Here's our summary of key economic events overnight that affect New Zealand with news it's tough at the top.
With many financial and economic market indicators at or near records, investors are sensing that the only way from here is either drifting, or down.
Iron ore prices are now dropping sharply as China’s intensified drive to lower steel output prompts mills to start cutting production to avoid sanctions. The prices Chinese mills are paying dropped -10% last week although they still remain +28% higher than at the start of 2021. Nickel prices, a key ingredient for stainless steel, are shooting higher and that is both about supply shortage as still-high demand.
The Baltic Dry Index remains high (up +70% since the start of 2021) but has flat-lined over the past week. It too is down -10% from the start of the month. But for containerised cargoes, there is no letup yet, with prices now up another +7% in just two weeks averaging NZ$12,800 per 40ft container.
There were a couple of early PMI indicators released over the weekend for some major economies we follow and they are all quite positive. In the US their factory sector expanded at a series high (best in at least 14 years) with strong new order levels. But costs and prices are rising faster, and labour shortages show no signs of easing for manufacturers. It wasn't quite as bullish in the giant American services sector but the expansion is still strong (just less so). This loss of momentum is being attributed to labour shortages and difficulties acquiring stock.
In Europe, they are seeing their fastest expansion in more than 20 years. New factory order levels are very high as are the pace of cost increases. But the rate of price increases being pushed through is easing. Their services sector is expanding at a 15 year high. Germany is pushing higher but France's recent burst may be topping out even if it remains strongly expanding. The UK recovery is stuttering however.
Taiwan reported strong industrial production in June, up +27% from the pre-pandemic June 2019 levels. But they also reported very weak retail sales, down -14% from June 2019 in a very sharp drop after pandemic restrictions were suddenly imposed. The restaurant trade was particularly hard hit, making the fall the largest since they began this retail trade data series in 1999.
The growth streak for the Australian private sector ended in July according to flash PMI data which showed business activity now in contraction. Survey respondents signaled that renewed pandemic restrictions affected demand and output countrywide.
In Shanghai, they are bracing for a new large typhoon after other parts of inland China are still digging out of the Henan disaster. But so far, the Shanghai situation is only precautionary.
The weather extremes in parts of the world are raising demand for electricity, and quite sharply. And the fastest way to respond is to burn more thermal coal, much of which is low grade. The price of thermal coal is soaring. China's political disputes with Australia isn't helping and volumes from the US are now driving this trade.And China joined India and Russia in killing new calls for stronger climate action at the G20 meeting. What resulted was meaningless. Australia also succeeded in keeping the Great Barrier Reef being called 'endangered'.
Back in the US, Janet Yellen as US Treasury Secretary has warned Congress that unless it acts within this coming week to raise its debt ceiling, the Administration will have to take "extraordinary measures" to prevent a US debt default. (Congress suspended the debt limits under a bipartisan deal with Trump but that lapsed with the replacing Administration.)
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The Trans-Tasman travel bubble is now suspended until late September. There were 141 new community cases in NSW yesterday, and another 11 in the community in Victoria where their lockdown is in extension with the border closed to NSW. South Australia is also in lockdown. Queensland has closed it border with NSW, which is a last-resort action for them. There were new cases in New Zealand, all caught at the border (mostly among ship crews), none in the community.
The UST 10yr yield starts today at just on 1.28% and a -1 bp dip. The US 2-10 rate curve is to now at +108 bps and little-changed. Likewise, their 1-5 curve is little-changed at +64 bps, while their 3m-10 year curve is unchanged at +124 bps. The Australian Govt ten year benchmark rate starts today at 1.20% and little-changed. The China Govt ten year bond is at 2.94% also unchanged. The New Zealand Govt ten year is now at 1.52% and unchanged as well.
The price of gold is now just on US$1802/oz which is unchanged from this time Saturday.
Oil prices have risen marginally in the US they are now just over US$72/bbl, while the international Brent price is still just over US$73.50/bbl.
The Kiwi dollar opens today just on 69.7 USc and very slightly softer since this time Saturday. Against the Australian dollar we are slightly firmer at 94.8 AUc. Against the euro we are unchanged at 59.3 euro cents. That means our TWI-5 starts today unchanged at 72.9 - which is about where it was a week ago.
The bitcoin price is now at US$34,449 and up a sharp +6.9% since this time on Saturday. Volatility in the past 24 hours has been low however at just under +/- 1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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65 Comments
Shut Fonterra down and face the environmental consequence of all the milk being dumped on land. Great idea - not. Better to have rolling blackouts in the major cities. Giving plenty of warning to enable those who need power to organise alternatives. Hospitals exempt. ;-)
... well , pardon moi for taking climate change seriously .... I for one , think its idiotic to be importing Indonesian coal to burn at Huntly ... and on the other hand to be kicking the snot out of farmers & tradies , making them responsible for our Paris Protocol emissions targets ...
