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US jobs growth becomes uncertain; US services PMIs strong; China services PMI turns up; global food prices stop rising; iron ore price falls faster; UST 10yr 1.18%, oil down and gold up; NZ$1 = 70.5 USc; TWI-5 = 73.4

US jobs growth becomes uncertain; US services PMIs strong; China services PMI turns up; global food prices stop rising; iron ore price falls faster; UST 10yr 1.18%, oil down and gold up; NZ$1 = 70.5 USc; TWI-5 = 73.4

Here's our summary of key economic events overnight that affect New Zealand with news that a confusing mix of data and official comments leaves market unsure of their direction. And through it all, the NZD is rising and NZ interest rates are too.

We get the US non-farm payrolls report for August on Saturday (NZT) and a gain of +880,000 is expected. Today, the pre-cursor ADP Employment Report was released showing a gain of only +330,000 which is less than half the expected +700,000 result. Analysts may be revising their non-farm payroll forecasts now. And the ADP result has taken the wind out of Wall Street today.

That was a disappointing indicator. But not disappointing was the ISM Services PMI, which roared higher to an all-time high, driven by expanding activity, tight hiring conditions, and prices rising by almost their fastest on record. (The alternative Markit Services PMI remains high too, but not as strong as the ISM report.) However, one aspect that stands out in these services PMIs is that supply shortages are getting worse, not easing.

In China and in something of a surprise, the private Caixin Services PMI reported a strong bounce for July, better than the official version.

But in southern China, limits are being placed on the industrial use of electricity as supply shortages broaden during their summer peak.

EU retail sales were up strongly in June, a more impressive result than it may seem because it is a big gain over the sharply rebounded June 2020 result. It is the type of gain that is unusual in the EU. However, it was Germany that provided most of this impetus - generally the rest turned in pretty lackluster results.


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It might be interesting to keep an eye out for an interest rate decision later this morning in Brazil. A jump of a full +100 bps is anticipated there as inflation spirals higher.

After rising for twelve consecutive months, the global food price index fell in June, with a significant retreat in the vegetable oils category. Meat and dairy prices maintained their high levels. Overall prices are +34% higher than a year ago. Meat is +16% higher and dairy prices are +22% higher.

But the world is facing a wheat shortage. Lower output in Russia, drought in North America, floods in China, and now disappointing EU forecasts leave only Australia in a good position. Prices are rising fast but are not at the extreme levels we had in 2008.

Falling fast is the iron ore price. The downward momentum is gathering steam with prices down almost -20% in just over two weeks. The Chinese outbreak of the COVID delta variant is worrying traders because of its potential to stall the recovery in a key engine room of the global economy.

There were 233 new community cases in NSW yesterday with another 130 not assigned to known clusters, so still going backwards there. However Victoria is reporting zero new cases. Queensland is reporting 19 new cases so starting to grow there. Brisbane's snap lockdown has been extended.

On Wall Street, the S&P500 is lower today by -0.4% in timid early trading. Overnight, European markets were up +0.5% on average, led by Frankfurt which was up +0.9%, and lagged by London which was up less than +0.3%. Yesterday the very large Tokyo market fell -0.2%, Both Hong Kong and Shanghai each rose +0.9%. The ASX200 rose +0.4% while the NZX50 Capital Index rose by +0.8%.

The UST 10yr yield starts today at 1.18% and little-changed overnight. The US 2-10 rate curve is to now at just on +100 bps and unchanged. but their 1-5 curve is steeper at +61 bps, while their 3m-10 year curve is little-changed at +114 bps. The Australian Govt ten year benchmark rate starts today at 1.14% and down -2 bps. The China Govt ten year bond is at 2.86% and up +1 bp. The New Zealand Govt ten year is now at 1.62% and up a sharp +8 bps.

The price of gold is now just on US$1814/oz and up by +US$4 from where we were yesterday.

Oil prices have taken another hit overnight and are down by -US$2 today so in the US they are now just over US$68/bbl, while the international Brent price is just over US$70.50/bbl.

The Kiwi dollar opens today just on 70.5 USc and up since this time yesterday from strong labour market data. Against the Australian dollar we are up +70 bps at 95.5 AUc. Against the euro we are up at 59.6 euro cents. That means our TWI-5 starts today at 73.4 and a five week high.

The bitcoin price is now at US$39,639 and up +3.6% from this time yesterday. Volatility in the past 24 hours has been moderate at +/- 2.7%.

