Here's our summary of key economic events over the weekend that affect New Zealand with news commodity prices for some key industrial minerals, and producer prices overall are rising faster now.
But first we should note that China's carbon market seems to be 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 below the NZ$25.30 for the moribund Australian ACCU carbon market.
Meanwhile, China's 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.
Indian industrial production rose +12% year-on-year in July, lower than the +14% in the previous month, but above market forecasts of +11%. 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 almost +4% in August, and a 28 year high.
The US producer price index rose more than +8% 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 close to +10%, Japan recorded nearly +6% for July, Germany reported +10%, Taiwan +2%, South Korea +7%. Australia's +2.2% change is unusually restrained but New Zealand's +7% 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.
One response the rest of the world seems to be taking is to spend up big on new capex, driving for productivity improvements. Global capex spending is booming, especially for software.
Separately, 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 towards US$20,400 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 last week. Going the other way, wheat prices are falling, although that is from already 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.
In Australia, 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 1262 new community cases in NSW yesterday with another 1190 not assigned to known clusters, so zero improvement there. They now have 14,510 locally acquired cases. Victoria is reporting another 392 new cases yesterday, so it is still getting worse there, particularly in Melbourne's north. Queensland is reporting zero new cases. The ACT has 19 new cases. Overall in Australia, more than 42% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The UST 10yr yield opens today at just over 1.34%, so unchanged since the close of trading in New York last week. The US 2-10 rate curve is at +113 bps and marginally steeper. Their 1-5 curve is unchanged at +74 bps, while their 3m-10 year curve is also unchanged at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.27%. The China Govt ten year bond is at 2.90%. The New Zealand Govt ten year is now at 1.88%.
The price of gold has slipped -US$4 today and now at US$1787/oz.
Oil prices have held unchanged over the weekend, 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. That is a +2% gain over the past week.
The Kiwi dollar opens today at 71.1 USc and little-changed since this time Saturday, but -40 bps lower since this time last week. Against the Australian dollar we are +½c firmer at just over 96.8 AUc and +70 bps firmer over the whole week. Against the euro we are unchanged at 60.3 euro cents. That means our TWI-5 starts today at just on 74.2, little-changed 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$45,878 and just +0.2% firmer than this time Saturday. Volatility in the past 24 hours has been modest at just under +/- 1.7%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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35 Comments
The failure of China's carbon market is likely a consequence of the nature of Government involvement in many of their industries. I suggest that part will be a belief that no matter how polluting, the CCP will not allow some industries to fail, and their military either controls or strongly influences plenty as well.
However the NZ price reflects just how stupid, in the free world, the concept is and how gullible the Government and its advisers are. But then James Shaw is intending to attend a conference in Scotland on climate change in person! That carbon foot print is an impressive one, not to mention the fact that the risk with COVID Delta, and Mu, and a couple of other variants that are emerging is escalating. That sense of entitlement is impressive, and the Labour voters becoming wary of Labour are expected to swing to the Greens?!
https://www.newsroom.co.nz/the-fossil-fuel-discussion-were-not-having
Finally - the discussion we SHOULD be having.
Watch it get buried.....
Your Shaw comment is covered here:
https://dothemath.ucsd.edu/2021/06/credibility-from-apparent-hypocrisy/
Thanks PDK. From that article, I found the concept of Tradable Energy Quotas interesting as a workable reducing ceiling of fossil fuel use.
https://www.flemingpolicycentre.org.uk/teqs/ gives a 1 minute read of the concept.
That's excellent.
I've been podering something similar for months after a discussion with a farming sister in law saying cities are filthy places that need cleaning up, which got me to thinking should everyone have x amount of miles they can drive per year before they start paying extra, namely the people that live in cities that could easily catch a bus but still choose to drive the X5.
I guess the downside of a scheme like that is it punishes the less well off who have drive a long way to work because they can't afford to live near to work but also get a shit wage.
Seriously. You are supporting arbitrary 'rationing' in favour of the ETS?
From the article (which surely has to be satire):
<i>Greater fairness is also an advantage of rationing compared to ETS. Generally, everyone gets the same ration of fossil fuels so there is no disadvantage to those with low incomes.</i>
It would be extremely regressive. Think the EV subsidy on steroids, is how regressive this is.
You are essentially penalising people that have low marginal product of fossil fuels: essentially the working poor. The poor who cannot afford efficinet vehicles - the same people who travel far for their livelihoods.
