Manukau Harbour
Here's our summary of key economic events overnight that affect New Zealand with growing concerns about how fast and how widely producer prices are rising.
But first, frustration at the resistance of a minority, but a sizeable minority of Americans to not get vaccinated and thereby risking the health of those around them has boiled over at the top. The carrot-and-stick approaches to public safety are about to get more pointed, and the irresponsible will incur significant costs. (In stark contrast, Denmark has reached an 83% vaccination rate and is reopening.)
The latest update of the US Fed balance sheet shows it essentially unchanged for a fourth week in a row. They are getting ready to reduce bond buying in November, and that will pave the way for rate increases. Signals for this are expected in their September meeting in about two weeks.
The US producer price index rose +8.3% in August from a year ago, more than expected and the biggest annual rise since they started keeping this data in 2010. This is in the context of the global supply chain shocks, domestic labour shortages of skilled workers, and fast rising commodity prices. It seems less likely this sharp producer price pressure in transitory.
It is not just a US phenomenon. China reported its PPI rise earlier this week as +9.5%, Japan recorded +5.6% for July, Germany reported +10.4%, Taiwan +11.9%, South Korea +7.1%. Australia's +2.2% change is unusually restrained but New Zealand's +7.2% is mid-ranking on a world scale.
There will be no escape from this global rising tide - although we can mitigate it with a rising currency, and ours has in fact risen +2.2% since the end of July. However it is clear such a move will only take the top off this coming global inflation threat.
The Americans are reporting that they will import more beef at higher prices. The same report says their milk production will fall and price forecasts were raised.
On the commodity front, nickel prices surged past US$20,200 a tonne for the first time since May 2014, boosted by strong demand from stainless steel mills and electric vehicle battery makers, along with shrinking inventories. Copper and aluminium prices are also rising in a broad rally today. Going the other way, wheat prices are falling, although that is from generally high levels.
Canada reported that their August employment rose +90,200 in the month, two thirds of it as full-time employment. Although this was slightly less than was expected, their summer re-openings helped. They are actually now close to recovering all the pandemic job losses.
And we should note that China carbon market seems to stumbling in its early stages. Prices are falling and are now only NZ$9.90/tonne. That is far from the New Zealand price of $65.00/NZU where we ended this week, and the EU price of NZ$103.50/tonne. It is even above the NZ$25.30 for the Australian ACCU.
China is ten days away from its Mid Autumn Festival holiday, a week long break before their winter sets in. It usually features another vast movement of people but this year most of that travel will be domestic, Domestic bookings are high.
In China, new bank lending rose less than expected in August and not really bouncing back from the nine-month low seen in the previous month. Slowing credit growth indicated weakening financing demand from companies as their economy slows.
In Japan, a major convenience store operator will open about 1,000 unstaffed shops by the end of fiscal 2024 offering the same products as the chain's regular outlets, in the first large-scale deployment of fully automated stores in Japan.
Indian industrial production rose +11.5% year-on-year in July, lower than the +13.6% in the previous month, but above market forecasts of +10.7%. It is the fifth month of double-digit growth due to low base effects from last year but it does reflect a fast improvement in the past few months.
German consumer inflation came in at +3.9% in August, and a 28 year high.
In Australia, the auditor of James Packer-controlled Crown Resorts casino business have noted that ongoing regulatory and legal matters raise the question of whether it is a going concern. (see page 98.) That didn't stop Crown from paying some significantly large bonuses to some senior managers.
And the APRA boss says they are monitoring a rise in highly leveraged mortgages as the regulator considers potential macro-prudential measures to cool the surging housing market. It is a market expected to fly again when pandemic restrictions ease as vaccination rates rise.
