Here's our summary of key economic events overnight that affect New Zealand with news there has been a large equities sell-off this week, but one few have noticed.
As the US approaches the heart of their summer holiday season (for us marked by the central bank Jackson Hole retreat), the American currency is on the rise - and many say it is now above 'fair value'. But its overvaluation is not extreme by historical standards. That will probably not prevent the greenback from rising a bit further over the next 6-12 months however. When US investors return after their Labor Day weekend, caution is likely to rule their emotions and a risk-off tone persist against the economic backdrop of slowing US momentum and reversing Chinese momentum.
More immediately, the Canadians got their expected strong bounce in retail sales in June, with them up +4.2% as lockdown restrictions were eased in the month. From a pre-pandemic June 2019 base, the latest data is almost +10% higher, so they go into an election period there with a positive economic background. Canada doesn't have the inequality pressures its southern neighbour has. (Gini = 0.33.)
Not like China. China has grown to be one of the most unequal large economies with a vast gap between the haves an have-nots. Their Gini index is 0.39. The US is 0.41 while New Zealand is 0.36. The higher these coefficients, the more unequal they are. Norway is 0.27, and Sweden 0.29.
Now, an article has appeared in a prominent Chinese news outlet calling for wealth taxes and income redistribution to address the Chinese problem. Given that Chairman Xi himself is a princeling of the original CCP hierarchy, this would ordinarily be a brave and dangerous move. But is was probably sanctioned from the top, indicating Beijing has picked up the social signals that this is a stress point in modern China. (It may also have advantages in culling Xi rivals.) And it ties into the current campaign to bring under control a tech industry that has been operating cavalierly.
Meanwhile, their central bank left the Loan Prime Rate on hold for a 16th straight month today at 3.85%. But with the Chinese economy losing momentum, it won’t be long before the PBOC is guiding rates lower. Even so, another round of large-scale credit-led stimulus doesn’t appear to be on the cards for now. Another reserve ratio cut looks more likely to be their next action.
For the past two mornings we noted the severe plunge in the iron ore price. Well, in Friday trading in China, it tanked further in something of a panic. It is now at its lowest level of 2021. This will be tough on Australia.
It is not all negative. Taiwanese export orders are still growing strongly in July, up +20% on a year ago and +37% higher than for July 2019. (Buyers completely discount the risks of a Chinese invasion or takeover.)
The turmoil at Chinese container ports is also causing big problems at destinations. Buyers are bringing forward orders exacerbating the problems. For example, at the two large Los Angeles ports, which handle about a third of all US seaborne imports, nearly 40 ships are waiting to berth, almost as many as the last stressful logistics period in February. Normally no ships are waiting to load or unload.
The Baltic Dry Index is still rising sharply, as it the cost of moving a container by sea.
But the end of all this pressure is probably in sight because background demand has lost momentum in both China and the US. When the current surge is over, a sharp reversal is likely.
Chinese steel output is falling. As demand evaporates, the price of iron ore slumped again yesterday taking the four week drop to -37%. Copper is falling too, although not as hard. Tin, nickel and zinc have all also topped out after their recent highs
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In Australia, few are realising what lies ahead with the sudden reversal in mineral prices. They are currently fighting the culture wars over lockdowns, anti-vaxxing protests and mask-wearing. It is all very childish and typical of culture-war name-calling (and led by the pundits in their Murdoch-press). But this is not to diminish the economic consequences of the lockdowns on many. They are hard. But recovery does come. Fiscal and monetary support can lessen the impact of sudden change in mixed-capitalist economies, but the one advantage is that these types of changes will involve 'creative destruction' and a restart with companies able to handle the new economic environment. It will be messy however. An odd feature of the current stress is that it is those who typically like 'pure capitalism' who are loudest in their protests when it affects them, and most dismissive of the need to maintain some sort of social cohesion during these changes. When the heavy pandemic threat passes (when vaccination rates rise to high levels), Australia will then be right in the grips of the minerals realignment and their economic consequences.
