Here's our summary of key economic events over the weekend that affect New Zealand with news politics is to the fore to start the week.
First in Germany at their elections to replace Angela Merkel, seven parties have reached the 5% threshold with the largest garnering only 25% of the vote. The Greens got 14% and the far-right AfD 11%. The far-left party scraped in with 5%. The king-makers will be the centerist FDP, the usual party in this position, but the Greens may make negotiating tough to achieve a government with stability. Merkel's party the CDU looks like it will be the largest party of the opposition now.
German politics are key in Europe with their economy the largest in the EU, +20% larger than France, and now almost +30% larger than a faltering UK.
Meanwhile, global investors who own Evergrande's USD bonds did not receive their US$83 mln coupon payment by the deadline last week. There is a 30 day grace period before a default event is triggered however. At stake are bonds with a face value of only US$2 bln, but it is an event sending reverberations through the US$400 bln Asian debt markets. Evergrande paper is now trading at just 28c in the dollar. Total Evergrande liabilities, which includes much more than its traded bonds, exceed US$300 bln. Given that China's GDP is US$14.5 tln, that is 2%, so the Chinese economy could feel an Evergrande collapse.
Perhaps that isn't so much when you know that China's overall debt is 270% of GDP - it is an economy built on debt. But most of it is local debt; only 16% of it is owed to offshore lenders. (For the US total debt is 125% of GDP.)
And China is arresting the senior management of another failed conglomerate, HNA.
But freed is the daughter of the Huawei boss, held on money laundering charges in Canada - along with two retaliatory Canadian hostages China took as bargaining chips. China's kidnapping strategy has paid off for them, and we should expect to see this playbook used again in similar circumstances when members of the Chinese elite are arrested overseas - for anything.
In Japan, consumer prices slipped by -0.4% in August 2021 from a year ago, after a -0.3% drop a month earlier. This was the eleventh straight month of decrease in consumer prices, amid weakening consumption due to the ongoing pandemic. Core consumer prices were flat, in line with forecasts and ending a decrease for the first time in 13 months. (In the linked report ▲ means negative.)
The latest Japanese factory PMI for September shows the sector expanding at a modest level still. New orders slipped but managers are obviously confident about the future because hiring remained strong. Price pressure wasn't noted in this survey. Meanwhile, the Japanese services PMI for September records a small contraction, but far less than for August.
In Taiwan, their export order data grew less than forecast in August on unexpectedly weaker demand for new smartphones. But they were +17% higher than a year ago and +34% higher than for August 2019. More importantly perhaps, the ratio of their firms' exports that are produced offshore is falling.
Singapore industrial production rose +11% in August, better than expected, and +29% above the pre-pandemic levels two years ago.
But despite an 84% full vaccination rate, Singapore is seeing a renewed surge in Covid cases, stressing their hospitals, and they are instituting new social restrictions including work-from-home.
In the US, there are now reports that the Whitehouse is about to order its Federal agencies to prepare for a shutdown as its debt limit is now exceeded. And the Fed could be used to keep the bond market from getting too raucous, but it's a bitter solution for Fed officials. However, the Americans have been here before and partisan politics and cheap points-scoring seems to trump good policymaking at present.
Meanwhile, American new home sales data for August was minorly positive, adding to the good July, but really only taking them back to pre-pandemic levels. Still this latest data is a four-month high.
The IMF has been reviewing Australia's economic situation and released its staff report late last week. It noted that Australia needs to address the rising financial stability risks posed by rocketing house prices, which are expected to increase by up to +20% this year. (I wonder what they would say about NZ's higher rises?) The IMF also warned Australia there would be a “reckoning” for so-called zombie companies once pandemic supports were withdrawn, which could result in a spike in corporate insolvencies, particularly in SMEs.
Staying in Australia, there were another 961 new community cases in NSW reported yesterday with another 789 not assigned to known clusters, and these numbers are a material improvement - or perhaps they just relate to weekend testing. They now have 11,634 active locally acquired cases. Victoria reported another 779 new cases yesterday. Queensland is still reporting zero new cases. The ACT has 25 new cases again. Overall in Australia, more than 51% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far. Vaccination hesitancy is dissolving fast in Australia, so a 90% target there now looks feasible by the end of the year.
The UST 10yr yield opens today at just over 1.45% and down -2 bps from this time Saturday. That is up from 1.37% a week ago. The US 2-10 rate curve is holding at +118 bps. Their 1-5 curve is still at +87 bps, while their 3m-10 year curve is still at +139 bps. The Australian Govt ten year benchmark rate starts today at 1.40%. The China Govt ten year bond is at 2.89%. And the New Zealand Govt ten year is now at 1.94% and up +5 bps from this time Saturday and in a rising trend.
