Here's our summary of key economic events overnight that affect New Zealand with news the world's largest economies are heading toward the end of 2021 in an increasingly uncertain state.
After adding 1 mln new jobs in July on top of a similar strong gain in June, and an expectation that August would add +750,000, the American non-farm payrolls report disappointed everyone. Only +235,000 new jobs were added in August, apparently because employers are looking at the spreading Delta pandemic with concern. This means that still a net -5.3 mln jobs haven't been recovered since the start of that pandemic.
One reason hiring hesitancy is being blamed on Delta is that wage rises remain strong. Holding on to existing workers is now the priority if there is to be a bumpy road ahead. Average earnings are up +4.3%, both on an hourly and a weekly basis. That might be good, but it is less that their CPI. Inflation is corrosive now. And see this.
This weak jobs report does throw some uncertainty on whether the Fed will taper this year or not. The Fed's balance sheet has risen slightly to a new record high of US$8.3 tln (36% og FDP) but the amount of cash institutions want to park at the Fed in its reverser repo operations seems to have topped out and is falling now (to US$1 tln, or 4.4% of GDP).
The view on their giant service economy is mixed. The widely-watched ISM services PMI reported a fast expansion although growing slower. The internationally benchmarked Markit one also reported a good expansion, but at a much more modest level and slowing quickly.
Just a reminder that this is a long holiday weekend in both the US and Canada, their Labor Day weekend (Labour Day in Canada!), signaling the end of their summer holiday season. If you are an investor and "sold in May, and went away", then this is is when you return to the markets. Volumes will rise from here.
China is on its way back from its summer holidays too, But not to an expanding economy. The private Caixin PMI for their services sector was very weak, contracting at a faster rate. It's now at a 20 month low. New order levels retreated. This is lower than the official version which also signaled a sharp retreat, confirming not only a loss of momentum, but an outright contraction in their service economy.
China's heavy truck sales plunged in August, down almost -20% from July, and down more than -50% from August 2020. Excavator sales fell sharply too. Recovery seems to depend on new Beijing stimulus.
The iron ore price is ended week at roughly the same level it was at the end of the past two week - sharply lower than its peak seven weeks ago, but not falling any more. It is back at 2014 levels, although in between it fell -70% (in late 2015) and rose +60% in (mid 2021).
In Japan, Prime Minister Suga said he won’t seek re-election as ruling-party leader, effectively ending his term after just a year.
EU retail sales in July were another market disappointment reported overnight. A flat result was expected, but a sharpish fall was reported, down -2.3% from the prior month. Instead of being up +5.4% year-on-year as they were in June, they are now only up +3.1% year-on-year in July.
In Russia, their central bank is looking at the rise in inflation with alarm. Like all emerging economies, rising global interest rates will corrode any gains they are making from rising commodity prices, capital will withdraw, their currencies will fall, and the huge debts they have racked up will still be payable in US dollar terms. It is not something they are looking forward to.
Australian retail sales retreated -2.9% in July from the same month in 2020, sucked lower by the NSW lockdown. June's results were also negative, dropped by Victoria's lockdown, so the recent trend isn't positive. New Zealand will be the same of course.
And labour shortages in rural Australia threaten their harvests. Farmers preparing for massive harvest and hoping to cash in on strong international demand can’t find workers as state and federal leaders squabble over border openings and the vaccination rollout.
And staying in Australia, there were another 1431 new community cases in NSW today with another 1250 not assigned to known clusters, so they remain completely out of control. They now have 21,239 locally acquired cases. Victoria is reporting another 176 new cases today, so it is bad there too. Queensland is now reporting zero new cases. The ACT has 18 new cases. Overall in Australia, more than 36% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
Wall Street's Friday session has struggled to find direction after the jobs report but the S&P500 up a minor +0.1% in afternoon trade. Overnight, European markets were lower by an average of -0.7%, led down by Paris's -1.1% fall. Frankfurt and London's -0.4% fall loos minor by comparison. Yesterday, Tokyo closed up a very strong +2.1% with a late surge and it ended the week with a stellar +4.5% leap. Hong Kong closed down however by -0.7% but that embeds a weekly rise of +2.0%. Shanghai closed down -0.4% embedding their weekly gain of +1.3%. The ASX200 ended its session up +0.5% but that was all it gained for the week. The NZX50 ended its Friday session flat, but for the week it was up +1.8%.