.. recall , this government has shut down our offshore natural gas exploration ... cleaner than coal ... and now , we're not energy self sufficient ... all in just 4 short years ... EVs are fine , if you can afford them , and if we have surplus electricity to charge them up ...
The problem is the long term cost analysis is not there to support a decent solar system. The life of the panels is good but the inverters going to go bang on you, thats the nature of power electronics. Couple that with people move house so frequently in NZ. Its a hassle. With the right setup I would consider it but only because I have the knowledge and electronics background to maintain it and I wouldn't want the panels on my roof either. Far easier and less worries being on the grid if you sit down and factor everything in.
Two things;
Ironic that the Australian government is reluctant to actively address climate change, but they want the "endangered" tag to stay on the Great Barrier Reef, when the biggest threat to it is climate change!
The second re COVID; no mention of the discovery of COVID in the sewage in New Plymouth? While this is not tested and confirmed cases in the community, it is indeed strongly indicative that there are community cases there. I just hope that who ever it is is identified very quickly, to limit the impact.
The Barrier Reef is history. See the Attenborough film:
https://www.youtube.com/watch?v=Gb6wQtNjblk
This will cheer you up.
"This report summarises the condition of coral reefs of the Great Barrier Reef (GBR) from the Long-Term Monitoring Program (LTMP) surveys of 127 reefs conducted between August 2020 and April 2021 (reported as ‘2021’).
Over the 35 years of monitoring by AIMS, the reefs of the GBR have shown an ability to recover after disturbances.
In 2021, widespread recovery was underway, largely due to increases in fast growing Acropora corals."
https://www.aims.gov.au/reef-monitoring/gbr-condition-summary-2020-2021
The report doesn't support your fact free comment that the reef is 'history'.
Also good news as reef management is honed.
'Crown-of-thorns starfish as coral predators are a major cyclic disturbance on the GBR and when left unchecked, outbreaks can decimate coral populations. However, it is one of the few threats to the GBR that can be directly managed locally.'
https://www.aims.gov.au/reef-monitoring/gbr-condition-summary-2020-2021
'Like all other data on the reef, this shows it is in robust health. For example, coral growth rates have, if anything, increased over the past 100 years and measurements of farm pesticides reaching the reef show levels so low that they cannot be detected with the most ultra-sensitive equipment.
This data is good news. It could hardly be better. But somehow, our science organisations have convinced the world that the reef is on its last legs. How has this happened?'
https://www.theaustralian.com.au/commentary/science-and-media-doomsayer…
Thats rubbish! the oceans are alkaline with a PH around 8. There are some suggestions of isolated changes where sea water is becoming less alkaline at the surface.
The PH changes have been miniscule and anyone who has fish tank knows that fish can withstand quite a large variance in PH comparitively
But once you dump a whole lot of runoff pollution onto a coral reef that would definatlely make an isolated change to the PH in that area, as well as the other issues
https://www.natureaustralia.org.au/what-we-do/our-insights/perspectives…
Sorry but it is not rubbish. I agree that the acidification of the oceans primarily impacts the surface waters, but it has a dramatic impact on the shells of the creatures that build the reefs. HERE is a link to just one article that describes the process and impacts.
I do acknowledge Lapun's and Plutocracy's comments below. this article talks about the impacts of temperature (which decreases the rate of CO2 absorption as it increases). Lapun is like the most correct to identify that it is not just one cause, but all of them. Two though (temperature and acidification) are caused by climate change.
It's water temperature that is the main issue Murray.
Coral bleaching occurs when coral polyps expel algae that live inside their tissues. Normally, coral polyps live in an endosymbiotic relationship with these algae, which are crucial for the health of the coral and the reef.[1] The algae provides up to 90 percent of the coral's energy. Bleached corals continue to live but begin to starve after bleaching.[2] Some corals recover. The leading cause of coral bleaching is rising water temperatures.[3] A temperature about 1 °C (or 2 °F) above average can cause bleaching
I thought that story RNZ ran on economist divination was quite interesting as it was something interest.co.nz readers have often discussed:
https://www.rnz.co.nz/national/programmes/mediawatch/audio/2018805228/t…
We really need to see inside the black box to work out if the economists forecast stands up to scrutiny.
That's a great piece, thanks for sharing.
Good on Eaqub for having the humility to acknowledge the futility of economic forecasts, especially ones without caveats.
Took him a while! He wasn't listening to Taleb.
As I have noted before, economies are far too volatile and unpredictable to not state caveats on forecasts.
My feeling is that if we'd just accepted the economic status quo we'd have made far more progress on pressing issues from poverty to house prices. We can no longer trust economic forecasting to be useful in guiding discussion or decisions. No more idols.
“In God we trust, all others must bring data.” - W. E. Deming.
That programme was telling; first time the media has questioned mainstream economics - and those who 'report' (regurgitate?) it.
There was another 'first' later in the morning; Amanda Ellis dropped the words: 'Draw-down'. It flew right over Hay's head (she's nice enough but no Kim Hill) and she went on to the next rote question. A pity.
And that Attenborough film twice mentions 'collapse'; ours.
