Here's our summary of key economic events overnight that affect New Zealand with news great power rivalry continues in the wake of some blindingly stupid choices made in Washington five years ago.
First today, we should note that China has formally applied to join the Trans Pacific Partnership (now the CPTPP). There is grand irony in this, because the TPP was originally an American idea to contain China. But Trump thought he knew better and pulled out unilaterally. That had little impact other than to sideline the Americans. The deal went ahead to be the world's largest multilateral trade pact that had high labour and environmental standards. China's push to join will take a long time, but it sort of isolates the Americans in this essentially Asian trade area.
Its an application that comes just one day after US, the UK and Australia announced new defense partnership aimed at containing China.
Separately, we should also note that China has now vaccinated 1 bln of its people against Covid-19, about 70%.
And China is also the center of a storm at the IMF and the World Bank. The current IMF boss has been accused of trying to manipulate scores in the World Bank "ease of doing business" assessment to improve the results for China and other countries when she worked there. That report has ranked New Zealand as top for a while. Now the World Bank has dumped it due to the dodgy ethics behind its construction.
Back in China, cement prices are surging and now at an all-time high as production cutbacks bite resulting from tougher environmental standards being enforced.
And the Evergrande train wreck keeps developing with the company offering investors three options - cash installments, property swaps, or promissory notes. It is unlikely to appease the thousands who have besieged the company headquarters. But investors face a 75% loss. Meanwhile Chinese stock exchanges are limiting the ability to trade its securities.
In a small positive data surprise, US retail sales rose in August when a fall was expected after the July fall. And it was an August rise that came despite a continuing weakness in car sales, undermined by low production amid the shortage of computer chips. The overall result is actually quite impressive.
Meanwhile, the level of new jobless claims continued to fall on an actual basis (up marginally on a seasonally adjusted basis). This is encouraging also. However the total number of people on these types of support benefits has fallen to just over 2.3 mln, it lowest level since the onset of the pandemic. But the fall is now a combination of a lower number of people claiming, and a rise in the expiry of qualifications.
Also positive in the US is the September edition of the Philly Fed factory survey. This turned back higher in its close-watched "current conditions" indicator, and is still reporting very high price increases. Firms in that region remain optimistic about future growth, although less so that the previous very high readings.
In Canada, data for housing starts, and employment growth stayed at good levels although both are starting to drift.
The OECD is looking at the widely disparate carbon trading systems, from the EU, NZ, Australia, the US and China, and is worried that they will be the spark for a new trade war. It is trying to corral countries into finding a more global system that can't be gamed, arbitraged, or abused, one that will avoid the EU's inclination to slap tariffs on anyone who doesn't pay the prices of their system.
Meanwhile on the commodities front, the cost of container shipping rose another +2.9% over the past week with no sign these rampant increases are slowing yet. The Baltic Dry index is staying at its recent highs.
In Australia, their new lockdowns are skewing their labour market noticeably now. They lost -146,000 jobs in August, -78,000 were part time, -68,000 were full-time jobs. But participation fell as an unexpectedly large number of people dropped out of their workforce, and that left their official jobless rate at 4.5%. The number of hours worked fell by -3.7% in August from July.
At the same time, inflation expectations rose sharply in Australia from 3.3% in June to 4.4% in September.
And staying in Australia, there were another 1351 new community cases in NSW reported yesterday with another 1252 not assigned to known clusters, so going backwards there again. They now have 14,273 active locally acquired cases. Victoria is reporting another 514 new cases yesterday, so it is worse there too. Queensland is reporting one new case. The ACT has 15 new cases again. Overall in Australia, more than 44% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.
The Thursday session on Wall Street has traded lower since its opening, with the S&P500 now down -0.3% in early afternoon trade. Overnight, European markets were mostly higher between the range of Paris up 0.6% and London up +0.2%. Yesterday the very large Tokyo market fell another -0.6%. And Hong Kong dived another another -1.5%. Shanghai fell another -1.3%, with building sell-offs. It isn't turning out to be a good week in Asian equity markets. The ASX200 closed up +0.6% and the NZX50 Capital Index closed down -0.2%.