The UST 10yr yield opens today at just under 1.33% which is up +3 bps from this time yesterday. The US 2-10 rate curve is now at +111 bps and +3 bps steeper. Their 1-5 curve is little-changed at +72 bps, while their 3m-10 year curve is +4 bps steeper at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.26% and up +5 bps. The China Govt ten year bond is at 2.85% and unchanged. The New Zealand Govt ten year is now at 1.85% and up another +2 bps and back to levels last seen in May.
The price of gold is firmer today and up by +US$20 from this time yesterday, now at US$1830/oz. For the week, that is a +2.4% rise and a two month high.
Oil prices have fallen -US$1 today so in the US they are now just on US$69/bbl, while the international Brent price has dipped a bit less to just on US$72.50/bbl.
We should also note that the NZ carbon price surged up to over NZ$60/NZU yesterday. See this.
The Kiwi dollar opens today firmer yet again, up +½c to be just on 71.7 USc and its highest since mid-June. Against the Australian dollar we are unchanged at 96.1 AUc. Against the euro we are firmer too at 60.3 euro cents. That means our TWI-5 starts today at just on 74.4 and above the 72-74 range of the past ten months.
The bitcoin price has risen +2.2% from this time yesterday to US$50.395 and its highest in 16 weeks. Volatility in the past 24 hours has been moderate at just over +/- 2.8%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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39 Comments
This weak jobs report does throw some uncertainty on whether the Fed will taper this year or not.
The Wheels Come Off: As Economic Growth Craters, NY Fed Suspends Its GDP Tracking Model
COVID? Weather? Chinese emission controls?
No, dollar; eurodollar. And it all begins (therefore doesn’t end) with central bankers who aren’t central bankers, who believe in the ultimate power of their own voices than stoop to studying the real money plumbing in order to find then do something useful about its structural shortcomings.
This here is my own overly verbose way of saying, forget inflation since the real monetary world has because nothing truly has changed. Words are neither euros nor dollars, and they sure haven’t been eurodollars. Link
I think there's lots of cheap money sloshing around but it's all been fed into speculative assets (property/shares) rather than going into the "real" economy and productive businesses. This behaviour has been encouraged by Central Banks continually pushing down interest rates to protect the ponzi.
Periodically there is a scare that the "house of cards" is going to collapse leading to a liquidity squeeze and everyone rushing for collateral - namely the US$, being the world's reserve currency. The edifice should have collapsed in 2000 or 2008 but CBs/Governments have resuscitated the patient each time with cheap money/bail outs, so the casino can open it's doors again.
There has been no real wage inflation in developed economies for a couple of decades or more due to outsourcing to low wage economies, importing cheap labour and de-unionisation. Inequality has grown and ever increasing share of the world's wealth has been concentrated in fewer and fewer hands. This is not a recipe for a strong confident economy.
Central Banks cannot fix this. Governments need to start doing some heavy lifting to re-distibute wealth and start putting it in the hands of people who will spend it. Then we can start to rebuild a strong economy that works for the majority and is not subject to the whims of cheap money as it sloshes around the world.
And deaths are getting ready to spike significantly in NSW. Comparing it to 'just the flu" as she has done is surrender. A 70% vaccination rate means that of every three people you pass on a Sydney or Melbourne street, one will be unvaccinated. Hardly seems like a sensible standard to 'open up'.