And staying in Australia, there were another 1543 new community cases in NSW yesterday with another 1389 not assigned to known clusters, so zero improvement there. They now have 13,022 locally acquired cases. Victoria is reporting another 334 new cases yesterday, so it is still getting worse there, particularly in Melbourne's north. Queensland is only reporting one new case. The ACT has 24 new cases. Overall in Australia, more than 41% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
Wall Street is directionless in its Friday session, with the S&P500 currently down a further -0.2% and taking the weekly retreat to -1.1%. Overnight, European markets were mixed but down overall about -0.1%. Yesterday, Tokyo rose +1.3%, Hong Kong rose by +1.9% and Shanghai \rose another +0.3%. On a weekly basis these three key Asian bourses rose +3.0%, +1.5% and +3.4% respectively so they all had a very good week. The ASX200 recovered +0.5% on Friday but that still left it down -1.6% for the week. The NZX50 Capital Index fell by another -0.2% and taking its retreat for the week to -1.8%.
The UST 10yr yield opens today at just over 1.34%, so bouncing back up +4 bps in a day to a very similar level to one week ago. The US 2-10 rate curve is at +112 bps and steeper. Their 1-5 curve is also steeper at +74 bps, while their 3m-10 year curve is much steeper too at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.27% and recovering +4 bps from this time yesterday. The China Govt ten year bond is at 2.90% and up +1 bp. The New Zealand Govt ten year is now at 1.88% and down another -2 bps on the day.
The price of gold has slipped -US$5 today and now at US$1791/oz.
Oil prices have risen by -US$1.50/bbl, so in the US they are now just over US$69.50/bbl, while the international Brent price has risen to just over US$72.50/bbl.
The Kiwi dollar opens today at 71.2 USc and little-changed since this time yesterday, but -25 bps lower since this time last week. Against the Australian dollar we are slightly softer since yesterday at just over 96.2 AUc but a little firmer over the whole week. Against the euro we are firmer at 60.3 euro cents. That means our TWI-5 starts today at just on 74.2, firmer for both the day and the week and still right at the top of the 72-74 range of the past ten months.
The bitcoin price has stayed down, now at US$45,769 and a drop of -2.5% since this time yesterday and a retreat of -7.9% in a week. Volatility in the past 24 hours has been moderate at just under +/- 2.5%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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36 Comments
First it's transitory.
Then it's 'well we missed out on a bunch of structured inflation so a catch up makes sense'
Then its 'The price of goods has fallen a way behind housing'
Then it's 'Employers need to play their part in helping wage growth'.
And then you appoint a new RBNZ Governor who starts the cycle again.
Probably not actually, this will surprise people as I'm usually the one person cheering on the immense housing bubble but it is a bubble. To the moon, all that, but there will be a re-entry and landing.
The truth is though our population demographics just won't support asset prices this inflated over the long-term because the fertility rate in New Zealand is too low. Although migration, poor housing policy and allowing economists to run the Reserve Bank has extended this bubble far further than it ever should - it will finish. I'm not exactly sure when but I'd speculate between 2025 and 2045 this decline in house prices will really start to accelerate very rapidly due to structural demographics. You'll see small, rural and retirement areas precipitating this decline as obviously they tend to have the oldest populations in New Zealand while in cities it'll be much lower impact. Our immigration boom probably started about a decade too early in New Zealand so in the long term that will also weigh on house prices while monetary policy will likely counter productive because it's too focused on CPI.
There may also be another cyclical swing before that begins because we've had this amazing build-up in asset prices since 2007-8 and usually you get a regression to trend at least once a decade.
I could write a lot more but I think I'd just bore people. Much as to say though this idea that house prices always increase will be proven wrong, there are real trends driving this and those will unwind in the cruel absence of immortality. The question is will anyone want to own a house when it's declining in value due to gross oversupply?
Interesting post. I think people will still want to own homes, to a degree of risk (what degree I don't know) that is immaterial to changing values. The big determinate of that will be the necessary debt to income ratio required to get in.
If that gets low enough and people can see themselves paying off the loan in 5-10 year's time, then that leaves room for life to happen and I think people would handle the ebb and flow of property values a bit more philosophically. Owning your own home is pretty nice.