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

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50 Comments

Food index up 34%
Supply problems getting worse
And inflation is transitory
Transitory means will be cyclical and go down again
Yes. When??? No expert seems to know
Meanwhile how much do they put rates up?
Seems like both USA and China stellar growth forecasts need revising as CV19 again stalls them
Stagflation is coming

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Stagflation is already here. CPI 4.4, Wages 2.2, GDP stationary = stagflation.

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Wages tend to be anchored by contracts so lag consumer price rises. However with a tightening in labour market we should definitely see wages accelerate now.

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Not really at the base though, at the tip of the wage pyramid maybe.

Kiwis are a bit allergic to other people getting more money.

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The base gets forced up by Government each each.

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Prices don't need to drop for inflation to cease or lower...

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Prices don't have to go down again for inflation to be transitory. If prices of everything double today and stay there, inflation falls to zero after a year once that spike is out of the system.

For inflation to be persistent, prices need to keep rising. If prices go back down again (as some inevitably will, e.g. shipping), that will be deflationary.

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Or the value of your currency keeps falling against everyday goods - this is a world wide phenomenon that most don't understand.

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Meanwhile the Government has shafted all it's workers - the people it pays a pittance to, while managers get good money!

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problem is that just as Auckland houses have gone up 250K this year -- 0% rises for three or four years will do little to undo that damage - same with inflation -- a large jump that settles down - will not undo the damage that the current "transitory" spike is creating - especially for people who are not getting any pay rises or rises that do not cover the cost of living increases

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Bond market doesnt lie, 10 year rolling over. Yes theres been inflation. Disinflation next.

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See Wolf reports
Fed owns the bond market in USA which is only one that matters
Fed controlling both yield ends so utterly distorted and indicates nothing any more

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https://www.lynalden.com/inflation/
Fantastic article by Lyn who outlines the different types of inflation depending on what you measure it with.
And also what they can mean by transitory.
The FED is referring to it in the sense of the rate of change of inflation. as in, Inflation is going up rapidly now, but it will come back to a slow rate (ie the 2-3% expected) after a few years.
BUT prices will not come down, they will still be higher than previous years, just that they will be going up slower.

Fiat currency is literally programmed to loose value every year, ie steal your time...

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Stranded assets. 'Some $20bn worth of gas is flared every year – as much CO2 and other greenhouse gases are released into the atmosphere as a result as from the use of 200 million cars: 150 billion cubic metres of gas. It’s an extraordinarily wasteful and polluting practice. The World Bank has attempted to impose initiatives to eradicate it, but it continues.
One company, Great American Mining, has found a means to deliver portable bitcoin mining machines, in great crates, to oil and gas fields. That energy from that gas is now used to power bitcoin mining operations.
In July, another start up, Compass Mining, signed a 20-year deal with nuclear fission company Oklo, which builds microreactors. The deal enables Compass to use all the excess energy from Oklo’s microreactors. The partnership is a “beacon” for the intersection of cryptocurrency and clean-energy development, says Oklo CEO Jacob DeWitte. Bitcoin mining generally is making use of unwanted land close to nuclear power stations, especially in France.'
https://moneyweek.com/investments/alternative-finance/bitcoin-crypto/60…

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So instead of burning the 'waste' gas by sticking up a pipe and setting fire to the flare, you build a generator and bitcoin mining rig and burn it that way? Presumably we still end up with the same quantity of waste CO2 at the end of the day, but have spent a lot more getting to that point, and all for the sake of generating a few bitcoins?

Am I missing something? I'd have thought a better option would be using the waste gas to generate hydrogen which can be stored, transported and used for something useful, but no idea if this is feasible on a small scale.

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Bitcoin stores monetary energy. Pretty useful for many people.

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From a societal point of view, where energy is scare and valuable, is it the best use we can come up with? Can you convert it back into energy later?

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It certainly has the ability to cut out most of the wasted energy from middlemen in the legacy banking system.

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Could we find a more energy efficient crypto currency if that is the goal? It's a difficult argument to make given the power used to maintain Bitcoin even now before widespread use as a day-to-day currency.

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The fact is no one has figured out a better option. Could be a niche there for you. ' The World Bank has attempted to impose initiatives to eradicate it, but it continues.'

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Economically it makes perfect sense. In terms of climate change, it's a backwards step - we're just using more stuff to get to the same end result of burning the waste gas.