A wounded Australia will affect New Zealand directly.
There were another 642 new community cases in NSW today with another 508 not assigned to known clusters, so they are out of control. It has spread into regional NSW extensively. Their lockdown has been extended. They are now under curfew too. Victoria is reporting another 55 new cases today, so it is starting to surge there too and their lockdown is extended for another two weeks, also with a curfew. Queensland is reporting 1 new case in a bright spot. ACT has 12 new cases. Overall in Australia, more than 28% of eligible Aussies are fully vaccinated, plus 22% have now had one shot so far.
Wall Street has recovered some optimism today and the S&P500 is up +0.6% in afternoon trade. For the week it is heading for a -0.6% loss however. Overnight, European markets were up +0.4% in Friday trade. That means Frankfurt booked a -0.4 loss for the week, Paris dived -3.3% for the week, and London booked a weekly -1.8% retreat. Yesterday, Tokyo fell a full -1.0% on the day taking the weekly loss to -2.9%. Hong Kong ended its Friday session down -1.8 to take the weekly fall to an eye-popping -5.8%. Shanghai fell -1.1% yesterday to end the week down -2.5%. In Australia, the ASX200 ended Friday flat, cementing in a weekly retreat of -2.2%. However, the NZX50 did its own thing this past week, ending Friday little-changed but booking a +1.4% rise for the week. Yes, a rise.
The UST 10yr yield starts today at 1.26% and up +1 bp. The US 2-10 rate curve has steepened by +2 bps today to +104 bps. Their 1-5 curve is also a little steeper at +72 bps, and their 3m-10 year curve is little-changed at +122 bps. The Australian Govt ten year benchmark rate starts today at 1.08% and a +1 bp firmer. The China Govt ten year bond is at 2.87% and also up -1 bp. But the New Zealand Govt ten year is now at 1.60% and a -3 bps retreat.
Global markets are still in 'extreme fear' mode like they have been for the past month. But it is nothing like the 'extreme fear' levels of April 2020 at the start of the pandemic.
The price of gold is firmer by +US$2 from this time yesterday, and now at US$1782/oz. For the week it is up +US$4/oz.
Oil prices are still sliding and down another -US$1 from this time yesterday, so in the US they are just on US$62/bbl, while the international Brent price is under US$65/bbl.
The Kiwi dollar opens today unchanged 68.3 USc and holding its lower level. Against the Australian dollar we are firmer overnight at 95.7 AUc. Against the euro we are softer at 58.4 euro cents. That means our TWI-5 starts today at 71.9 and below the 72-74 range of the past eleven months.
The bitcoin price has risen sharply overnight and is now at US$48,351 which is up +5.8% from this time yesterday. However from a week ago it is up only +1.5%. But today's rise takes it above NZ$70,000 for the first time since May 2021. Volatility in the past 24 hours has been moderate at just under +/- 2.9%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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54 Comments
Isn't Bream Head the easternmost point of that peninsula? I'm not sure either, even though I took pretty much the same photo 2 years ago:
https://i.imgur.com/cDg5l6S.jpeg
Edit: This one shows the mountains "to the right" https://i.imgur.com/wSX6w8Q.jpeg
Probably not, seems like last lockdown people deferred purchases until we were back to normal and everything bounced back pretty sharply.
I've got to replace a radiator hose on my motorbike, I'm not going to cancel the purchase entirely since it's still leaking coolant, I'll just take it to the mechanic when I can.
I agree, probably not. Obviously some will be hurt more than others but they will tend to be in parts of the service sector dealing in avoidable consumption. Most transactions can be deferred. So there will be a bounce-back. Most people have a steady (wage) income and the option of spending it overseas has gone. So if no spending now, it gets saved for spending later.
Not just avoidable consumption. You cannot defer labour sales from today till tomorrow. Labour has no shelf life. The bounce... Your ok if your have a warehouse full of stuff to sell twice as much of when the "bounce" occurs. But you cannot sell twice as much labour during the "bounce", especially when you cannot increase labour resource.