Of course that scenario is a million miles away from our current market and is hard to imagine ever being possible. But I bought my first home 15 years ago in Auckland with a debt to income of 4 (just a unit but spacious, warm, dry, central, with a big garden). 15 year term, went to work in Aussie paid it off in 8. It really wasn't that long ago that the situation was workable. It is absolutely and completely ridiculous now however.
It's already starting in countries with an older population Japan, Germany and Italy for example. However all have populations that are, on average, several years older than New Zealands presently.
It makes you realise there is a fundemental problem when the Prime Minister talks about the importance of housing to the wealth of New Zealanders. It's predicated on the notion that we will always be able to grow our population/housing demand but the birthrate is too low and falling. Attracting future workers will be difficult when every other country starts competing for fewer working age people (e.g. Canada.)
Don't mistake a house for a sound retirement plan. Also, if you're lending, be careful about what you take as collateral.
Indian industrial production rose +11.5% year-on-year in July, lower than the +13.6% in the previous month, but above market forecasts of +10.7%.
Is Australia hitching it's wagon to India after dumping China?
India, Australia, Japan, USA form the Quad, read about it. India is now becoming about as strategically important to the western allies as the nation was once vital to Britain’s empire. China is in Influence in Myanmar & Pakistan poised to position similarly in Afghanistan to augment and consolidate their established relationships, in concert with Russia, Iran & Syria and potentially Iraq. From the sub continent to the Mediterranean a gigantic area of territorial interest. Yep India will need support and no wonder if moves are afoot accordingly in terms of traditional alliances.
Well in old language it is fairly clear the author(s) considers the USA or more pointedly President Biden to have blinked first, but in the similar language of similar vintage per Mandy, they would say that wouldn’t they. Words are always easy and they just as easily fly out the window if/when the need/occasion arises, Adolf is always a resonant reminder of that isn’t he.
Indeed talk is cheap, nonetheless:
Today whole of Royal Navy or US Navy's CBG can be destroyed in bases with salvos from 4,500 kilometers away or in the ocean from ranges of 1,500 kilometers. The seat of the British, or any other, for that matter, Government could be destroyed with the accuracy and precision unmatched by anything in the history of human civilization and all this could be done without the use of nuclear weapons. Or with them, if it comes down to it. This is what keeps today the world in balance and at peace--inability of the combined West to match those capabilities. Link
But commonsense will prevail:
Ministers from the Association of Southeast Asian Nations called on Wednesday for more multilateral investments through China's Belt and Road Initiative to support economic recovery while the COVID-19 pandemic continues to depress regional economic growth - Link
Naval power is an interesting one. Take the Falklands war a basic Exocet missiles from an obsolete Skyhawk wrought much damage. Forty years later with satellite/GPS technology any surface vessel is a complete sitting duck unless completely away from the actual theatre. Aircraft carriers obsoleted battleships and missile launching platforms will provide the same outcome for them. Think what a Kamikaze Zero could do 75 years ago or so for a start. Throughout history nations and ethnicities have struggled over the balance of power compounding into continental wars. That the balance of power has now escalated to the brinkmanship of nukes is approaching something like a fatalistic prophecy of doom. The re-emergence of Afghanistan as a sanctioned base for retribution by terrorists is of alarming potential. Think Iran, N Korea. Think nuclear. Think nuclear backpack bombs. Think grand scale retaliation.Think horrific consequences globally.
Sure are, have been since before the polaris, and launching beneath the surface perfected. That’s a big answer isn’t it along with who has the greatest fleet of these in play. Interesting to read Curtis Le May at the time his brainchild, of the SAC B52s aloft 24/7 had to eventually acknowledge this only being necessary until such time that the sub force was sufficient to do the job instead. Actually I made the above comment simply to illustrate how far stretched a theoretical outline of future warfare can carry itself once started. The US military does stupid things but the guys at the top are not stupid in terms of global strategy.
It'll be interesting to watch how Biden's hard-line vaccination strategy plays out. The whole subject has
become so heavily politicised that it's hardly recognisable as a public health issue anymore.
