Here's our summary of key economic events overnight that affect New Zealand with news energy issues are biting hard in both China and Europe now.
But first, Wall Street is trading sharply lower with the S&P500 down more than -2% and Dow Jones falling almost -500 points as a spike in Treasury yields dragged shares, especially tech shares, lower. Uncertainty in China isn't helping either. The yield on the 10-year Treasury topped 1.5% and the 5-year rate rose above 1% for the first time since February 2020. Investors are figuring that the US Fed will soon start reducing QE stimulus. They are also starting to wonder if the future is stagflation.
Also weighing on market sentiment are lackluster data. The Conference Board sentiment measures are falling, and by more than expected.
The American trade balance came in virtually the same in August as in July, a -US88 bln deficit. Both exports and imports both rose about +3% in August from July.
The next regional factory survey is from the Richmond Fed and its mid-Atlantic states, and this one has turned negative. That is because the new order flow is dipping now while costs are still rising but the ability to pass them on has stopped.
And the widely-watched Case-Shiller house price index rose +20% in the year that ended in July, as buyers continued to compete amid a shortage of homes for sale. But there are signs the American housing market is starting to cool.
And reflecting the higher yield demands of investors, today's US Treasury 7-year bond auction brought a higher median yield at 1.27% compared to the month-ago level of 1.10%. The latest event was as equally well supported as the prior event.
In Congress, two separate forces are imperiling incumbent policies. Elizabeth Warren has come out against supporting a Powell reappointment at the Fed. And the Republicans are looking to veto the OECD BEPS ratification by the US, thus protecting multinational tax avoidance strategies.
And staying in Congress, two senior officials are warning of the risks lawmakers are taking with the debt-limit standoff. Yellen issued more details of the risks she sees. And NY Fed boss Williams issued his own warnings about adverse market reactions that will be difficult to control.
Canada reported some key labour market data, but only for July. However, weekly earnings are shown to be rising +1.8% pa, even though total employment is still -2.5% smaller than pre-pandemic levels. And Canadian inflation is running at +4.1%.
And the Canadian housing authority is warning that their housing market is now at a high risk of a sharp correction.
In China they have begun rolling blackouts in Beijing and Shanghai, home to 48 million people, as the country struggles with crippling power shortages that have hit key factories in a further threat to the economy. Some recent blackouts have been unannounced.
One of the hottest commodities right now is coal. Coal prices surged to a fresh record high of US$210/ton, bringing the monthly gain to nearly +20% and the yearly to almost +160%. Several factors have been pushing coal prices up, including tight supply in China as the country works to achieve emissions standards and reach carbon neutrality by 2060; a lack of mine investment reflecting pressure from socially conscious investors; imports constraints due to coronavirus restrictions and a surge in natural gas prices amid prospects of a shortage in the coming winter, especially in both Europe and China.
China's industrial profits were up +50% in August compared to a year ago. But that expansion was less that they reported in July. Both comparatives are to a pandemic-damaged period. But compared to August 2019, they are up +20%. Profits continue to grow for both state-owned industrial firms (+87%) and private-sector +34%).
But the power crisis has forecasters figuring that the Chinese expansion could run out of steam fast, and soon.
In Australia retail sales were weak again in August, lockdown-affected, falling on both a month-on-month basis and a year-on-year basis.
And staying in Australia, there were another 864 new community cases in NSW reported yesterday with another 669 not assigned to known clusters, and these numbers are back up again after their weekend levels. They now have 110,736 active locally acquired cases which is lower. Victoria reported another 867 new cases yesterday and actually topping the NSW level. Queensland is still reporting zero new cases but there are new investigations near their border. The ACT has 13 new cases. Overall in Australia, more than 52% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far.
In equity markets, Wall Street is trading sharply lower with the S&P500 down -2.1% in its Tuesday afternoon session. Overnight, European markets by a similar amount, except London which only shed -0.5%. Yesterday the very large Tokyo market fella modest -0.2%, but Hong Kong rallied a strong +1.5%, while Shanghai was up +0.5%. The ASX200 fell -1.5% yesterday and the NZX50 Capital Index slipped -0.4% in sympathy.
The UST 10yr yield opens today at just under 1.53% and up another +5 bps from this time yesterday, and a three month high. The US 2-10 rate curve is steeper at +122 bps. Their 1-5 curve is steeper at +93 bps, while their 3m-10 year curve has steepened further to +145 bps. The Australian Govt ten year benchmark rate starts today up +3 bps at 1.46%. The China Govt ten year bond is at 2.90% and unchanged. And the New Zealand Govt ten year is now at 1.97% and up +3 since this time yesterday, still in a rising trend.
