Here's our summary of key economic events over the weekend that affect New Zealand with news northern hemisphere markets may be in holiday mode with very thin trading (and bouncing around as a consequence) but in the real world there are some big things happening (and not just in Kabul).
Global supply chains are facing fresh challenges from the pandemic as the delta variant spreads. It is a world-wide threat, particularly tough in south east Asia but exemplified in China.
Workers at a major part of the world's third-largest container port just south of Shanghai have tested positive and some services have been shut down. This closure cuts a quarter of the overall port capacity, and will likely disrupt supply chains significantly - and add to problems shifting goods ahead of the key Christmas shopping season. More here.
China has reported that electricity consumption hit a new record high of 775.8 billion kWh in July, rising +13% from a year earlier and growing +16% from the same month in 2019.
Much of that electricity is being generated by coal, and coal prices are rising fast in China, up +20% in the past two weeks alone. China seems to have abandoned its carbon promises just a few months after it made them.
China reported its July FDI over the weekend and it isn't very impressive. But it is a gain, but basically back to July 2019 levels. It was +US$104 mln in the month, up sharply from the pandemic-affected 2020 month, but barely higher than for the same month in 2019. This data is consistent with a slowdown in China and a hesitation by investors after their aggressive regulatory moves against their tech industry.
In the US, the widely-watched University of Michigan sentiment survey has delivered a shock result, reporting "a stunning loss of confidence in the first half of August". With their labour market now improving rapidly and the stock market at a record high, that is a clear sign that the latest surge in virus cases is weighing on sentiment, despite roughly 60% of all American adults now being fully vaccinated. A notable part of the reasons for the change of heart is the realisation that renewed inflation is going to hurt.
It is a result that knocked the bond and currency markets - but not the equity markets which closed the week at a record high.
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The price of nickel has risen to record levels its highest since 2012, a key component in stainless steel and EV batteries. Similarly, tin prices are at record highs. But not all metals are rising in price.
Some key food prices are though, especially wheat - and coffee.
We reported on the rises and rise of shipping container freight costs on Friday, and the leasing costs of ships is rising too. The Baltic Dry Index surged about +2% to 3,566 on Friday, its highest level in more than a decade, helped by improving demand, the congestion in Chinese ports, along with weather concerns in the Pacific.
In Australia, a bank offering insurance, the Bank of Queensland, has lost a court case that will have broad consequences around fair-dealing on insurance customers. Unfair contract term protections now apply to insurance contracts for consumers and small business in Australia. There will be echoes in New Zealand. This is a second bloody nose for Aussie insurers - in the 2020 pandemic they botched the management of business interruption policies with outdated product disclosure statements and definitions. The regulator ASIC seems to have had enough and is pushing ahead with a review of all insurers and the oppressive terms their contracts have with their customers who have had zero ability to resist. Aussie insurers control most of the New Zealand insurance market.
The Australian Capital Territory is now in lockdown and because of nine more new cases yesterday it is likely to be extended. There were another 417 new community cases in NSW yesterday with another 276 not assigned to known clusters, so they are still not getting on top of their outbreak. It has spread into regional NSW now. Victoria is reporting another 25 new cases yesterday and their lockdown is extended. Queensland however is reporting only 1 new case yesterday. Overall in Australia, more than 26% of eligible Aussies are fully vaccinated, plus another 22% have now had one shot so far. In New Zealand 22% of eligible Kiwis are now fully vaccinated with another 15% having had their initial shot.
The UST 10yr yield starts today at 1.28%. The US 2-10 rate curve is flatter at +109 bps. Their 1-5 curve is also flatter at +72 bps, and their 3m-10 year curve is also flatter at +126 bps. The Australian Govt ten year benchmark rate starts today at 1.19% and -2 bps lower. The China Govt ten year bond is at 2.89% and unchanged. The New Zealand Govt ten year is now at 1.74% and also unchanged.
The price of gold has risen +US$2 from this time Saturday to US$1780/oz. For the past week it is up +US12/oz
Oil prices are -US$1 softer from this time Saturday, so in the US they are just under US$68/bbl, while the international Brent price is just on US$70/bbl.
The Kiwi dollar opens today at just under 70.4 USc. Against the Australian dollar we are at 95.5 AUc. Against the euro we are at 59.7 euro cents. That means our TWI-5 starts today at 73.4, marginally firmer in a week and still in the narrow range of between 72 and 74 we have been in for ten months now.