Seemingly in Sydney one careless airport shuttle driver and the cat was out of the bag. Australia though has far greater border transit than NZ. Seems to me both our governments got it completely right 18 months ago, policy and measures protecting both the people and the capabilities of hospital services etc. But that protection should not have been allowed to stand still though. Early as possible vaccination would dampen down both transmission and severe cases. Saliva testing would provide quicker and easier identification of infections. That in turn would have safeguarded existing needs for hospital care somewhat. And then if critical hospital capacity had been improved that would have balanced the scales somewhat too.The thing is Delta arrived here and upset the apple cart and there were far too many New Zealanders exposed as being unvaccinated. All the previous well implemented protection was immediately compromised. By the good and compliant characteristics and nature of New Zealanders it look like a lockdown will again be successful? But if sufficient of us had behaved like Sydneysiders, dare say NZ might be sharing the same fate.
It comes from the top. Gladys spent 4 weeks sitting on her hands whilst the virus went gangbusters in the community and then has the audacity to say “we” didn’t have an option to shut this outbreak down. It’s not surprising that she didn’t have the people behind her when her messaging was so mixed. David is right, modeling is expecting peak case numbers to reach 4500 come end of the month and deaths will rise sharply 2 weeks after that. It’s not going to be pretty.
A 70% vaccination rate means that of every three people you pass on a Sydney or Melbourne street
Of every adult you pass. Their 70% target excludes under 16s so in reality they're aiming for 56% of the population.
https://www.smh.com.au/politics/federal/what-will-70-per-cent-vaccinati…
David, I agree,but somewhat further on the downside. For instance,it is 70 % of those eligible, and that doesn't include children , and even then ,of the 70 % at 90 % efficacy of vaccination. ..its 63 % minus the under 16 years cohort...so maybe 50 % effectively vaccinated..but as some of the vaccinated will still end up in hospital ,and also be virus shedders to others,there is barely 50 % effective coverage. And do not forget that it takes 6 weeks after second dose to get full antibodies?
That puts 3.5 million of NSW in the path of danger. Doubling rate appears to be about every 12 to 14 days( faster in Victoria) there..so 12 doublings..say 5 months ,and it has completely overwhelmed any capacity to cope. (Even with a peak in 60 days ,thousands of dead! It appears to me) a simple man ,(doing a simple gardening business) that these are very simple mental calculations. I hope I am wrong ,being so simple, Surely ,it is not so obvious as this?
The COVID virus is here forever now - so we need to learn to live with it in our midst for many years to come
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https://www.theatlantic.com/science/archive/2021/08/how-we-live-coronav…
A 70% vaccination rate is far too low. Better than nothing but not much. This new Delta variant is more infectious, more deadly, faster to infect and unlike the first wave of Covid-19 infects children and the already vaccinated. So we need a new target and until we know more and the statisticians have sufficient data to process my guess is NZ needs 95% so we should treat it like measles where the first jab at 12 months.
The problem will be persuading everyone to vaccinate. So we need carrot and stick methods of nudging the lazy and the stupid into complying. The anti-vax group call themselves 'voicesforfreedom' which is a persuasive phrase. To counter it NZ needs an authority that is respected (however reluctantly) to take charge something similar to the IRD.
OK assume you are similar to me - rather elderly with a mild underlying condition and at some time in the future after the border has opened and foreign tourists and students are among us. I'm walking down the street or in the supermarket and a passer by is infectious with Covid-19; despite by vaccination I get it and in the few days before I become ill I continue to visit supermarkets, the library, travel on buses, go to sporting events. maybe my Covid-19 breath contacts a dozen people. At 80% vaccination 2 or 3 will become infected and in turn infect others. Make that 95% and the odds are nobody is infected. Make that 95% and I will have to meet four times as many people to get infected.
From Google: ""Measles, for example, spreads so easily that an estimated 95% of a population needs to be vaccinated to achieve herd immunity. In turn, the remaining 5% have protection because, at 95% coverage, measles will no longer spread. For polio, the threshold is about 80%.""
NZ has enough problems with achieving 95% for measles and that vaccination has the big advantage that the vaccinated are too young to have or express an opinion. It will need some expert PR to persuade NZ to reach 95% and since we do not know whether you or I are correct with our guess then 95% is what we need to plan for.
HM
It is not just about surrendering and living with Delta but the more virulent mutations that follow.
