Here's our summary of key economic events overnight that affect New Zealand with news Wall Street is back in a restrained mood, concerned where the Fed is going. Commodity prices are weaker, bond yields are higher, and the USD is exhibiting a bit of a risk-off tone. Equities are little-changed as traders return.
But first up today, there was another dairy auction this morning, after a three week gap this time. And this commodity isn't being hurt. Prices rose +4.0% overall in USD terms, although they were only up +1.2% in NZD terms, held back by a firming currency. This was a popular event with the most bidders in more than a year. The key WMP product rose +3.3%, SMP was up +7.3% and both butter and cheese each rose almost +4%. It also comes as the second firm auction in a row, bolstering the notion that dairy prices may be on a rising trend.
In the US, their logistics managers index (LMI) stayed unusually high in August, indicating continuing expansion of supply chain networks. It reflects firms stocking up on inventory in advance of Q4 and is a global feature. Transportation networks bring in goods from Asia are clogged. There is no sign of relief on the horizon for ports, as maritime bookings were up 40% from last August, giving more evidence that we are seeing the beginning of peak season quite early this year.
Separately, the US Treasury tendered its 3 year bond. Demand was high. US$64 bln was offered and the Fed took $6 bln which was far less than the US$26 bln they took at the prior equivalent event. The median yield slipped to 0.40%, down from 0.42% last time.
China's FX reserves held in August. This was not the small fall that markets had expected.
Exports from China surged almost +26% in August 2021 from a year earlier, far above market estimates of +17% and accelerating from a +19% rise in July. This is consistent with the strong demand we are seeing in the US especially, but also the EU. This is the 14th straight month of growth in Chinese exports, despite pandemic-induced port congestion, container shortages and higher commodity prices. With exports this strong, and factory activity quite weak, it does indicate that domestic demand for manufactured goods must be really struggling. But imports were strong too.
Taiwan exports also stayed high. But their imports were even stronger. Taiwanese exports will get a value boost as the world's largest chipmaker is pushing through higher prices.
In Europe, their Q2 GDP has been revised higher.
German industrial production in July was reported better than expected although the expansion was pretty modest, to be fair.
And things probably haven't improved from there with a key economic sentiment survey coming in at its lowest since March 2020. Delta is undermining confidence.
In Australia, their central bank stuck with their decision in July to taper its bond purchases from AU$5 bln to AU$4 bln per week. But in extending the next review date from mid November to mid February it has effectively lifted the purchases it is likely to have expected by around +AU$13 bln. It has also significantly lifted its growth forecast for next year, consistent with a phasing out of QE as early as May 2022.
Australian services PMI data sank sharply into contraction in August, all based on the NSW and Victorian lockdowns. Building permit levels were also confirmed as quite weak. (Of course, if we had similar data in New Zealand today, it would likely be weak for the same reasons.)
And the iron ore price fell to a nine-month low yesterday. But the aluminium price rose to a 13 year high.
And staying in Australia, there were another 1220 new community cases in NSW yesterday with another 1120 not assigned to known clusters, so they remain completely out of control. They now have 25,690 locally acquired cases. Victoria is reporting another 246 new cases yesterday, so it is still bad there too. But Queensland is now reporting no new cases. The ACT has 19 new cases. Overall in Australia, more than 38% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The UST 10yr yield opens today at just over 1.37% and up +4 bps. The US 2-10 rate curve is at +114 bps and marginally steeper. Their 1-5 curve is more steeper at +75 bps, while their 3m-10 year curve is steeper too at +133 bps. The Australian Govt ten year benchmark rate starts today at 1.30% and up another +3 bps from this time yesterday. The China Govt ten year bond is at 2.87% and marginally firmer. The New Zealand Govt ten year is now at 1.93% and up another +2 bps in a day and its highest since March.
Wall Street has reopened after their Labor Day holiday but not to any fanfare, currently down a modest -0.2%. Overnight, European markets fell an average of -0.5%. Yesterday, Tokyo rose another +0.9%, Hong Kong by 0.7% and Shanghai by a further +1.5%. The ASX200 closed flat and it was lucky to do that after again being lower all day. The NZX50 didn't do a whole lot better, closing up just +0.2%.
The price of gold is much weaker, down by another -US$26 and now at US$1797/oz.
Oil prices have fallen by -US$1/bbl, so in the US they are now just under US$68/bbl, while the international Brent price has dipped to just over US$71/bbl.
The Kiwi dollar opens today at 71 USc and -40 bps softer than at this time yesterday. Against the Australian dollar we holding at just over 96 AUc. Against the euro we are softer at 59.9 euro cents. That means our TWI-5 starts today at just under 74 and still right at the top of the 72-74 range of the past ten months.
The bitcoin price has slumped overnight, down -9.1% from this time yesterday to US$46,965 and decapitating the big gains of the past week. It is the biggest loss since May, and was driven lower with margin calls as the declines mounted. Volatility in the past 24 hours has been extreme at +/- 11.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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22 Comments
A forecast for you for 2022 (with a track record comparable to most economists):
Just as the major reserve banks of the world signal the official end to their QE programs, as they begin to raise the "mission accomplished" banners in response to what appear to be steady stable markets, asset owners trigger a massive sell-off collapsing stock markets across the globe. We can call it the "no-crisis" crisis.