The price of gold will start today marginally firmer, up +US$3 at US$1750/oz and almost exactly where it was a week ago.
And oil prices have moved higher to just under US$74/bbl in the US, while the international Brent price is even higher at just over US$77/bbl.
The Kiwi dollar opens today at just on 70.1 USc. Against the Australian dollar we are at just on 96.6 AUc. Against the euro we at 59.8 euro cents. That means our TWI-5 starts the week at 73.6 and below the top of the 72-74 range of the past eleven months, and little-changed in a week.
The bitcoin price has risen today, and is up at US$43,213 and a +2.6% gain from this time Saturday. Volatility in the past 24 hours has been high at just over +/- 3.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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53 Comments
Yes some are very concerned
https://mises.org/wire/evergrande-isnt-chinas-lehman-moment-it-could-be…
German politics. Eerily, but unlikely relatively, similar to the early 1930s mixed bag of representation. Often overlooked, if then The Social Democrats & The Centre Party had just relaxed their antipathy for each other and worked together as sufficient , they could have nullified the Nazis and changed world history. Hindsight!
Odd isn’t it the Allies now can count amongst them Germany & Japan and strongly so, but on the opposite side, once were allies, Russia & China. That illustrates the still embedded mistrust and animosity seated in 1917, the rise of the Bolsheviks and all that carried with it.
Democracy (or as close as we can get to it) v authoritarian governments? Stalin was making his mark when Hitler betrayed him and invaded Russia, but the two paranoiacs so close to each other was never going to be a good thing. Leaders of authoritarian Governments tend to see themselves as strong men and everyone else as being weaker. This is an important point to remember on the world stage. When negotiating with "strong men" they are quick to brandish their 'swords' (Kim does it with missiles, Putin hypersonic missiles, Xi aircraft carriers and so on), and unless you have a 'sword' to wave back negotiations generally are not going to go well.
West Germany predominantly.
In the East some areas like Berlin, Leipzig and Dresden are booming because the cheap space attracted startups which in turn attracted younger workers. On the other hand there are places like Thuringia, an hour away from Leipzig, where a good house houses €50k perhaps which is more representative of East Germany generally. It's a story of rapid population decline since reunification.
The Fed - Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)
Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
More seriously, this is a very important paper. The neoclassical macro economic models are crumbling under the weights of decades of empirical evidence that show they don't work, coupled with a renewed appetite for people saying that outloud (and publishing). This one is good too: https://t.co/vR4r5l8IC3?amp=1
Re Japan - this is halfway to the full story:
https://asia.nikkei.com/Spotlight/The-Big-Story/The-new-population-bomb?
Very good article. I'm completely sold on the idea that, unless we have a miraculous baby boom, we're going to be heading into a global position where the labour market gets very tight and drives inflation upwards. Population is still growing but it's driven by people living longer rather than birthrates.
That said I'm not worried about it but just aware that we have now turned a corner. Now is the time to start diversifying your investment portfolios away from legacy investment strategies, like residential property, and towards growth areas like retirement and healthcare.
I think the smaller stories in China are crowding out the bigger issue we face because China is cutting emissions. That means they're turning off energy intensive production and curbing the supply of products from materials to Teslas.
If you still believe inflation is transitory I think you're about to be very disappointed.
Not wrong, partly due to wanting nice blue skies for the Winter Olympics.
I am in chemicals, the price for Phosphoric Acid has doubled in price by 100% this month, but it is hard to find as in places production will fall 90% over the next 6 months.
Also, the power is needed for the masses to keep warm in winter.
Inflation is here to stay in the medium term, if not longer term.
According to the PM this morning on the radio it looks like the best we can hope for with regards to border is a shortened period of isolation. This is disappointing as even a 3 day requirement to stay at home post travel makes it incredibly difficult for many of us particular those with children to travel. Though in fainess my baby boomer parents should find in relatively easy to travel under these conditions.
So in essence young people (with families) are now getting vaccinated for a virus that barely affects them so a group of people who are affected by the virus (baby boomers) can go traveling again. Yet young people (with families) will be unable to travel under these conditions. Pretty much sums up this country.
Do some more research Donny. Delta affects the young much worse than the original strands. indeed it is killing them, and many report a long tail after catching it and supposedly "over it"! You're trying to perpetrate a myth that many are using to justify not getting the vax. Even in the US people are dying in denial.
Your comment is so wrong as to be dangerous.
