a story for you! https://www.stuff.co.nz/pou-tiaki/our-truth/125681860/there-is-a-littlek...

Even our own councils are in on the landlord subsidy rort.

The women has become a council chattel.