The UST 10yr yield opens today at just over 1.34%, so recovering another +4 bps from this time yesterday. The US 2-10 rate curve is at +111 bps and marginally steeper. Their 1-5 curve is steeper too at +76 bps, while their 3m-10 year curve is steeper at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.28% and also up another +3 bps. The China Govt ten year bond is at 2.91% and down -1 bp. The New Zealand Govt ten year is now at 1.82% and up +3 bps.
The price of gold has fallen another -US$35 today and now at US$1757/oz which takes it back to about where it dipped briefly to in mid-August. It hasn't been a good day for the yellow metal. Silver has fallen harder.
But oil prices have held unchanged overnight so in the US they are now still just on US$72.50/bbl, while the international Brent price is now under US$75.50/bbl.
The Kiwi dollar opens today at just on 70.7 USc and losing -¼c since this time yesterday. Against the Australian dollar we are up to just over 97 AUc. Against the euro we are little-changed at 60.1 euro cents. That means our TWI-5 starts today still at just under 74 and still right at the top of the 72-74 range of the past ten months.
The bitcoin price has slipped today, now at US$47,622 and -0.9% softer than this time yesterday. Volatility in the past 24 hours has been modest at just over +/- 1.3%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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90 Comments
There's an interesting seminar coming Monday evening:
http://wiseresponse.org.nz/2021/08/31/seminar-are-there-biophysical-lim…
To be chaired by Girol Karacaoglu, School of Government/Vic. Simon Michaux, Steve Keen, Tim Jackson, Susan Krumdieck - should be a doozy.
Current industrialization has a foundation in the continuous supply of natural resources. The methods and processes associated with this foundation have significant momentum. This paradigm will not be undone easily. Human nature and human history make it so. Currently, our industrial systems are absolutely dependent on non-renewable natural resources for energy sources.
Current thinking is that all industrial businesses, will replace a complex industrial ecosystem that took more than a century to build. This system was built with the support of the highest calorifically dense source of energy the world has ever known (oil), in cheap abundant quantities, with easily available credit, and unlimited mineral resources. This task is hoped to be done at a time when there is comparatively very expensive energy, a fragile finance system saturated in debt, not enough minerals, and an unprecedented number of human populations, embedded in a deteriorating environment.
It is apparent that the goal of industrial scale transition away from fossil fuels into non-fossil fuel systems is a much larger task than current thinking allows for. The majority of infrastructure and technology units needed to phase out fossil fuels has yet to be manufactured. Recycling cannot be done on products that have yet to be manufactured. It is clear that society consumes more mineral resources each year. It is also clear that society does not really understand its dependency on minerals to function. Availability of minerals could be an issue in the future, where it becomes too expensive to extract metals due to decreasing grade.
It sounds like he needs Nymad to tell him about 'technology' and how this is all a non-issue.
Putting our sheep and beef country on the pyre isn't sacrifice enough to please the global warming head priests. So we can kiss goodbye the theoretical 0.17 degrees of cooling the Paris agreement was going to bring us by 2100.
'...Of particular concern are Australia, Brazil, Indonesia Mexico, New Zealand, Russia, Singapore, Switzerland and Vietnam: they have failed to lift ambition at all, submitting the same or even less ambitious 2030 targets than those they put forward in 2015. These countries need to rethink their choice," said Bill Hare, CEO of Climate Analytics, another CAT partner.
...None of the world's major economies -- including the entire G20 -- have a climate plan that meets their obligations under the 2015 Paris Agreement, according to an analysis published Wednesday'
https://edition.cnn.com/2021/09/15/world/climate-pledges-insufficient-c…
https://onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12295
Think read some weeks ago that Switzerland’s powers that be had voted to wind down on their emission obligations as they realised that what the nation was actually doing amounted to virtually nothing in terms of a global percentage, and there was little point in doing something about nothing.
Of those countries a number are so small their contribution is like ours so small as to make little difference.
But there is still much doubt, and PDK possibly won't appreciate this comment but the book is not yet written on what will happen if the average temperature increases by 1.5 degrees or more. It will be clear that parts of the planet will essentially become uninhabitable, but to be fair there are are already, and have always been parts that are for all intents and purposes, uninhabitable without significant technological intervention (Antarctica comes to mind). Weather events will become much more significant, and some stretches of coastal land may well vanish under water or be washed away.
The big concern is with the rise in average temperature become self sustaining? The extra energy feeding sufficiently more wild fires to keep the rises going. All this will mean existing populations will end up being limited to smaller land areas, further exacerbating the issues with high population pressures. And yet population size is still not a point of discussion in all this.
