Here's our summary of key economic events over the weekend that affect New Zealand with news China's economy appears to be contracting now, and the giant US economy is slowing at the same time.
But first, 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 when you return to the markets. (Wednesday, our time.) 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 is 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 ended last week at roughly the same level it was at the end of the past two weeks - 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. The old revolving door for Japanese prime ministers might be returning.
In Europe, retail sales in July were another market disappointment. 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.
And the ECB meeting will be in the spotlight this week with investors looking for any clue whether the central bank is ready to start reducing its massive asset purchase program.
In Russia, their central bank is looking at their 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.
Back in the US, 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 than their CPI. Inflation is corrosive now. And see this.)
This weak jobs report does throw out some uncertainty on whether the Fed will taper this year, or not. And it has sharply shrunk the economic growth some Fed models are recording for Q3.
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.
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 1487 new community cases in NSW yesterday with another 1371 not assigned to known clusters, so they remain completely out of control. They now have 23,847 locally acquired cases. Victoria is reporting another 183 new cases yesterday, so it is bad there too. Queensland is now reporting one new case. The ACT has 15 new cases. Overall in Australia, more than 38% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far.
The UST 10yr yield opens today at just under 1.33%. The US 2-10 rate curve is now at +112 bps and unchanged. Their 1-5 curve is little-changed at +72 bps, while their 3m-10 year curve is still at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.25% and down -1 bp from this time Saturday. The China Govt ten year bond is at 2.85% and unchanged. The New Zealand Govt ten year is now at 1.85% and also unchanged over the weekend.
The price of gold is holding but down by a minor -US$2 from this time Saturday, now at US$1828/oz.
Oil prices have fallen slightly again too, so in the US they are now just under US$69/bbl, while the international Brent price has dipped to just over US$72/bbl.
We should also note that the NZ carbon price surged up to over NZ$60/NZU on Friday. See this.
The Kiwi dollar opens the week at 71.5 USc and +1½c higher than at the start of last week. Against the Australian dollar we firmer too at 96.1 AUc. Against the euro we are +100 bps higher in a week at 60.3 euro cents. That means our TWI-5 starts today at just on 74.3 and above the 72-74 range of the past ten months.
The bitcoin price has held from this time Saturday at US$50,319 and still its highest in 16 weeks. Volatility in the past 24 hours has been low at just under +/- 1.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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33 Comments
Everywhere everything / data is weak or falling except ...........thanks Orr and Robertson though reality :
https://www.nzherald.co.nz/nz/opinion-government-has-caused-housing-cri…
Everything except Big Pharma and carbon bludging?
‘Hahn will head for another high pressure environment: biotech investing. He is now joining Flagship, the venture fund that birthed Moderna, the very company that earned Hahn's nod six months ago.
Under Hahn's watch, the FDA granted emergency use authorization to the company's COVID-19 vaccine just behind a similar OK for Pfizer and BioNTech's jab.
…Hahn also follows the precedent of Scott Gottlieb, M.D., who ran the FDA from May 2017 to April 2019. Less than three months after leaving, he joined the board of Pfizer’
https://www.fiercebiotech.com/biotech/six-months-after-granting-moderna…
In NZ only real economy is Housing and rbnz and government focus was and is only to support and promote, which they are doing and result is for all to see.
Other business hardly exist besides everyone now is interested and concentrating on housing only and why not as have blessing of almighty Jacinda and Orr.
Anyone will be a fool to not listen to Orr and Jacinda and go after easy, fast and BIG money.
Exactly - banks are concentrating their lending to government and housing via purchase of securities rather than unsecured lending to the productive GDP qualifying sector. China got the jobs, we have deflationary debt.
Global financialisation is an economic model on the rise in the western world.
I would not describe banks swapping cash in their settlement accounts for govt securities as ‘lending’, but I agree with your point. Banks are making easy money on housing - underwritten by Govts that have proven that they will bail out the banks in a heartbeat.
My view though is that encouraging or coercing banks to lend to private sector innovators and risk takers is not the answer either. The dominant challenge facing the world is climate change and we need a more directive and targeted approach - direct and targeted investment of real resources to support a transition to a green economy. Everything else is secondary.
... the big question today is , will the rest of NZ get granted lockdoom 2 status .... leaving Orc Land on 4 ?
We're living in a fool's paradise with a totally over the top housing market .... plus government debt soaring as they attempt to juice the economy from stalling .... there's gonna be the mother of all hangovers when the party stops....
Party won't be allowed to stop everything will be thrown into continue at all costs the danger of a hangover will be pushed down the road until after the next election . It will be interesting to see if other economies with housing issues eg Canada, if they follow the same path canada is having an election now watch what happens there
Welcome back the comment streams! In the last week there has been quite a few articles that were extremely worthy of some seriously good debate, on a variety of topics from Insurance, Carbon price and so on.