The bitcoin price has weakened slightly today and is now at US$46,048 and is down -1.1% from this time yesterday. Volatility in the past 24 hours has been low at just under +/- 2.0% but for the week it has been extreme +/- 5.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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74 Comments
A little early to make the call on whether it's transitory isn't it? Inflation has only just arrived, I for one have no idea if it's a blip or a new trend. Certainly some of the early responding commodities like Lumber have given up virtually all their gains, so that was transitory. Iron ore could be going the same way. Shipping certainly won't stay at these levels forever.
We'll know in a year or two.
Not sure if this is intended to be sarcasm, but I'm not sure I know any of those things. Take a look at the lumber graph over the past year if you actually think prices only ever go up.
https://www.nasdaq.com/market-activity/commodities/lbs
In a year or two's time, I expect we'll be able to see the same shape for shipping and a whole load of commodities which got a covid booster. Maybe even bitcoin..?
For inflation to hang around we'd need to get into a persistent positive feedback loop between wages and prices which overrides the normalising commodity prices. Could happen, but I'm not betting on it.
Not sarcasm at all.
Now take your lumber chart and click on the 5 year or Max time frame and tell me what you see....
https://cdn.howmuch.net/articles/Rise-and-Fall-of-the-USD-64c2.jpg
Or any other chart that show's the same thing.
https://wolfstreet.com/wp-content/uploads/2020/08/US-CPI-2020-08-12-pur…
Oh, you're talking about regular background inflation. The purchasing power graph you linked shows a reduction from ~48 in 2007 to ~39 in 2020 which is inflation of 1.6% PA, so below target.
When most people are talking about the dangers of inflation and whether it's transient or not, we're talking about more damaging ~3-5% or higher inflation. The argument on whether targeting low inflation is a good idea or not is different.
You cannot wait a year or two. By Transitory they surely mean a "Transient" which is a very short term blip. This would mean weeks or months not years. Clearly very few price increases have been transitory, time has run out and many prices are still increasing. You could argue we are still waiting and watching for the peak, sounds pretty a pretty risky move to me.
Yes, economics has corrupted the meaning of the word.
Transitory means not permanent. If a price goes up and stays up, that is permanent inflation.
What we are seeing is not transitory inflation, we are just labelling a period of "High" inflation a different name so as to avoid acting.
Inflation is about the change in prices, if we plateau at a higher level and they stop changing for a year inflation goes to zero.
It's true the higher cost of living hasn't gone away, but the reason to increase interest rates to slow down the economy has gone away.
East is east and west is west and never the twain shall meet said Kipling quite some time ago. Since then China has risen to the status of a super power and within that their authoritarian measures including to hell with anything that doesn’t suit us. In this moment of need, climate change concerns have gone out the window, coal is being burned at will. And if they need to, then obviously they have to, nothing can be imposed on them. Meanwhile in Afghanistan the Taliban is about to resume where they left off twenty years ago. Britain, Russia, USA have all failed to impose a political system there, going back a couple of centuries. The west might need to think about leaving the west more distant on the other side of the compass quite some more, leave them to themselves in other words.
Despite sharing a short land border the Chinese won't want to touch that mess with a barge pole. They've been "dealing with" their Muslim minority for years. Consequently I don't expect much economic impact from real world events unless you are in the market for a rather traditional rug.
Only in humanitarian terms could this be potentially catastrophic.
Political obstacles to Iran’s membership in SCO removed — Iran’s Security Council
The Shanghai Cooperation Organization (SCO) is a regional international assembly. Its permanent members are Russia, India, China, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan and Uzbekistan. Afghanistan, Belarus, Iran and Mongolia have an observer status, while Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka and Turkey have a status of SCO dialogue partners.
You're correct about China not wanting to go there, but I suggest you could be dramatically wrong about the rest.
The Taliban pose a significant threat not just to the western world, but more immediately to the Muslim world. During the US involvement in Afghanistan, the Taliban has learnt that Pakistan have little will, and possibly few resources to adequately control their border with Afghanistan, so if they become secure, then they will reach out to create the prophesied Caliphate to take the war to the infidels, us! If the Taliban have any awareness at all, they will realise that unless the people are a fundamentalist fanatics, then they will not have the will to resist them. This is why Afghanistan fell so quickly. Given time they will move to destabilise other Islamic countries. If they have learnt anything at all they will realise they cannot take on the 'Great Satan' on their own, so they will seek to consolidate and build, and then strike from that base.