A plausible scenario indeed. If it eventuates, it would be a good opportunity for buying the dip. I am slightly underweight in shares, but ready to go overweight if the markets go down by more than 15%-20%. I missed the early 2020 dip, but I am not going to miss the next one. Resource-related stocks look also quite good in a reflationary environment, as a hedge against inflation. And a little bit of gold does not hurt either, say something like 2-3% of total assets.
Bonds are a very tricky asset class right now, and do require careful analysis - I have been staying well underweight here, especially on longer terms. I personally see risks here being pretty much one-sided, with interest rates going up in the future, worldwide and especially in NZ, likely beyond current markets expectations. definitely they look now a riskier class than what would normally be perceived by the average investor.
The asset class that is glaringly overvalued is NZ residential market - under the current conditions, I would not touch it with a barge pole. It is a purely speculative gamble when looked from any perspective and according to any measurement and economic fundamentals. If international and NZ stocks go down because of rising interest rates, well, the NZ residential market is going to turn ugly very quickly, with a potential collapse on the cards.
You just wouldn't get to 4 standard deviations above the trend growth rate without massive financial engineering built on accommodative central bank policy:
https://www.advisorperspectives.com/dshort/updates/2021/09/04/regressio…
Did I hear the head of core logic saying on RNZ this morning saying how NZ is economically in a much stronger position this lockdown than when we went into the past one?
How can this be with the billions gone in business aid, dead tourism and immigration etc.What magical economic event have I missed?
Or was I half asleep?
"RBA confirms tapering"
Reserve Banks are now forced and is not that they want to, as are screwed but still trying to delay as much as in hope that situation worsen and again can use it to delay.
No economy is running on fundamental but on largeness of reserve bank and government.
Only comfort (face saving) that RBNZ has that we are F$%& but so is FED, not realizing that US economy is big and diversify unlike NZ, which is tiny and only based on housing sector.
Vaccines ... FINALLY some MSM is beginning to question the narrative and ask some pesky questions ... like
ahem - what the hell is happening in the most vaccinated countries?
- why has the MSM gone awfully quiet on India ? ... despite 12% vaccination?
Prof David Murdoch: is Covid elimination still achievable? | RNZ
course of it wasnt Kim Hill, it would be misinformation
If you think this comes across as someone who is making up on the fly , youd be right
"It is difficult to get a man to understand something, when his salary depends on his not understanding it."
This is good interview to listen to if you want some more understanding of our COVID "plan".
Murdoch's denial of knowledge on what happening in Israel is of interest: He's either lying or deliberately not investigating it. His only idea of how to avoid the same outcome is to get more people vaccinated.
which leads on to this ...
the clanger in the middle ... its the unvaccinated (and the vaccinated with fading "immunity") who will have to be wary of the vaccinated
I got a completely different message that Ruechel says he got Jim. My understanding was not necessarily elimination, after all Flu was used as the comparative example. What I understood the purpose of the lockdowns and vaccinations were to prevent a destructive load on our health system. Behind that were layers that at the best would stop it entering the country, but with limited cross border traffic this was never going to happen, but it all was designed to be a delaying tactic until science caught up and was able to reduce the threat to the level the flu is. Total elimination was never a possibility as long as it existed somewhere.
But we had better hope Nipah doesn't get out of India, it is far, far worse!
a few problems there though
- India (12% vaccination) and cases/deaths VERY quiet ... hmmmm - any one asking what they did?
"designed to be a delaying tactic until science caught up " ....
The idea of a "vaccine" / mirracle eradication cure was completely oversold - and now a leaky one with lockdowns is replicating the Spanish flu breeding ground for far uglier variants ... science didnt need to catch up (treatment of the SICK should have been the priority) ... he is saying from the beginning it was a bad flu which if left to spread would have dissipated out to "normal" ...
it wasnt "novel", it wasnt unexpected
A few issues with your comment - in India a ravaged Health system that is NOT coping, and deaths significant. I agree that some took the vaccine to mean "eradication" but I didn't hear anyone of the authorities actually say that. As I said the comparative bench mark was/is the Flu and that is not eradicated. And science did need to catch up. COVID was a completely new virus, with no known treatment, so how can you treat the sick? Science is still catching up, especially as people resist the restrictions giving the virus more opportunities to mutate into more virulent examples such as the South African C variant and the Mu variant from South America. We went from the original Wuhan strain that had the worst impact on older and vulnerable people to Delta which is killing young, healthy people. It was novel. We have more knowledge now, but science is still behind the curve. More to this is that we are still learning what the long term effects of having COVID mean. People are reporting that despite no longer having it they are still lethargic, and breathless, still ache and so on. Flu doesn't do that to you. Despite your counter arguments - don't catch it, you won't enjoy the experience!
Kiwibank Internet banking down again today. They were down all day Sunday and Monday. Thousands of bad comments on their Facebook page. They must have been hacked. Would think a bank would have better Internet security and systems. Times like this that cash looks good. https://www.nzherald.co.nz/business/customers-threaten-to-leave-kiwibank-as-access-goes-down-again/KJMXHDACPES4BP3FZ465LESJFM/
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