Surely, the narrative is moving on - but the Mediawatch failure, glaringly obvious, was this: If mainstream economics is blindsided, what should we put in its place? Not asked. Not even understood, I'm guessing. So steeped are we in a false narrative, we don't know how to ask how we get out of it.
Saw Attenborough in person a few years back. His main and overriding concern was exponential population growth. That is the cause of all the world’s ills. The demand for resources to support growing populations has driven history, think the Mongol hordes, Hitler’s Lebensraum. By the way, Hitler had little interest in atomic weapons even though his scientists were on the brink of making them. Add in the V2 rockets and the world would have been very different today. One dictator with a terminal illness and the climate may well change very rapidly…
The question could be, how much influence did the doom, gloom headlines and reports flowing from the media and economic commentators sway the response of Orr and Robertson?
If there wasn't the same level of doom and gloom reporting widely viewed across society, would the fiscal and monetary responses have been as heavy handed as what we have seen? Probably not....and as such the initial views of the economists may have been closer to the real outcome.
I think many underestimated the extremes that central banks would go to, to protect the longevity of their disabled creation (self included).
Sorry, but that comment is part of the old - blind - narrative.
Bluntly put, economics doesn't measure the real world. In particular, resource stocks, energy stocks, entropy, sink-capacities. Samuelson acknowledged they'd got it wrong, more than 50 years ago - but they've kept on (as pie-in-the-sky religion kept on past Darwin). When your income depends on a narrative.....
Debt-issuance is a bet on future resource/energy availability; the planet doesn't care two figs for how much of what token is extant; what the planet reacts to is extraction, depletion and pollution. So the question is: What draw-down did that debt represent, and how much does that draw-down steal from the future?
Nothing to do with doom and gloom - nothing to do with emotions. At this point on the LTG graphs, no token-manipulation matters much; what we need to do is allocate the remaining resource/energy to get us a lined-up with the wave as possible - before it breaks. Nobody is articulating this.
Out of interest, how do you know the world doesn't invent a clean, renewable source of energy we don't yet now about?
Where does that leave the theory above? We only split the atom in the last 100 years which in the bigger context is the last 5 seconds on the clock of human history, who knows what else we will discover in the coming 100 years that we don't know about yet? Or do we now live in a fixed state, where we already know everything we are going to know and the future is bad type paradigm?
(BTW I largely agree with you but just playing devils advocate).
Chuckle. It's a Systemic problem now. Too many people on the planet, too much draw-down done (and it was best-first, so ever-worse left), too much pollution already.
Yet we have to morph as much as we can, this late - means we need to go with existing technologies. More, I suggest we need to go with simpler-repaired more resilient infrastructure. As to finding something - no, we're about there, energy-wise. Can't create energy, unfortunately.
The transfer of human consciousness into an AI entity will be the next big thing. Then all we’ll need is enough energy to keep the chip running. Imagine, one glorious, vast video game where everything is possible. BTW, I think it was Elon Musk or some such person who said that, or something very much like it. Many, many brilliant minds are working towards this end.
As to energy, we haven’t even started yet. Anything that moves can be made to produce energy, wind, water, oxen, horses, photons, and of course the unstable fizzy bits in radioactive isotopes. Nuclear fusion will be available one day, too.
Doesn’t pay to get too gloomy.
Humanity as you know it doesn't have another 100 years to "Discover" something thats going to save us. The more we know the less there is to discover so your just a dreamer thinking some miracle is going to happen. At the rate we are stuffing the planet I give it 30 years tops. Simply to many people on the planet, its as simple as that but nobody wants to talk about it, let alone try and control it.
I think knowledge is logarithmic - the more we the learn, the more we’re capable of learning.
Sounds like a pretty gloomy outlook from your perspective!
Does 30 years also equal your life expectancy by chance? Funny that you think humanity will only last as long as you do! Sounds a bit like you see the world through a self obsessed bias as opposed to the opportunities that lie ahead if he are willing to look for them :)
Seems acquiring knowledge meets the same law of diminishing returns, like all human endeavour. Once you could just watch an apple fall from a tree, or jump in the bath. Now you need the Hadron collider and the entire economic output of a small country to learn anything new.
IO I think the answer to that is that our knowledge of physics is much greater than 100 years ago and the only thing that could be a game changer is fusion, but it's been like that for at least 50 years and might take another 50 to be realised, by which time it'll be too late...
I think the idea that some unknown-till-now renewable energy source can be found and scaled up in time is probably verging on fantasy unfortunately
RE:US - This loss of momentum is being attributed to labour shortages and difficulties acquiring stock.
What labour shortage?
America Has Lost The Trade War With China, And The Real Pain Has Yet To Begin
"With many financial and economic market indicators at or near records, investors are sensing that the only way from here is either drifting, or down."
By this statement you are understating the power of RBNZ.
Investors should have faith in Mr Orr specially property investor as besides support of Mr Orr also has assurance from Prime Minister of the country that come what may, will not all the ponzi to stop.
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