Why does it need immigration? The skills can be developed here. Technology allows companies to reach out across the world to gain the knowledge and skills to do almost anything. Companies can sponsor people to travel to learn if necessary. Apart from undercutting local wages, i don't see much rationale that stands up to scrutiny otherwise.
Good points.
But let's be realistic, we still need at least a moderate level.
But as you say if we actually invested in training and development then that need should reduce.
However remember that a certain proportion of our population has no interest or aptitude to upskill.
We need 'some' immigration because we have skill shortages in certain areas.
We have an ageing population, we will need more carers- as one example.
I am all for upskilling kiwis, and also importantly and linked to that providing better employment conditions and pay. That's a big part of getting more kiwis into these areas.
But there's still an aptitude issue.
Disagree that thee is an aptitude issue. There is an attitude issue though. Carers is not a skill shortage issue it is an issue of undervaluing their role and work. Immigration is not needed, fair pay is.
There needs to be greater separation between benefits and work incomes. those on a benefit lose too much to quickly when they start transitioning to work. I suggest that that is because there is some institutional ignorance that doesn't understand that physical, emotional and intellectual fitness are impacted when moving from doing nothing to doing something, and people need to be given time to transition and realise the benefits of working. The body and mind has to cope together as people learn confidence. For some this will be a struggle. But there needs to be strong encouragement. Media calls around poverty are mostly around people on benefits. I suggest build in strong motivators to get them wanting to work will help. But then there needs to be the work available.......
Murray86 - In the real world in this country try finding young people who are prepared to work outside in the sun and heat to pick fruit or to even be reliable no matter what you are prepared to pay them, when they realise they need to work 8-10 hours everyday until the harvest is done - game over.
The Pacific islanders are real happy to do these seasonal jobs, it's good money for them and they work bloody hard and are appreciated and looked after.
In labour intensive seasonal jobs we are screwed without over seas workers.
Short term stays in NZ are not counted as immigrants in the stats - you need to stay a year. So the PI fruit pickers is an issue separate from immigration. Picking seasonal fruit requires outsiders; whether they are Kiwis or PIs. Strengthening ties with our neighbours and helping their economies makes good sense - that's why reading about exploitation of PI seasonal workers makes me angry. It is a good scheme if well administered.
I know plenty actually and they are all farm workers! Long hours, hard work and some don't even earn that much, but they are there. The problem with fruit picking is that it is seasonal, and the season is very short, and probably until recently the pay really sucked! I know I did it for a while. With a little experience in it i don't buy the rhetoric that a lot of the orchardists spout.
Cross fertilisation can still be achieved without immigration. And your one in - one out idea would never work. Kiwis going on an OE would be being asked to surrender their citizenships, and residency would only be dependent on those they replaced not coming back. Just too hard.
No, one out, one in easily achieved. Those with residency and citizenship, jump the queue. Thing is, this massive movement of people around the globe every second of the day, is contributing to biosphere collapse. Perhaps thinking twice about adding to this emissions driven exodus, may be a net benefit for a liveable future?
The only issue I have with that policy on ACTs website is how vague it is. If it means a laissez faire approach to highly skilled/in demand people I'm fine as long as it means they take into account the state of infrastructure there to support it. If it means tens of thousands of student visas only for them to work at petrol stations, I'm against it.
At least they have policies. I'd rather risk a beer with a taste I dislike than a bland tasteless beer. I appreciate a party that makes the diificult arguments. Surely better than announcing a climate change emergency and then postponing even making a plan or having a big public apology for deporting Pacific Islanders decades ago while still doing it during a pandemic. However still not sure who will get my vote next time.
Just keep voting Labour to sell off NZ to offshore owners to plant trees on farmland. Ikea have recently been approved to buy a 27,000 stock unit farm in Southland - to plant trees and leverage of NZ's environmental creds offshore. https://www.stuff.co.nz/business/farming/126397325/ikeas-investment-arm…
Murray - when (not if) it gets into feedback-loop territory, all bets are off. Mass extinction, probably including us.
So you have to stay prior - if indeed we aren't too late already. There is much mixed messaging; the IPCC seems to have a Woke/green growth element, for instance. Fish are the litmus test for me; they are migrating away from the Poles at 5-10 km/year. That tells us the rate of change. Trees, of course, cannot move as fast and may succumb.