Many viruses continually mutate and tend to be more virulent for their survival; Covid has shown to be doing this with a number of strains. Surrender now and you have no opportunity to address any future more virulent strain.
Delta has shown that Covid that “it is not just the flu” but with 2/3rds of our hospital cases under 34 - and a number under 1 year old - it is already no longer “just an old person’s problem”.
I hope those who reject the vaccination think about responsibility they may have in causing Covid to those under one year old.
So when should things open up David?
For me vaccination at 70-75% has to be the threshold for opening up.
I am in education and lots of university students, let alone school students, are really struggling. With mental health and academic performance.
More widely, I think a lot of people are struggling mentally. I think mental health isn't getting talked of enough. There are people who are getting really isolated and alienated. One can only speculate whether yesterday's terrible event might have been aggravated by lockdown.
I was a lockdown skeptic but came around to it. But I think this needs to be the last level 4 lockdown. And most people I know think the same.
Covid is an illness which so strongly hospitalizes and kills the elderly compared to the young that an effective vaccination strategy excluding children under 12 is quite possible. Many vaccination campaigns that I've been involved with have been effective while excluding large portions of the population due to low risk. Meningococcal vaccination campaigns targeted at teens and young adults come to mind.
Can we have an effective vaccination strategy for Covid without vaccinating under 12's? The data on relative risk of significantly negative Covid outcomes by age-band is incredibly strong, and I suggest the answer is yes. Should we vaccinate children under 12? That is a separate question. Perhaps, once the vaccines are proven safe, which seems highly likely over the next few months.
Risk for COVID-19 Infection, Hospitalization, and Death By Age Group | CDC
Deaths from COVID-19 by age band - Office for National Statistics (ons.gov.uk)
The USAs current experience would beg to differ with a growing percentage of children being hospitalized. Unvaccinated children also allow for much larger chains of transmission putting unvaccinated adults (whether that be due to medical reasons or not) at much greater risk of transmitting the virus.
You get to the point where you have no choice but to ignore Covid. England looks to be fully open and the streets are packed and there are no masks. They still have the equivalent of a jumbo Jet full of passengers diving into the ground every 3 days in terms of deaths but they are ignoring it now. You simply cannot remain in lockdown forever, Australia has also lost the battle its game over.
https://i.stuff.co.nz/national/politics/opinion/300398625/life-must-go-…
Life must go on despite the pandemic.
Once the vaccinated reach 70% plus of the population will the NZ public tolerate Level 4 lockdowns anymore ?
The 70% (and 80%) vaccination goals of Australia are good goals, but will not in themselves open up Sydney for complete international travel by Christmas as Gladys promises. This is just posturing and diverting from their current issues. (And look at Israel with their high vaccination rates - and now leading the world in booster shots - and now having a large surge in covid cases). Vaccinations are just one aspect of a balanced approach - not a magic solution.
Yes, but the only thing missing are the hordes of new immigrants loading up on debt to outbid each other on a million dollar sh#tbox out in the ‘burbs.
I notice several of these terraced rabbit warrens are nearing completion tho, so there might be fun and games ahead.
I have never, ever bought the narrative of China rising to dominant world power and it's starting to unravel a bit.
Highly unfavourable demographics, and a leader who seems intent on doing as much as possible to bring their economy down. The clown in charge has taken the country off course, away from a promising trajectory.
Will be fascinating to see how it plays out.
There’s a lot I don’t like about the Chinese government (surveillance state, Xinjiang) but I think they’re making some good moves too. Unlike Western governments, they’re willing to act when economic inequality becomes an imminent threat to society. They’re breaking up big tech and now letting their massive property bubble pop rather than stepping in to rescue ‘too big to fail’ banks and developers. Anglosphere leaders are too cowardly for that.
I think they never took their eye off the ball:
https://www.bbc.com/future/article/20120618-global-resources-stock-check
Whereas I can count those who address it in the West, damn near by name. And that doesn't include any of the NZ media - I stand to be corrected - even when you put info right under their noses. That graphic is worth contemplation; we're now at half-past-one.....
I suggest they might be aiming for continuability.
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