Could be significant pain in the service sector, sadly. I know several in that sector who will probably have to close if this is a 2-3 week lockdown.
I suspect most people who post here, including myself, are lucky to have safe jobs or businesses. Think about those who don't.
Are these central bankers even capable of embarrassment, let alone something more scientific like recognizing and acknowledging how thoroughly proven QE has been?
Proven in only the respect that this smoke and mirrors is nothing whatsoever to do with printing presses, currency of any kind, or inflation.
There is a spectrum to global inflation conditions – yes, global inflation. The real money out here is eurodollar translated and it has little use for bank reserves of any denomination including US$ (sorry, Jay). Banks are what make money, not central banks. Without the former, it doesn’t really matter what the latter does. Link
Good example. The US suffered banking disaster after disaster until the Govt legislated in the early 1900s and then went full in and created the Fed as we know it in in two acts (1933 and 1935). Anyway, my point was that in modern economies, the central bank and Govt create the regulatory environment that banks have to operate in - licensing them to create credit money, requiring them to have an account at the central bank etc.
Banks make money under licence from central banks, without the latter, the former doesn't exist
Nonetheless, the $37,611 million Crown Settlement Account credit lodged on the RBNZ's liability ledger is a record of what banks owe after they purchased NZ government securities issuance.
From the RBA - Box D page 75-77 (79-81 of 104) PDF Monetary Policy Statement
The increase in banks’ holdings of government debt has created deposits The purchase of government bonds by the banking sector can add to deposits in a similar way to the extension of credit to businesses and households.[2] Banks have purchased some of the newly issued state government debt. In the first instance, those borrowed funds are held by the state governments as a deposit with a commercial bank until the funds are spent.[3] In addition, when the banking sector purchases state government debt in the secondary market from the private (non-bank) sector, it credits the deposit account of the seller to pay for the
transaction. In both cases, new deposits are created. Deposits have risen in recent months, as banks’ holdings of state government debt have increased and as state
governments have issued debt (Graph D.3). Banks’ holdings of Australian Government Securities have also risen recently, alongside an increase in Australian Government borrowing, which has contributed to the rise in bank deposits. However, the process of deposit creation is slightly different when the banking sector purchases debt issued by the Australian Government, since the Reserve Bank is the banker for the Commonwealth of Australia. When the Australian Government borrows from the banking sector, it holds the borrowed funds as a deposit at the Reserve Bank until the funds are spent. As the Australian Government spends these funds in the economy, such as in the form of Job Keeper payments to businesses, it adds to deposits held by businesses and, subsequently, to deposits of the household sector through employees of those businesses
Pretty sure you're conflating the Crown Settlement Account with the commercial banks' Settlement Accounts, which *are* swollen with deposits as NZ Govt has not sold enough bonds (net) to soak up the excess reserves. The CSA has been almost balanced in terms of bond sales and maturity payouts over the last 12 months or so, so presumably it is inflated for other reasons? https://www.youtube.com/watch?v=scIlDd6lTOI
I beg to differ and remain firmly on the side of the RBA's comment.and this - A General Sense of Treasury's General Account
https://coingeek.com/ethereum-2-0-ethers-journey-from-a-security-to-a-s…
ETH may have originally met the definition of a security but the SEC now seems to have given it a pass:
> In 2018, William Hinman, then Director of the SEC’s Division of Corporation Finance, implied that Ether was initially offered through a securities offering but was no longer a security at the time.
Hinman’s reasoning seemingly hinged on his understanding of there no longer being any central enterprise being invested in, and thus purchasers no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts. In other words, Hinman’s position is that assets can transition out of security state through sufficient decentralization. As stated by Hinman, “…when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede.”
Ardern relishing her podium performance too much:
https://www.nzherald.co.nz/business/covid-19-coronavirus-fran-osullivan…
its an art to present her failure to close the bubble qiickly enough or that MIQ let it escape as a brilliant triumph of Genome sequencing to trace the source!