American politics normally involves trying to divide public opinion cleanly in two over any given issue, and playing the two sides off against each other. That way, it doesn't matter much which position you decide to take as a politician, you're going to have roughly 50% of your constituency's support, and if you need to sway public opinion in the other direction, you don't have to change too many minds in order to do so. It's a political hedge (one which were starting to see increasingly here too, unfortunately).
But here we have a situation where 75% are pro-vaccination, and 25% opposed. That's not a clean split, which complicates things.
If the Biden's vaccination strategy isn't effective, he's going to have 75% of the US population at his throat. It'll be political suicide for the Democrats and the GOP will romp into the White House next election, potentially with Trump at the helm. His hard-line approach is a huge political gamble, and it needs to pay off. I can only imagine he'll be pulling out all the stops to ensure that it does.
Heck if Churchill thought Russia was an enigma he had no idea of the USA then.The underlying conflicts that simmer in all walks of life manifest now in vaccines. Our elderly neighbours from when we lived there have done everything right. Stayed isolated. Went out once vaccinated, masks, gloves, kept their distance at church, golf etc. Will get booster shot next week or so. Now one daughter in law has become an anti vaxer even though herself, severely hit by covid in the early days and this has been enforced on husband and three children.Has become. almost a familial civil war. Both our old friends have moderate underlying conditions, and of course could contact delta outside of the family anyway, so guess they are about to discover sooner or later just how much protection Mr Pfizer affords those that are in this bracket.
America will keep walking into these crises and it all stems from one thing - their inability/unwillingness to better regulate social media. The 25% of fools that suffer from Dunning-Kruger are as a direct result of their decisions to not regulate social media as it is the real virus that spreads mis/disinformation to these fools that who call it "research".
Social media giants have said repeatedly they are publishers, not platforms. That enables them to monetise their content. And if that is the case, the US government should be VERY heavy handed about what they are allowed to say on their platforms. The tools and technology to do so already exist within the social media companies, yet still they balk at the idea of regulating them. And we can see the result, public health crises, idiots believing flat earth theory, the attack on the Capitol etc etc. It's tearing up the fabric of their society and they won't act. Because "freedom", which appears to soon be "anarchy". We should all be very afraid.
Why worry about any product price rise as government and rbnz are their to support.
As per Fed and being supported and followed by Orr : inflation is temporary and if so why even the discussion.....Discussion should be on their definition and manipulation of TEMPORARY as they can and will keep shifting the goal post form one quarter to two quarter to year to decade....century :)
Has anyone asked them what their definition of Temporary is ?
I don't know where the information is coming from about Family Mart in Japan about opening 1,000 unmanned stores. The link is to their website and there is no press release in English or Japanese. However, the company has already opened a pilot store. What many will not understand about FM is that they have strong power over manufacturers. They have their own store brands that are high quality products and many consumers would prefer over national brands on taste tests, price, etc.
NZ does not have this supply chain capability. Nor do we have the economies of scale. Therefore, the consumer is forced to pay higher prices for arguably lower quality products.
https://japantoday.com/category/features/lifestyle/what%E2%80%99s-it-li…
Unfortunately not so fast. Norway is similar but compare respective hospital capacities and efficiencies to ours. That is the crux. In NZ we have nurses & doctors asking what the hell is going on at Middlemore, in the midst of a lockdown pandemic critical to have compliance, and visitors strolling in and out unchecked. Where is the Minister of Health. The government hides behind the skirts of the bureaucrats, they say oh just leave it to Monday, it’s our weekend don’t you know. Exactly the same evasive example on display this evening news with the Corrections Minister over potential terrorists circulating in NZ.
internet rumor. But the lady who tested positive at middlemore was apparently at a gang party the day before. Hence why 7 cops were stood down. They broke up the gathering.
Good luck contact tracing that lot. They will have an omerta thing going.
If true the virus is now floating round some of this countries biggest degenerates. Who will give zero f@#ks about level 4 rules even if symtomatic & will ignore/lie to contact tracers.
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