Bollocks.
That marginalising has been done in the last 37 years, by rule of law.
Rationing is much more egalitarian.
Please try and divest your assumptions, if you're going to join in. Who assumed 'livelihoods' or 'driving' in the above conversation, or the article I linked? The whole point is that the societal structure will be vastly different. Maybe you need it in younger-reader form?
https://www.theguardian.com/childrens-books-site/2012/mar/21/review-car…
Perhaps you need schooling on what regressive social policies are, PDK.
It is not egalitarianism if at it's very core it penalises the poor versus the rich.
Who assumed 'livelihoods' or 'driving' in the above conversation, or the article
Well, the author, of course...Did you read the article?
"Rationing itself would not directly increase the price of petrol or other fossil fuels, as is supposed to occur with the ETS, which would place a burden on those with lower incomes."
The third part of that sentence goes with the second. It is separated from the first part, by the second. It is saying the ETS will place a burden on the poor, not that rationing will. Obviously something which doesn't raise the price, will be better for the poor. With rationing, a billionaire and a pauper get the same issued litres. Sounds like a levelling to me.
Again, try divesting the saturated mantra. Then you might read what is there......
And this is why you aren't a policy maker.
With rationing, a billionaire and a pauper get the same issued litres. Sounds like a levelling to me.
Yes. That's exactly the point why it is such an issue. The billionaire needs fossil fuel less than the pauper - He has substitutes for travel that use alternative fuel.
Giving a low income worker (a nominal ration ) 20l of fuel per week almost certainly means they cannot travel to and from their jobs for a full week. Let alone perform any sort of recreation. Giving the billionaire 20l of fuel per week does not alter his ability to to transport himself to for work or leisure, at all.
So, without some redistribution, the poor are heavily burdened. It is largely the case with the ETS, too. However, the conversation around this is a redistribution of income to reflect the bias generated. Of course this is a solution with (inefficient) 'rationing' too. However, none of this is at all mentioned (apart from some token reallocation for ambulances/public transport). The author, and yourself have doubled down on the idea that rationing is the way to go because it doesn't burden the poor like the ETS - which for the very reasons above are categorically incorrect.
Again, you make it too easy for me.
"He has substitutes for travel that use alternative fuel".
"Giving the billionaire 20l of fuel per week does not alter his ability to to transport himself to for work or leisure, at all".
Nope - that ration would include their share of air travel, etc. That's why I linked you that early adult easy-reader - the young lady wanted to go to a rock concert in Spain, had enough credits to get there, but not back again. Meaning, the ration would INCLUDE EVERYTHING the billionaire wanted to do. Which rather make being one a waste of time.
Again, your problem is mantra-driven assumption.
So your solution is that an extremely complex form of rationing is better than the ETS?
Again. Policy analysis + PDK = do not compute
And you (unwittingly) outline the issue perfectly. The billionaire uses air travel to traverse the country (because he can afford it) while the pauper must take his car. The billionaire gets the benefit of hugely increased efficiency from flying (on an energy basis) meaning he uses less ration to travel the same distance.
Similarly, the billionaire can afford an EV which also significantly reduces his fossil fuel (ration) dependence.
So, again. The billionaire is not punished by the 'rationing' policy as much as the pauper.
Go ahead - Double down again, PDK.
It seems less likely this sharp producer price pressure in transitory.
Even though the PPI for commodities isn’t seasonally-adjusted, it needn’t be (smooths on its own, especially since last year) to see the transitory action in something like rolling three-month rates of change:
Prices are, according to the BLS, still rising but no longer to the same degree and in the same way as earlier in the year. This seems to be something of a surprise, as if price behavior is all or nothing; it has to be continuous inflation, many are claiming, unless the PPI or CPI just stops rising altogether all at once. Link
https://www.rnz.co.nz/news/business/451346/kiwis-sceptical-house-prices…
This sentiments as everyone knows that both government and RBNZ do not want to act on ponzi though under pressure may tweak a little as a token gesture to potray that are concerned and trying to do all that they can
But ASB so called economist as in another article feels differently as they want to provide reason to Mr Orr, not to act, as if he was and wanted :)
https://www.interest.co.nz/index.php/personal-finance/112205/asb-chief-…
In the short term the outlook is great. In the long-term though the however the bext 30 years are likely to be as cruel to house prices as the previous 30 where kind in New Zealand.