Wrong there are a lot of reports from around the world identifying that COVID Delta is impacting the young a lot, and killing many. Yes the old and vulnerable are dying as they were with the original strand, but now the young are too. Don't be lazy, do your own reading, and try not to use social media for it. Medical professionals a crying out for people of all ages to get vaccinated the world over. And stop blaming the Boomers - this Government has very few Boomers in it, but they are the ones doing the lock downs. Oh and Donny thinks his children won't be affected by the virus. I'd suggest then that as a parent his view towards his children is a little lacking, and he really does need to do more research.
You got me, my facegram only shows twe-toks for funny cat videos and the cat was laughing at a kid with Covid. So I went with it. I definitely haven't trawled through countless hundreds (thousands) of pages looking for data. Which interestingly is not all that available. Finding reliable data even simple questions like global deaths broken down by age is near impossible without collating several different sources.
Perhaps you could enlighten us as to where all this research and data is that is showing how bad Covid is (actual data, not emotive spin about some granny would be nice)? Reading the UK research (Which seems to be the most open) has Delta at lower than nearly all other childhood illnesses in terms of severity. If you can't find the data, just look me up on Weibo and I will Linkyouin.
Here is a good one for you, from Norway. I have BOLDED. Can be found here: https://www.fhi.no/en/publ/2020/weekly-reports-for-coronavirus-og-covid…
From mid-August, we saw a significant increase in confirmed cases, mainly among children and young people aged 6-25 years. The increase can be attributed to increased contact frequency after the summer holidays, including the resumption of social gatherings, leisure activities, school and studies. The increase in admissions has been relatively small, and hospital capacity has not been threatened. The trend has now reversed, and the number of proven cases and admissions is declining rapidly. The high vaccination coverage is inhibiting the spread of the epidemic, while vaccination largely protects the vaccinated against a severe disease course.
Yes, but Norway only vaccinates down to 16 years old. So while important to note, it is not relevant in the context of severity in Children.
I would also add, that the average age of death that week was 80 years old. That's right, 80.
I have primary school age kids, who are terrified of dying from Covid, because everyone is getting a vaccine but them. The news is telling them, other people are telling them, the school is telling them. Vaccinate, Vaccinate, Vaccinate. Yet they can't.
It is nothing more than scaremongering on the part of adults that should know better.
It should be possible to encourage something without terrifying those who are unable for good reason to partake. A teacher should be encouraging modern primary school children to get outside and run around - even if they have a pupil in a wheelchair. There is a similar issue with smoking - I've heard of children seeing their parent smoke and then expecting them to die.
I'm not quite 80 but it would be sad if I die of Covid caught from my grandchildren. Certainly I will keep hugging them when I can so long as the risk is only moderate. If the concern was in reverse with me having a low risk and the grandchildren having a noticeably higher risk of death then I'd be troubled.
Hi Murray.
Nothing in my comment suggests not taking the Vax.
Regardless healtly young people 99.999% of the time are not affected by Covid19 in a serious way. Obese young people are not considered healthy & have a much higher chance of suffering in a more severe way.
Plus you slagged off the Boomers, saying they wanted everyone vacc'ed so they could go travelling. I know more young who want to go travelling and are complaining that they can't. All the Boomers I know are happy to stay home as they see the risk as too high. Most also say they want their kids and moko to stay home too, as the risk for them is too high as well.
It may be a generational thing, but I get tired of the lazy group blaming that is so common today on just about everything that is wrong with society. Just rank laziness by people who are not used to having a little blood flow in the space between their ears.
Been around for a while Donny and my analytical specialisation is understanding human behaviour. History teaches us that societal groups look for scapegoats when things are not going well for them, usually the wrong groups. This for example led to the Nazi pogrom against the Jews to demonstrate just how wrong it is. Blaming Boomers for today's societal ills compares although is somewhat milder.
I suggest that if people were to be well informed to make their arguments they wouldn't make such broad judgements, and they may be better positioned to present those arguments to the politicians who make these decisions and achieve different outcomes.
3 days remote work or getting over jet lag until returning to office - employer supportive
Loads of leave available
Kids can play around the pool at home for few days
3 days easy after trip to Europe for 3 weeks twice a year
Optimistic time frame but workable
7 day probably too hard to stay on the property would have to sneak out for walks but we could be trusted to stay away from others.
Thanks for the link about new restrictions in Singapore, which I have read. It seems, the real problem is not hospitalisations, the real problem is fear and the unwillingness of some countries to live with the virus, I think the quote below, from the linked article about Singapore shows this well:
"While the number of COVID-positive individuals who become severely ill – i.e., requiring oxygen supplementation and intensive care unit (ICU) – remains within expectations, the number of individuals with mild symptoms has increased very rapidly"
That's the whole point of high vaccinations, limiting the patients who need hospital care while accepting that there will continue to be many mild cases like other common viruses. It seems acceptance of the latter is still a problem
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