In theory, to stay below/at 1.5 degrees (which may or may not be enough to avoid tipping points) we need to be off carbon completely, by 2030 (E/R say 2025). And Labour are just wasting 5 months. Excellent. There's leadership, then there's virtue signalling.
We are a carbon based life form PDK, we can never be "off" carbon completely, but I do agree that the emission rate needs to drop a long way back to restore some form of balance. The biggest problem is population size. No one acknowledges it. in all the papers, and debates i have seen it gets mentioned almost as a side bar, not something significant. I believe that nothing can be achieved until the whole world agrees that the population MUST fall back to some sustainable level (consumption of resources). But that will result in some very hard and uncomfortable conversations. But unless everyone agrees and the limits and solutions are universal (world wide birth control) then it will never work. Rogue countries will use their population size to threaten others. It's already happening! So are we past the tipping point? I fear that is a moot question as it won't matter if there is not universal agreement.
When are you going off carbon completely PDK?
The trees are doing just fine so relax about them not being able to move fast enough.
'To track global tree cover changes, the researchers studied data from advanced very high-resolution radiometers aboard a series of 16 weather satellites covering the years 1982 to 2016. By comparing daily readings, the researchers were able to see small changes occurring regularly over a relatively long period of time—which added up to large changes. Over the entire span, the researchers found that new tree cover had offset tree cover loss by approximately 2.24 million square kilometers—which they note is approximately the size of Texas and Alaska combined.'
https://phys.org/news/2018-08-global-forest-loss-years-offset.html
"Reckon I am neutral or better"
Love to see your maths on that one. Unless you are taking carbon from the air and storing it underground for millions of years you are kidding yourself about being carbon neutral. Those trees growing on your land will be releasing every bit of carbon back into the atmosphere when they eventually die and decompose. Unless it's a permanent forest that will never be cleared, then congratulations, you have used up that finite land for your own personal offset so nobody else gets to use it.
Living a low carbon lifestyle is commendable, but every time you buy something you are sucking oil out of the ground. Don't kid yourself about offsetting it.
Many people get this wrong: temperatures have already increased by around 1.2* above the 1860(?) benchmark, as in limiting temperature rises to 1.5* above what they were then. The battle now is about limiting rises by that last 0.3*. New Zealand will have no impact on that unless it pulls the plug and sinks beneath the waves. In fact, that would probably increase global emissions given that we are efficient protein producers by virtue of our animals being grass fed. I am not a climate change denier, by the way. Solar energy, rain water, grow our own food, don’t buy crap from Asia. All means more in climate terms than buying an EV.
That may also be due to the fact that for us, using the 1990 amount of emissions as our base line is a stupid idea. We were still intensifying well after that date, unlike other countries that have been basically at max intensification for over 100 years.
Different countries need different base dates.
The telling point is we are being excluded from almost every functional defence arrangement. We are seen as having no functional military capability, and therefore unable to effectively contribute in a meaningful way at the sharp end.
I'm listening Nania Mahuta on RNZ expose her blinkers on nuclear powered ships. Really poor strategic understanding, but demonstrates why NZ would be seen as an unreliable defence partner with our left leaning history and shooting ourselves in the foot.
I agree with you murray, but any contribution from our small economy would be meaningless in the scheme of global military matters. I say save our money for more local things, keep trading with whoever wants our stuff and if it all turns to custard then I am sure Aus US will quickly fill our ports and airfields with war machines. No doubt closely followed with soldiers.
We most definitely have not been excluded. We couldn’t afford nuclear subs, which is what this is mainly about. North Australia is a massive strategic location, too, in terms of the Indo-Pacific. We are in 5 Eyes, are about to do a trade deal with the UK, and are inextricably bound to Australia. And how are we going to know if nuclear subs are in our EEZ? Don’t ask, don’t tell. Nudge, nudge, wink, wink. We are a western-style democratic nation, and will remain so. Cultural proximity is everything.
Indeed: Fannie Mae and Freddie Mac are large companies that guarantee most of the mortgages made in the U.S. Together, they are also known as the government sponsored enterprises (GSEs). Historically, they were private companies operating with government permission and under government regulation. In late 2008, following the financial crisis, the U.S. government took over operations at both companies. Link
Hence US banks' balance sheets are loaded with US government guaranteed agency mortgage backed securities - graphic evidence
That's an interesting bit Audaxes. Makes me wonder what does it mean? Does it mean that because it's Government run and sponsored, that when shit happens more leeway can be given to allow people to fight their way out and keep their homes rather than losing everything? Or does it just mean that the US government becomes responsible for ordinary people being driven to the wall?