Perhaps once more countries adopt carbon pricing like our cap & trade scheme it'll become more economical to find a real use for the waste gas.

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I don't know if i should laugh or cry at such a ludicrous statement.

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Waste to energy is big business worth $35.2 B in 2019. https://www.statista.com/statistics/480452/market-value-of-waste-to-ene…

Your idea is a good one, grey hydrogen as you are suggesting does still create emissions but at least we are capturing the energy we can in the waste products. Ideally the electricity would be generated on the spot and put into the Grid but this very much depends on the location of the gas plant from the grid.

Generating bitcoins is a way of using the energy and even though this helps only a small portion of the population, it is still better to use the energy in the gas in any way as opposed to simply burning it off.

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Yes you are missing something.
Flaring is a highly inefficient process where the flare may not burn all of the excess methane coming out of the pipe.
At times, this can be unto and over 30% of the methane being emitted.
As we all know, methane is a more potent gas from a warming point of view.
So by connecting a generator to the flare, we can guarantee that almost 100% of the natural gas is burnt and turned into CO2

This is better for everyone involved, you get your oil, the enviro gets a less warming gas, and the oil and gas companies get an additional income stream, all while Bitcoin becomes a more secure and decentalised network that anyone in the world can utalise :)

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so 0.0001% of bitcoin mining could be using excess wastage while vast majority chew through electricity from the grids. all to mine a token that converts fiat to fiat.

Lunacy!

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So now utilising a wasted resource is regarded as lunacy. If you are hand wringer could convert your bitcoins to a Tesla and save the planet - or do something useful and use it for R and D, sanitation, education...

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1 BTC = 1 BTC ..nothing to do with your Fiat (which is fast approaching its use by date)

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As a store of value it is the way forward (or something similar) but as a currency it is not there yet, not enough people accept it as payment for assets.

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and how do you value your bitcoin, how do you buy one or sell one?

wake up and get off the cool-ade

every time one of your preachers, talk it up, its in its value again fiat. How often have I heard Butcoin is going to be worth $100k by christmas etc.. etc..

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At the next RBNZ media conference post MPC , and given the recent admissions by the RBNZ, would it not be appropriate, that the three external committee members Bob Buckle, Peter Harris, Caroline Saunders be given the opportunity to sit at the top table and take questions from the floor.

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You can add the $35.356 m paid to RNZ on top of the $90m there. Propaganda budget is now $125 million but we can't possible spare $5m for mental health, no siree.

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https://www.interest.co.nz/property/111627/reserve-bank-concedes-its-an…

David wondering if this realisation will prompt rbnz to go all out to rectify ( if they are saying 5.2 offically rest assured it is much more as they are comming out after all suppression and manipulation possible)

Or

Big headline of LVR to be announced - will they actually target speculators by increasing LVR from 40% to 60% as extraordinary crisis require extraordinary neasure or will they just tweek high risk loan below 20% which is mostly used by FHB to 10% as seen in media.

This will be grue test of rbnz intention.

On DTI - will play with time as much as possible. DTI has been the tpoic since December and are they so ineffeficent that have not prepared the blue print for it by now OR is it out of the blue that they ade hearing the word DTI. Consultation if have good intention can be done in weeks if not days BUT I suspect that will delay as much as possible. Need is now and that is accepted by rbnz but still will hide behind technicality......

Also why is no one talking of banning interest only loan specially for investment properties as have seen so many valid comments but no one raises it as banning interest only is bound to stop the ponzi as is like BLOOD MONEY to speculartos, only is legal supported by rbnz and FM.

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Chloe was just on RNZ advocating for the banning of new interest only residential loans. She making sense as usual.

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Banning Interest only loans is certainly a measure that can be taken and would have significant impact on property investors such as myself. The net result of that would be that I would not build any more houses.

The government could then step in and pay for the houses to be built. That would be the change.

No more houses can be built than are currently being built due to labour and building supply shortages. Supply might be increased with policy changes around pre-fabricated housing but even then the change would be small (labour shortage). Infrastructure is also constrained by the same issues. Prices of housing won't change a great deal as supply remains constrained and if anything will cause house prices to rise outside of social housing.

So the government would then own a higher proportion of the houses, perhaps people think this is a good thing, for me it simply means we have even bigger social housing budgets going forward taking away spend from areas such as mental health, health professionals generally and education.

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That would be better than paying the miserable landlording lot via wff and having no ownership stake in spite of this 'gift'.