This happening is not the end, it is just the beginning. Unless they can be kept off balance, nothing good can come from this. As it is Afghanistan will become the centre of evil on this planet.
China has already investment plans in Afghanistan under BRI initiatives. China has committed to rebuild the war-torn country and develop infrastructure. China has money, technology, and policy under BRI to extend helping hands t Afghanistan. Afghanistan is located on very important ancient Silk routes, and connecting East Asia, South Asia, Central Asia, China, Russia, Eurasia, through Gwadar (Pakistan) onward destinations in Africa, Europe, and Middle-East. Link
Russia, will be watchful. There is now a buffer with nations now on the border no longer part of the old Soviet Union. Incursions through those nations towards linking with Chechan muslims, will get Russia on the hop, certainly. Iran, too will need to redeploy and their comradeship with the CCP will have some bearing on that. This was always inevitable, only a matter of time and waiting as the Taliban always knew. Trump knew that, so too Biden, may as well get out then, get over and done with it, let the region sort out its own issues. As well, curled up in all of this, is the very serious question and prospect of opium production resuming, unbridled.
Other than a brazen ship blockade there are few military options for taking Taiwan otherwise it would already have been done. Xi has enough internal problems to manage for the moment. This is an interesting conversation on this - https://www.youtube.com/watch?v=XepCi0I_g6I
More than that it is a very tough nut to crack.An invasion fleet would soon be noticed, and well fortified islands on the approaches would first need to be taken. The seas are treacherous, with only small windows seasonally. Seaboard landings even more treacherous. Recall reading in Jane’s some time ago oil pipes run out from the beaches ready to set the sea on fire. Perhaps they are still there. So that leaves missiles and airborne troops. Taiwan has retaliatory capability. Civilian casualties would be astronomical. Totally different proposition to Hong Kong, a land border, and the CCP already in place.
I hope you are right Foxy. Still there is this enigmatic perspective of "saving face". Will the Chinese be astute enough to accept small perceived affronts, to avoid a very big one of losing a war with a bunch of countries (assuming they will act to protect Taiwan)?
So far it seems the Chinese may well be of the opinion that those countries do not have the will to face them down. The question is, are they right?
My guess is that the impossibility to avoid decimation of the civilian population is the real deterrent. And as well Taiwan has sufficient firepower to cause much grief on the same on the mainland. If the CCP are claiming the Taiwanese as their people as in brotherhood, killing off a couple of million is not a good wat to nurture credibility in that regard. And that plus casualties at home would have to ignite international public condemnation. It’s a strange old merry go round isn’t it. Take Afghanistan. 1980 or so Brezhnev sends the troops in. The USA retaliates subversively and whilst at arms up & empowers Bin Laden who then repays the compliment and attacks the USA who then invade Afghanistan. All in the course of twenty years.Jonathan Swift couldn’t have dreamed that up
In the US, the widely-watched University of Michigan sentiment survey has delivered a shock result, reporting "a stunning loss of confidence in the first half of August".
The consensus forecast for its preliminary August 2021 combined index had been anticipated to end up around the same as in July, or 81.2 each.
Instead, 70.2. Not only was this a huge miss to analyst expectations, it was also lower than last year’s recession trough (71.8).
The same also held in the survey’s expected index, or what consumers are saying about what they see for the near-term future. This other dropped to 65.2 this month from 79.0 last month, meaning this one quantified mishmash of consumer opinions about the future forward from August 2021 was likewise less than forward opinion had been in May 2020 (65.9). Link
https://www.nzherald.co.nz/business/ocr-preview-will-rbnz-go-big-play-s…
Anyone who understand Orr will know that under pressure in worst scenario for him will go for 25 point rise though will prefer to leave it untouched.
50 point rise - despite data and circumstances suggesting, Orr and his team will never ever ........if it has to reduce, will be the first but to raise.....never....how can one even think of such absurdity will be their response.
This article sums up that Orr and his team will go for 25 point hike as that will not have any impact on mortgage and house price unless is 50 points to have some impact.
https://i.stuff.co.nz/business/126062757/series-of-25-basispoint-ocr-hi…
Prev remarks relevant.
Bobbing cork for world's economies: those that stimulated most and first (China) now subsiding first
CV19 confidence ebbing, inflation rising, supply issues worsening.
USA not a "shock" but predictable I am afraid.
Stimulus anaesthetics are wearing off and nirvana of 90 % vaccine coverage evaporating, particularly as science now admitting (Ardern does not) that vaccine does NOT protect from infection or capacity to spread.