New Zealand had one of the largest post-war baby booms [link] in the world and our death rate is going to start to rise abruptly [link] as the first of that generation approach their 80s. Covid-19 may well accelerate that trend.
Prime Minister Ardern hit the nail on the head when she talked about a house being most peoples most valuable asset. It's about to start to be devalued.
Yes - if anyone is feeling a bit confused about what is going on in society at present, I can recommend reading 'The 4th Turning' by Strauss/Howe.
One of the best books I've read in a while that gives some clarity to what is (could be) happening to the structure of society, the problems we're facing, and how they might be resolved.
It would appear we're at the height of the 4th turning - the last time this happened was in the 1920s - 1945...with the rise of a hero generation (millennials in this instance...the equivalent of the greatest generation...JFK types etc) and as the prophet generation (boomers) move into elderhood. According to Strauss/Howe theory we could be in for significant change in the next 5-10 years. People may not recognise society by 2030.
https://en.wikipedia.org/wiki/Strauss%E2%80%93Howe_generational_theory#…
Thanks, I'll look that up.
I recommend The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival by Manoj Pradhan and Charles Goodhart. Pradhan was formerly a managing director at Morgan Stanleys Global Economics team while Goodhart was an economist and member of BoEs MPC. So they're not complete quacks and I think their ideas will hold water.
""New Zealand had one of the largest post-war baby booms in the world and our death rate is going to start to rise abruptly as the first of that generation approach their 80s."" Living on Auckland's North Shore I rarely meet people born in New Zealand. I wasn't and neither my wife and our four children but the three grandchildren were born in NZ. The population of NZ in 1945 was 1.7m, now it is 5m plus another million living overseas.
Roughly a quarter if the population where born outside New Zealand. From the post-war era to the mid-70s New Zealand was a popular destination which mirrored the countries own population boom:
https://www.interest.co.nz/property/95613/our-changing-migration-patter…
Many of the countries we traditionally gained population from are now aging or have slowing population growth themselves of course. The world is just running short of working age people, particularly under 40s where most immigration tends to occur.
Crazy times the forest I am a partner in ( 600 acres ) planted 1995 before Carbon credits were invented has gained $900k this year with the rise in CC's . The market has been so uncertain in the past we sold half our credits 8 years ago. At least I can drive my V8 guilt free Lol !
It's rapidly becoming a joke. We are planting on land we denuded in the last 150 years, but pretending the planting can replace not the denuding, but something extra from underground. Fantastic!
Then we think we can make a 'profit' from it - whereas 'profit' is actually representative of surplus energy.
I planted trees to do my bit for humanity; for the planet for my grandkids. I kept away from money (not part of the ETS) because it represents, at this stage, nothing real. Hasn't since perhaps 1970, certainly and obviously since 2007/8. Just ever-increasing debt atop an ever-depleted planet.
But if I'd got into the scheme, I'd be hanging onto every credit that came my way. The real 'price' of carbon is beyond any price society can pay - as is the real price of every 'next' energy option. If the system remains intact, they will only go up. The problem is that, at a certain point, their 'upping' causes a big 'downing'......... in everything else.
Interesting times....
PDK - ' I'd be hanging onto every credit that came my way" - Thanks for you view I may well do that.
The price has increased rapidly off a low base and for me it is just a bonus where as today good farmland is being planted just for the CC's !
At least our forest was only planted on marginal hill country we bought that was ravaged by cyclone Bola !
KW - Our forest is liability free. Remember how for a period if time the Government allowed purchase of Eastern European cheap CC's, we bought those.
It all seemed a bit dodgy at the time but it was legal.
I think they were a couple of dollars each.
Covid 19 is holding up harvesting the forest at the moment.
Hi David,
Reality of how housing ponzi is jumping from one height to another and still Orr is ......
Email below from real estate agent :
Bucklands Beach
- ONLY TWO DAYS on the market!!
- SOLD $680k above CV (CV 860000)
- Cash buyers demanding houses in East Auckland!
Did you know it's currently a very strong Sellers Market?
If you have been thinking of selling, there's no better time to get things moving!
We have got plenty of buyers but a lack of listing which means a very strong market for sellers.
Imagine them all fighting it out to own your home. Fighting it out means getting top dollar!
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