It seems that a lot of the events that impact on ordinary folk are the result of Government action or inaction, and that can mean it is extremely unjust that those who pay the most as a consequence are people who don't have much to come and go on, and therefore can lose everything very easily.
The Evergrande situation gets a mention in this interesting interview:
https://www.youtube.com/watch?v=GCEaubSZfMc
But the interview is more about the risk that China takes Taiwan because it feels strangled without control of semi-conductor production (as Japan felt strangled without control of oil and bombed Pearl Harbour). There is a comment from someone called Jeff Teza that caught my eye:
George is on it. I've been in the semiconductor industry for 30 years, started one of the first Fabless companies, the CEO of TSMC was on my Board of Directors in the late 90's, and I filled a passport making trips to Hsinchu to visit TSMC. Semiconductor capability is the biggest geopolitical strategic issue in the world. The average american is clueless how big a deal this is. In the 1960's your "transistor radio" had 5-7 $1.00 transistors, today the industry manufactures 80 Trillion transistors PER SECOND! China is compelled to take over Taiwan to achieve they're stated goals. We've put ourselves in a position that forces a war between the US and China if they move on Taiwan/TSMC before we can replace the capacity. It will take 5-10 years or more to replace the decades of "globalization" that moved us from 50% to 15% of semiconductor manufacturing market share. I'm scared sh*tless.
I wouldn't worry that much on TSMC being captured. By the time they ramp up production, their machines would had been a generation or 2 behind. The sole supplier of these machines won't be selling them new ones anytime soon. It would be costly mistake for China if your fears do play out.
It will be interesting to see how it plays out.
Evergrande is not the only one stuck in the situation. If Xi bails them out, it will be more to come. In such a case, those private businesses will control CCP, is it something they will allow?
When you have absolute control over the law enforcement, military, judicial system and more importantly, the media, let it fall and control the ramifications (e.g. force small investors to suck it up) may be a better option.
Yet some people seem intent to demonize the USA.
China has become a very naughty boy indeed over recent years. They have largely, if not totally, got themselves to blame.
It reminds me of people who excuse Japan's aggression in WW2 on the basis that the west had antagonized and excluded Japan. Forgetting that there was a very good reason for that - invasion and atrocities in China etc.
I note that the USA isn't faultless of course. There were valid reasons behind many of Trump's actions against China, but the way he went about them was certainly inflammatory. The opposite of diplomatic. And anyone who understands East Asian culture knows the importance of 'face'.
'Inflammatory' sums up Trump's reign, really.
Various ETS schemes/scams are a horrific idea, it's just multiplying an already bad idea.
Only thing that will ever work: global carbon tax. Starting off low, then ramping up quickly. With the money earmarked for renewable investment across the world.
Governments have taxed undesireables since forever and guess what? It mostly works.
Disagree Blobbles. A carbon tax in any form will never work. many will just not pay it, just as they are avoiding cutting their emissions now.
What is required is global agreement to cut emissions and how, but even that would probably not work as there is no effective world Government to mandate and then enforce it. The end result is that the planet will ultimately revolt against us. The horsemen of the apocalypse cometh, and they can already be heard!
But it WILL work if the blocks who are enforcing it build it into the price of imports from countries who aren't, much like the EU is suggesting to tax carbon heavy products from jurisdictions who aren't playing ball. If the US also heads along a similar path, change will come.
"Will never work" was a phrase also used quite a lot before the Montreal Protocol was signed. Currently, it's working quite well.
We can try and save our civilisation from doom, or we can throw our hands up and say "nothing will work". But it requires real leadership from all countries to act in our own best interests. The more we advocate for real solutions instead of idiotic lip services solutions like ETS's (which do nothing to solve the issue, just create a new market to game), the better our chances of survival.
I suspect we have already locked in 2 deg temp rises at least, due to the lag in warming (thermal inertia plus increased sink activity), but if we continue to emit more and more, we will be in for runaway, with negative feedbacks kicking in. One only has to look to Venus to see how hot it can really get.
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