Must ask, if we are enquiring, why UK still has 30k cases a day with 75% double jabbed, whilst Australia has 500 a day with 20%?? Yet Australia and NZ seem to still propagate view that vaccine will end pandemic. It clearly does not do that, it prevents death and serious illness. Adjsutment in PR from gov needed. Otherwise people going to stop co-op and believing what asked to do
I see the vaccine as being analogous to having a Panadol every morning to lessen the pain of a constant headache that arises from suffering a brain injury. It's not getting rid of the injury but it's deadening the pain enough to make facing the day bearable. We'll just have to hope a stronger painkiller arrives before the body gets used to the Panadol and the pain becomes overwhelming.
all our builders and tradies are working flat out as it is -- strangely if a lot of land is opened up - i suspect we will go back to building bigger houses more stand alone individualized designs which take a lot longer than their smaller townhouse and flats that are currently in process -- and slow down completed buildings - yes land might be cheaper and prices may drop a little -- but the increased size with current material and labour pressures will no doubt balance that out --
The problems is, a building boom requires resources with which to build, and preferably at a low cost. I'm still hitting supply issues for wood products. I've stopped looking at the price.
We really are painted into a corner now - the cost of new builds is helping set a floor under the price of existing houses. I'm seeing new builds in the $1.2M range around here, they're reasonably large (200sqm including the double garage) but cookie cutter style.
My big hope is that if we *do* see a slowdown in residential construction, the Gov't takes up the slack with social housing and continues to build and build and build. Wishful thinking, I know, given their track record with on-the-ground development, but a guy can dream.
Brisket - rather than using emotions ("I hope") try doing some homework. This is the Limits to Growth, coming on with increased speed.
Have a wee read:
https://www.amazon.com/Blip-Humanitys-self-terminating-experiment-indus…
Context - all is context.
Don't give up on hope Brisket, that is the magic sauce in progress. Rather that focus on the problems, focus on potential solutions. There is a comeuppance approaching in regards to unconstrained population growth but robotics and falling fertility rates will resolve these issues.
I wonder if the govt has a plan for the potential increase in climate/dwindling resource refugees/immigrants?
NZ will look like an attractive place to move to: low population density, plenty of food, relatively benign climate. https://www.theguardian.com/world/2021/jul/28/new-zealand-rated-best-pl…
https://en.wikipedia.org/wiki/Nixon_shock
Yesterday was also the 50th anniversary of the USD not being backed by anything, as Nixon took the USD off the gold standard.
Now all you have to do is add a few 0000's to a computer and BAM! You have just created money out of thin air
Bitcoin is backed by Tether, lol. The majority of Bitcoin is purchased with Tether, not real money... and the majority of Tether is issued to just two companies... 'decentralised' eh? The price of Bitcoin has been driven up by a much larger nominal converted-fiat amount than the amount of dollars going in. If there's a rush for the off-ramp at any point, there will be a lot of sad speculators wondering why their exchange is having 'technical issues' converting their crypto into fiat so they can actually use it.
Please do tell me, how can I make more than the 900 Bitcoin per day that is currently the maximum that can be produced?
https://www.bitcoinblockhalf.com/
No all he did was remove the gold backing. The USD is backed by a lot; the US economy, international trust in it and so on. This is not trivial. The trading power of the US economy, irrespective of the quality Government, is huge, what is created and sold, thus the weight behind the USD is significant.
The trading power of the US economy, irrespective of the quality Government, is huge, what is created and sold, thus the weight behind the USD is significant.
Backed by what did you say Murray? USa has been living beyond its means since early 80's...times up for the USD.
Congress voted in 2019 to suspend the debt ceiling until July 31 of this year. Since then, the nation has added $6.5 trillion in debt, bringing the total amount owed to $28.5 trillion.
All right Frazz, I understand you're talking conventional wisdom, but try explaining why the USD is so high currently, if the only thing, or even the biggest thing that influences its value being the size of the Government Deficit/debt?
My view is that any one floating currency's value is actually set by a whole raft of things, which do include the above factors but is not limited to them. The American economy is so huge it is possible to make significant money in the US when trading or investing there. And to do so requires USD. So unless the US Government literally blocks all trade with foreign entities, then the demand will continue. Clear with the sheer size of the economy, then the significance of the debt/deficit and quality of Government become less important. So long as the rules do not change significantly.
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