Here's our summary of key economic events over the weekend that affect New Zealand with news China is struggling to recapture that feeling things are on the improve still.
Firstly in the Middle Kingdom, anxiety is rising as the delta variant of the pandemic is now a risk in half the country's provinces. It is not clear that the tough measures in some are actually stemming its spread but they probably are limiting it. And later today we will get Chinese CPI data for July and that is expected to be very low for consumers and remain very high for manufacturers.
But we already have new data for China exports and that disappointed in July with a flat result from June and a year-on-year increase much less than expected. Compared with pre-pandemic July 2019 however, China's July 2021 exports are up +32%.
China imports were actually lower than the prior month. But compared to July 2019 they are +31% higher. However it is the recent tailing off that is grabbing the quizzical looks, reinforcing the thought that China's expansion is losing some momentum.
Global shipping container rates rose again last week, even if only marginally. But it is a massive +370% rise in these rates in a year. Some routes like Los Angeles to Shanghai are still rising sharply, up +5% last week alone, but the route the other way - outbound from China - actually fell -3% last week. Industry insiders however think the rise will keep coming, even if at a slightly slower rate of increase. So no decreases in sight yet.
Meanwhile for commodities, prices for tin, aluminium and copper are all high and rising, although copper's recent move up could be more about an impending strike at the world's largest mine in Chile. Despite that, the number of new projects attracting investment is impressive. China is taking huge positions in Africa and some of those will come on stream fairly soon. However, on Friday the iron ore price fell again, taking the four-week drop to -24%. And this is despite metallurgical coal rising +22% over the same period, a key commodity buffeted by varying politics in both China and elsewhere. China is acting deliberately to lower the cost of many raw materials. It runs the risk of stranding many of those African projects.
Through all this, the Baltic Dry Index is back up near its recent highs.
In the US, their closely-watched non-farm payrolls report topped estimates at +943,000 added jobs in July, its largest monthly rise since the July 2020 bounce-back. Their jobless rate fell to 5.4%. This is a good result, but it has to be noted that the data is from the first half of July and before the delta virus started biting. There are now 147 mln people employed in their workforce, still -5.7 mln less than before the pandemic started. Still, the pace of hiring has been picking up and wages rose again (up +4.0% and more than expected). The results for both May and June were revised up. This is a very solid result for them with only the hospitality sector still struggling to get back anywhere near its pre-pandemic employment levels. Higher paid industries like construction, manufacturing, business, education, and government can all now see a recovery in job levels to February 2020 levels on the horizon - but hospitality is still -1.7 mln behind.
Wall Street has greeted the data with little fanfare, but the US dollar has risen sharply and the bond market has bid yields higher as it senses the US Fed is closer to its next tapering moves.
Also revised higher has been the levels of US consumer borrowing, which grew +4.1% in June from a year ago, and is up +5.3% from June 2019. But the rate of growth in June activity from May rose to an annualised +10.4% pace. The +US$39.7 bln monthly increase is the largest they have ever recorded.
Wall Street remains flooded in cash, using the Fed's reverse repo facility to park it overnight. But after touching US$1 tln on July 30, it has stay high but less than that since. This is kind of like a canary-in-the-mine facility for some observers, especially uber-bears. But its importance is yet to be tested. It is worth watching though.
Canada also released labour market data over the weekend for July and that came in underwhelming. Their payrolls grew just +94,000 when a +178,000 gain was expected and June delivered +231,000 more jobs. So a definite loss of momentum there. Their jobless rate is stuck at 7.5%.
It is probably also worth noting again the loss of momentum in Canada's two key housing markets. In Toronto sales levels and average prices slipped again in July. In Vancouver markets there is a noted 'moderation' going on there.
And global equity markets are remaining upbeat. Reported results for Q2 have been exceptionally strong so far. At nearly 90%, the proportion of firms that have reported earnings above analysts’ consensus forecasts has been one of the highest since just after the GFC. Future earnings expectations are high too. Analysts project still expect earnings of companies in the S&P 500 to exceed their 2019 levels by around 30% this year and to be around 55% higher than before the pandemic by the end of 2023. Expectations like this will keep valuations up even in the face of rising interest rates.
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In Australia, their central bank has cut back its year-on-year growth forecasts. It was expecting 4.75% for 2021 but now expects 4.0%. It did upgrade its 2023 forecast slightly however.
There were 268 new community cases in NSW yesterday with another 174 not assigned to known clusters, so still going backwards there. Victoria is reporting 11 new cases. Queensland is reporting 9 new cases. Sadly, there are now cases in Cairns indicating a state-wide spread. Overall in Australia, 22% of Aussies are fully vaccinated, 44% have now had at least one shot. Aussie corporates are now starting to insist on 'no jab, no job' policies.
The UST 10yr yield starts today at 1.31% and up another +1 bp since Saturday. For the week it is up +7 bps. The US 2-10 rate curve is to now at just on +109 bps and quite a bit steeper. Their 1-5 curve is unchanged at +70 bps, and their 3m-10 year curve is also a bit steeper at +126 bps. The Australian Govt ten year benchmark rate starts today at 1.22% and little-changed. The China Govt ten year bond is at 2.83% and unchanged. The New Zealand Govt ten year is now at 1.63% and also unchanged. A week ago it was 1.53%.
The price of gold took a bit of a hit over the weekend dropping sharply to US$1763/oz, behaving like iron ore.
Oil prices are lower by -US$0.50 from this time Saturday, so in the US they are over US$67.50/bbl, while the international Brent price is just over US$70/bbl.
The Kiwi dollar opens today just on 70.1 USc. Against the Australian dollar we are little-changed at 95.3 AUc. Against the euro we are also unchanged at 59.6 euro cents. That means our TWI-5 starts the week at 73.2 and marginally lower compared to this time last week. We have been in a narrow range of between 72 and 74 for our TWI for ten months now.
The bitcoin price is now at US$43,625 and up +2.0% from this time Saturday. Volatility in the past 24 hours has been moderate at +/- 2.3%. Volatility over the past week has been off the scale however at +/- 7.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».