Likewise today - 56,000 vaccinations and then a large % of over 40's but wait that includes those booked for a vaccine not those actually vacinated - and well then 150,000 people booked yesterday alone -- all to come of the numbers - Fact - at 56,000 a day if we had done that number since May 1st each day the whole country of over 12's would have been double vaccinated and no lockdown needed -- This is the failure - forget the rest -- In April LAST year - teh whole world was desperately tryign to find a vaccine - so its not liek we did not know vaccination was the long term solution then!
I'm not clear what you're trying to say?
There were 56,843 vaccinations administered yesterday - that is a fact and good thing.
Genome sequencing working alongside contact traceing is a tool that is now highly developed and effective in NZ - that is also a good thing.
The rapid rise in vaccine bookings is probably down to a reduction in complacency around Covid - that is also a good thing and if there is any silver lining from the current outbreak I would suggest that is it.
Wouldn't mind if she was as effective as the media try to make out. I see that there is now a domestic Akld to Wgtn flight on Thursday that is a 'location of interest' where a Covid infected person was on board. This is EXACTLY why no 48 hour pass should have been granted by the government for people to relocate once the lockdown was first announced on Tuesday. The lockdown should have been a true lockdown in order to try to keep the outbreak confined to the Auckland area and therefore more easily tackled. This Delta variant demands the utmost of measures but sadly we have given it unjustified opportunities to expand within NZ.
I get what you're saying but what would you do about the people stuck somewhere away from home? Where are they going to stay? Who's going to pay for their accommodation and food etc? It's a balancing act between minimising spread and allowing people to return home. No easy answers...
That was odd. The travellers from AKL by car were described and emphasis given to stops that may have been made on the road. The flight was mentioned only briefly but quite obviously passengers grouped before, during, and after amount to quite a bit more risk in terms of transmission and numbers. Yet only today did that flight itself feature as being a point of interest. Could it be then that unwelcome news is selected to be broadcast at times thought to be more comfortable?
Australia is far from an iron ore one-trick-pony. It is a major producer of the raw minerals which refine to Aluminium, Lithium, Tin, Nickel, Zinc, Molybdenum, Tantalum, Uranium and so on. So an Fe price wobble is scarcely Armageddon....
Some official context:
https://www.ga.gov.au/scientific-topics/minerals/mineral-resources-and-…
The peak mortality rate for cancer is 90+ years in the UK
https://www.cancerresearchuk.org/health-professional/cancer-statistics/…
For most cancers in the US the median age of death is well over 70...
https://pubmed.ncbi.nlm.nih.gov/16393477/
Are you suggesting we don't bother researching or treating cancer too?
How to spot covid misinformation: https://thespinoff.co.nz/society/21-08-2021/siouxsie-wiles-toby-morris-…
Yes of course I support cancer research and treatment. What a bizarre straw man. How do you feel about lockdowns and delays to to cancer diagnosis and treatment given stage 1 has a cure rate of 90 per cent and stage 3 a cure rate of 20 per cent?
If you are worried about misinformation it is all there if you look - I usually post links but don't always have them to hand. The one time I don't post them I get the misinformation thing - promise to be more through in future.
'The median age of deaths is 86 years'
https://www.health.gov.au/resources/publications/coronavirus-covid-19-a…
'All systematic evaluations of seroprevalence data converge that SARS-CoV-2 infection is widely spread globally. Acknowledging residual uncertainties, the available evidence suggests average global IFR of ~0.15% and ~1.5-2.0 billion infections by February 2021 with substantial differences in IFR and in infection spread across continents, countries and locations.'
https://onlinelibrary.wiley.com/doi/full/10.1111/eci.13554
And an alternative view from a sept 2020 meta analysis says that the ifr is 0.68%
https://pubmed.ncbi.nlm.nih.gov/33007452/
Where did you get your number from?
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