Here's our summary of key economic events over the weekend that affect New Zealand with news the long-anticipated rise of robots and AI may now be happening, and will bring a new surge in productivity.
But first up we should note that the Australian petrol retailer and distributor Ampol (ex-Caltex in Australia) is apparently in "advanced talks" to take over our listed Z Energy (ZEL, #22). Z Energy also operate the Caltex brand in New Zealand. If this deal proceeds, it will take $1.6 bln out of the NZX50, but the local shareholders will end up with these funds of course, including many KiwiSaver funds.
And in different energy news, Swedish carmaker Volvo (owned by China's Geely Motors) has taken delivery of fossil-fuel-free steel and plans to make cars from it, demonstration ones to start. The iron ore mines and the steel making process was all powered by green hydrogen (hydrogen produced from hydro electricity).
The annual Jackson Hole meeting of central bankers is to be another 'virtual' event in 2021, mirroring its 2020 edition. This year the focus will be on 'the uneven economy" and will start on Saturday, NZT.
One aspect may well be about how jobs aren't quite bouncing back as anticipated. This may well be because the pandemic has allowed job-replacing robots to gain ascendency. There was a lot of talk about such a move after the GFC, but it is now apparent firms did the work without rolling this technology out at scale. But that work has now been done and scale rollouts are now happening. It is expected to usher in a 'game-changing' burst of productivity - more output for the same or less labour inputs.
AI will also be a core part of the new jobs landscape, and sure to bring to the surface many concerns.
As the US approaches the heart of their summer holiday season, 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 and 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 it 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. "Common Prosperity" is the new Chinese catch-phrase.
Meanwhile, their central bank left their 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.
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.
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There were another 830 new community Covid-19 cases in NSW yesterday with another 693 not assigned to known clusters, so they are still out of control and worse. Their lockdown has been extended. They are now under curfew too. Victoria is reporting another 65 new cases yesterday, so it is starting to surge there too and their lockdown is extended for another two weeks, also with a curfew. Queensland is reporting zero new cases in a bright spot. ACT has 19 new cases. Overall in Australia, more than 30% of eligible Aussies are fully vaccinated, plus 21% have now had one shot so far. In New Zealand, 23% have now had two shots and another 18% their first.
The selfishness of the Aussie lockdown protests, the ignorance, and the spreading of the virus in large groups is making containment of the outbreak there very difficult, while vaccination rates remain well below the 90% required. Those mainly at risk are the young, especially children. All this stems from a weak and slow initial response from the NSW state authorities who responded to short-term economic claims over proper public health measures. The situation may not be reversible now no matter what we desire. NSW now has more than 10,000 locally acquired cases, Victoria has 440, Queensland 39, ACT has 121. New Zealand now has 72 active cases and all ours have been transferred to managed isolation.
The UST 10yr yield ended last week at 1.26%. The US 2-10 rate curve is little-changed at +103 bps. Their 1-5 curve is a little flatter at under +72 bps, and their 3m-10 year curve is also marginally flatter at +121 bps. The Australian Govt ten year benchmark rate starts today at 1.07% and -1 bp softer. The China Govt ten year bond is at 2.87% and unchanged. And the New Zealand Govt ten year is now at 1.60% and also unchanged.
The price of gold is little-changed from this time Saturday, and now at US$1781/oz and down -US$1.
Oil prices are still slipping, so in the US they are now just over US$61.50/bbl, while the international Brent price is just over US$64.50/bbl.
The Kiwi dollar opens today unchanged 68.3 USc and holding its lower level. Against the Australian dollar we are firmer at 95.8 AUc. Against the euro we are also very slightly firmer at 58.5 euro cents. That means our TWI-5 starts today at just under 72 and right at the bottom the 72-74 range of the past ten months.
The bitcoin price has pretty much held at its new higher level of US$48,669 which is up just +0.7% from this time Saturday. Volatility in the past 24 hours has been low at just under +/- 1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».