I note David has flagged the carbon price hitting $60/tonne, $10 over the so called "cap" imposed by the Government. I wonder at what point the (X)Spurts will admit that policy to "encourage" changes of behaviour by business to meet national emissions targets is something that will never succeed. The fact that James Shaw supports such an approach is an insight into his naivety, and possibly his lust for power and influence.
Besides, this approach must be somewhat ameliorated by the fact that even if we cut our emissions to zero, and the rest of the world does not change, then nothing will be achieved.
What's the link between high prices and you thinking the process won't work? Putting a high price on carbon is exactly what will make this process work.
Emitters will be scrambling to find lower carbon options which become more and more economical everyday. Dairy plants looking at biomass or electric rather than coal, gentailers are going all out to move forward renewable generation. Genesis are signing deals with whoever they can to replace their coal generation.
As the cap reduces and prices rise, companies will have to act or shut up shop.
Even Shaw's ideological polar opposites at the New Zealand initiative are generally supportive of the cap and trade scheme.
I agree with you. Extrapolate from the personal; we have moved to a new electricity provider who charges differently between peak and off-peak times. Suddenly my wife only starts our washing machine after 9pm.
Businesses are great at squeezing the lowest possible price from their suppliers. The concept of carbon pricing will make them just as dynamic about saving CO2 emissions.
We need something similar for all waste products; in my lifetime water has gone from zero plastic to two specs per glass; what will my great grandchildren be imbibing? By then Dome Valley landfill will be Dome Mountain of landfill and they will be scouting for new rubbish dumps.
And you'd be wrong.
Nothing new there.
The problem is that we run our society on historically-buried sunlit acres. The burning of them is biting us in the bum via Climate Change, so we're attempting to use above-ground sunlit acres to reduce the emissions. That's the ALL of it.
The problem is that we're overshot ourselves, as a species, thanks to the one-off energy injection (fossil energy being applied to food energy). We and our attendant animals now weigh more than pre-human animal biomass, and we are 97% of it. And we have commandeered all the useful land, and are degrading it (topsoil loss, aquifer depletion, desertification, biodiversity loss, artificial reliance) to boot.
Then we ask to offset the burning of ever-more buried acres - of course there will be competition for the acreage. The stupidity is that there isn't enough, and by some very-measurable orders of magnitude. We need to do less; orders of magnitude less. Physically. Welcome to the very real Limits to Growth.
And your xperts? Still talking about money, one suspects. That stuff which if keystroke-issued, backed by belief and nothing else. Certainly not by ascertaining the remaining energy/resource stocks. And they can 'value' carbon, flying that blind? Spare me.
From wikipedia 'Terra preta soils were created by farming communities between 450 BCE and 950 CE.[10][11][12] Soil depths can reach 2 meters (6.6 ft)'
Tribes in the Amazon did what we now have to do. They succeeded in building up their soils, that is now what New Zealand farmers have to do.
Is the ETS an incentive for an individual farmer to plough in compost to the land or coppice fast growing trees to make carbon pellets from? Not directly.
If New Zealand was serious about keeping farmland for food production while sequestering carbon in that land there would be a direct subsidy or mechanism to do so. The mechanism now serves to make New Zealand a carbon credit gambling market.
Back in the US, 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.
Since last Feb, there just haven’t been enough jobs back/created such that millions of formerly employed still aren’t employed and are no longer even looking while every single one of these new potential workers couldn’t join the labor market/force, either
...the real economy either way, but it does add that special touch of legitimacy for the recovery story which continues the tradition of such disservice to the more than 20-plus million who aren’t really “missing.” These poor souls really do count. It’s Economics which can’t.
This should, in the absence of being dazzled by COVID and QE, get people asking why isn’t the labor market better. And this is where taper actually comes into it; taper like QE, because what’s being tapered is QE, matters little or nothing to...
Hidden slack isn’t actually hidden; it is conveniently dismissed as a LABOR SHORTAGE!!!! which sounds so much better, so much more recovery-y. Convenient for commentary, disastrous for the economy and an ongoing, outrageous tragedy for Americans. Link
Interesting but long article about our impending reliance on covid vaccine jabs.
Oh please. Antivaxxers think the world governments are so organised and planned this all ahead.
Have you looked around your life at the flawed human beings who inhabit it? Those are the same people that become politicians. They can't organise themselves out of a paper bag but it's flattering that you think they can.
I don’t think the article was really anti-vax.
It was more outlining the limitations of all the centralised strategies. Eg get vaccinated by all means but be aware of the diminishing returns.
And Lockdown to protect the vulnerable but be aware of the unintended effects.
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