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WFF? Not sure where you are going with that? Renters have no ownership stake as they did not buy the house they live in, again not sure what you are saying?

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The tax payer is paying off your rental via the gaziilins pumped into accommodation supplements (as well as plumping up its tax free gains).
Landlords are the ultimate beneficiaries - but can't even see how destructive their behavior is.

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A ton of benefit money goes to Pak n Save, should the beneficiaries get shares in the company?

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No the tax payer is not paying my rentals, the accommodation supplement support those who cannot afford to rent properties otherwise. They would end up in Motels otherwise. It is a supplement that allows people to have a roof over their head, would you prefer them to live in Motels? There are not enough houses and therefore competition for them is high and therefore the price of renting our buying them is high. This is a very simple truth.

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So I jumped onto the Greens website and read their Charter. Its essence can be captured by the following two quotes:
-Ecological sustainability is paramount.
-The key to social responsibility is the just distribution of social and natural resources.

If the party actually stuck to those ideas, and got rid of those hopeless candidates that push a different barrow and fall well short of the standard we need in politicians, then I would at least consider voting for them.

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She didn't say why she would do it. Does she think it will cause house prices to drop? How?

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The UST 10yr yield starts today at 1.18% and little-changed overnight.
Bonds Hammered As Unexpectedly Hawkish Clarida Sends Yields Surging
Hedge Fund Alphadyne Loses $1.5 Billion in Short Squeeze

A short squeeze is when a small issue gets cornered w/no way out.

This is just being utterly wrong and the ENTIRE GLOBAL marketplace telling you not have bet the farm on Bberg & Jay Powell's stance on anything fundamental and key. Link

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Good to see Gary Gensler differentiate between Bitcoin and all the other shitcoins yesterday. Looks like the latter will be in the SEC firing line.

https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-…

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The only way that's bullish for any crypto is if Gensler determines that crypto is too big to fail. The exchanges are going to lose a lot of their sources of profit and unless somehow all the fundamentals are completely above board bitcoin will become very illiquid at its current price.

How is this bullish for the speculators (you would have to hope everyone ignores him):

Primarily, crypto assets provide digital, scarce vehicles for speculative investment. Thus, in that sense, one can say they are highly speculative stores of value.
These assets haven’t been used much as a unit of account.
We also haven’t seen crypto used much as a medium of exchange. To the extent that it is used as such, it’s often to skirt our laws with respect to anti-money laundering, sanctions, and tax collection.

Further, while many overseas platforms state they don’t allow U.S. investors, there are allegations that some unregulated foreign exchanges facilitate trading by U.S. traders who are using virtual private networks, or VPNs.
...
Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction.

Thus, the use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and the like. This affects our national security, too.
Further, these stablecoins also may be securities and investment companies. To the extent they are, we will apply the full investor protections of the Investment Company Act and the other federal securities laws to these products.

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https://www.newshub.co.nz/home/politics/2021/08/act-leader-david-seymou…

If David Seymour feels that house price rise is a scam / ponzi than it has to be if he too is raising.

Problem is Robertson and Orr too are aware but do not want to take any meaningfull action with least regret attitute instead as are being under pressure and need to potray that they are concerned, will tweak a little bit here - cosmetic action to get the heat of their back and unfortunately will be successful. Unlike overseas in many countries, media here does not pursue a issue even catastrophic crisis like housing that has destroyed the dreams of many - Maybe even media is run by similar minded elite but even overseas but still they raise an issue,, may be being a tiny country it is you scratch my back and I scratch yours.

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Yeah, nah. Anyone with a pulse can see the coming train wreck for what it is, as we accelerate into that curve on the tracks, going way too fast. My take on this is that poitically speaking, why be caught with your hands on the train's steering wheel? H/T D.L

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As the NZD/AUD cross moves towards parity, Australia - with lower interest rates and relatively lower house price inflation - must be getting harder to ignore for young Kiwi professionals priced out of their own country.

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Heard this recently which sums up how twisted world economies and stockmarkets are. Imagine a hot air balloon. The inflatable balloon is the economy and the stockmarket and other investment products are the basket. Today, the balloon represents the stockmarket and other financial products, the basket is the economy. It’s completely reversed. Pin anyone

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Everything suggests that interest rates have to go up and using Mr Orr's terminology should follow least regret so may be increase by more than 0.25% initially

https://www.nzherald.co.nz/business/hamish-rutherford-hot-labour-market…

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