Commodity prices jump, except iron ore; huge wealth transfers follow; US data good, except for debt limit; variable GDP gains elsewhere; UST 10yr 1.23%, oil and gold up; NZ$1 = 69.7 USc; TWI-5 = 72.6

Here's our summary of key economic events over the weekend that affect New Zealand with news commodity prices are on the move up in a serious way.

But not for iron ore because of central decisions made in Beijing, instructing their steel mills to reduce output. And more cuts are coming. The price of iron ore is now falling, and quite fast. It is down almost -20% in China trade over the past two weeks, and most of that fall is in this past week.

However, the price of other minerals are all on the rise. The lead price is at a 3 year high at US$2424/tonne Lithium is also at a three year high. Some are at an all time record high like the tin price at US$35,965/tonne.

A nine year high was recorded for the nickel price at US$19,892/tonne. A ten year high for the aluminium price at US$2624/tonne.

Further the Baltic Dry index is remaining high.

But of course, the biggest commodity price shift is for oil.

The gains for commodity exporters so far this year have easily outweighed their losses last year when the pandemic spread and crushed demand for raw materials. It has been forecast that US$550 bln will shift from importers to exporters in 2021, nearly double the US$280 bln transferred the other way last year when prices collapsed. Russia will benefit the most, with its net exports rising almost +US$120 bln in 2021. Australia, Saudi Arabia, Brazil and the UAE follow, each will post gains of more than +US$50 bln. China’s net exports will drop by around -$218 bln. That’s far higher than the figures of around -US$55 bln for the next-worst off countries, India and Japan.

We will get the food commodity index on Friday this week.

All this is happening as China is in summer holiday mode and the senior leadership of the Government typically go on holiday at this time for about two weeks, the Beidaihe break. Actually, China's leaders never acknowledge they take holidays and it is not clear why. But they do, and everyone knows it.

But they will be eyeing a very weak PMI data set released over the weekend with factories barely expanding and their service sector's expansion slowing. Both came in weaker than expected. Extreme weather and rising raw material costs are behind the stall.

China also announced it is shutting its Taishan nuclear reactor after fuel damage, an event revealed by its minority French partner a month or so ago.

And China is fighting a new spread of the pandemic, one they say started from Russia.

As we reported on Thursday, US PCE inflation is high. Over the weekend we got more detail about household incomes and household expenditure patterns in the June quarter. That showed incomes flat and no longer falling as they did in April and May, as more pandemic support was withdrawn. Household spending however inched up +1%. Most of these levels were about as expected. (But the rise of the pandemic delta variant and its wide impact is coming after these Q2 gains.)

Not expected however was the extended strength of the Chicago PMI report. A fall away from the record May levels was expected, but these appear to be holding very high in the industrial heartland of the US.

Also holding at near historic highs is the latest consumer sentiment survey, this one from the University of Michigan. It is lower in July than for June and that is due to concerns about inflation. But the extended elevation is impressive. This survey is also reporting that consumer views on inflation may be self-reinforcing. They say the way higher current prices are being viewed "will only increase the willingness of consumers and firms to act in ways that accelerate the upward spiral in prices and wages".

Good economic data isn't helping the US Federal debt management crisis. Their Treasury has started 'special measures' and the reimposed debt limit took effect on August 1. It is a debt limit that is slightly less than annual GDP.

Following up Friday's US Q2-2021 GDP +6.5% result, there have been a raft of other GDP growth releases around the world. Canada says its economy contracted in May, adding to its April contraction. But it rose in June and they should post a strong year-on-year gain due to the base pandemic effect. It is doubtful however Canadian economic activity in Q2-2021 will be above Q2-2019.

Hong Kong also reported a shrinking Q2-2021 level of economic activity compared to Q1-2021. Hong Kong's economy has been shrinking from well before the pandemic.

Taiwan is the mirror opposite, expanding and expanding faster. Their drought emergency seems to have passed. Economic activity is expanding fast and they now expect it to be +12% higher than the re-pandemic 2019 year.

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Germany also reported a good Q2-2021 GDP result, although not quite as good as was expected. (The miss might have been because beer sales fell.)

That enabled the EU to report a good Q2 expansion in economic activity. It is out of recession. Actually, Portugal, Austria, Spain and Italy led the way, countries you don't generally associate with economic prowess.

There were 239 new community cases in NSW yesterday with 124 not assigned to known clusters, so still going backwards there. Their lockdown has been extended by four weeks and masks are mandatory there now. Victoria and Queensland have new issues and both have closed borders with NSW and Brisbane is in lockdown too.

The Australian federal government has been weighing advice about when and how Australia "can live with the virus", setting a 70% vaccination rate as the turning point. Nationally, they have currently 15% who are fully vaccinated.

The UST 10yr yield starts today sharply lower at 1.23% and down -6 bps over the past week. The US 2-10 rate curve is to now at +104 bps and marginally flatter. And their 1-5 curve is also marginally flatter at +63 bps, while their 3m-10 year curve completes the trend at +118 bps. The Australian Govt ten year benchmark rate starts today at 1.19% and down -2 bps. The China Govt ten year bond is at 2.86% and unchanged although that is an unusual -10 bps fall in a week. It hasn't been this low in more than a year. The New Zealand Govt ten year is now at 1.53% and unchanged.

The price of gold is now just under US$1814/oz and up +US$2 from were we reported it on Saturday.

Oil prices have been stable over the weekend and in the US they are now just over US$73.50/bbl, while the international Brent price is just under US$75.50/bbl.

The Kiwi dollar opens today just on 69.7 USc and reflecting a risk-off mood. We start this week pretty much where we started last week. Against the Australian dollar we are marginally higher at 95 AUc but that is our highest level this year. Against the euro we are unchanged at 58.8 euro cents. That means our TWI-5 starts today at 72.6 and -25 bps lower than this time last week.

The bitcoin price is now at US$40,994 up +4.8% since this time on Saturday. Volatility in the past 24 hours has been moderate at +/- 2.2%.

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