The price of gold will start today down -US$12 at US$1738/oz and back near its early August lows.
And oil prices have softened slightly to now just under US$75/bbl in the US, while the international Brent price is higher at just over US$78bbl.
The Kiwi dollar opens today at just on 69.5 USc and a -½c drop since this time yesterday. Against the Australian dollar we are quite soft at just on 96.1 AUc. Against the euro we now just on 59.5 euro cents, lower by -50 bps. That means our TWI-5 starts today at 73.2 and down towards the middle of the 72-74 range of the past eleven months.
The bitcoin price has slipped again today and down below NZ$60,000 for the first time in two months, down -4.0%, and is now at US$41,257. Volatility in the past 24 hours has been moderate at just over +/- 2.6%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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64 Comments
People who want to know more about the state of global energy, might like this:
http://euanmearns.com/eroei-for-beginners/
Figure4 is the doozy - the list of materials in E-equivalent make for interesting contemplation too. We are going to blame all sorts of things - lack of drivers, political ideologies - for what is an underlying piece of physics. The need now, is for our leaders to address the trend, and its ramifications. Which are profound.
It's a rubbish link. Because I'm weird, I normally check citations on what I think are stand-out claims (especially when they contradict other information in the paper (blog) - such as figure (table) 4.)
And it is known that some of the strategies deployed have very low ERoEI, for example corn ethanol is around 1 to 2 [2] and solar PV between 1 and 5 [2,3]
Neither of those cited papers say anything of the sort wrt to solar.
[2] Provides a theoretical basis for determining the EROI of fuels - no empirical. So, no solar EROI estimates whatsoever.
[3] Is an empirical study of PV in Switzerland, determining a EROI of a least 7-8. They do not note the range of EROI in their lit survey and the paper they are directly rebutting proposed a EROI value of < 1.
Who cares - its irrelevant (and basically green wash)
They arent lining up for more electricity / solar panels at the UK forecourts
they need stuff thats works NOW with existing infrastructure
DEBT wont wait
ERORI's are only part of the story
The real story is Debt
The ratio exists, Nymad. It's a physical fact. So let's go look for the reason for any differences.
Oh, Switzerland..... what are the sunshine hours, and over what time period was their study done (compared to where/how long?). Wehave measurable differences just up and down this country.
Try thinking of a ratio we know exists - say kilometres to a litre, claimed for a vehicle. Now put four passengers and a load on board; the ratio will worsen. Apply hilly terrain, more curves/braking/accelerating: worse again. So your actual km/l differ from manufacturers claims. Does that invalidate the ratio? Or the physics of litre-depletion vs load/distance?
Nup. In the real world, all figures mean something (not like desktop hypotheses). So if there are discrepancies, we go look for the why? We don't start from trying to rubbish the ratio.....
The link you posted a few days back has solar PV at about 7-9, which is more than enough.
That means that each unit of solar capacity harvests enough energy to replace itself 7x over.
Solar panels covering 0.1% of the earths surface would be enough to provide for the entire current energy needs of civilisation.
And that's just one option.
EROEI is close to meaningless while there is literally energy raining down from the sky.
Each house would need about 5kW of solar panels installed to mitigate their usage. So we need to spend $12,000 per house multiplied by 2m houses is $24b. But that does not provide energy outside of sunlight hours or for poorly oriented properties so add the cost of addressing that. Then add the cost of replacing oil for work premises and manufacturing goods. Then add the cost of replacing oil for transport.
Now try to do all this at the same time that costs are increasing (as non-fossil substitutes cost more and non-fossil energy prices are higher).
That sounds like a big number, but we already collectively spend $7B on electricity every year. The fuel market is about another $8B per annum.
Then consider most of NZ electricity is already renewable. Hydro is fundamentally solar powered if you look far enough upstream.
I still see lots of problems there. 1.That 0.1% should be converted to areas where you can actually physically put a panel. 2.How long would it take to gear up and physically make that number of panels ? 3. Do the resources exist to make that number of panels ? 4. Are we going to get the timing right so there is enough fossil fuel left to do the work in building the majority those panels ? 5. Panels are no good for energy storage so you back to batteries, everything that moves will need a battery. I think the problem is life as we know it will hit a brick wall because the changes will not happen fast enough. All we are going to do is continue to burn through the fossil fuel like there is no tomorrow and wake up one day in deep shit. Look at the UK, they couldn't even plan to keep enough truck drivers to get the fossil fuel to the stations. Way to many people sleep easy at night thinking that some undiscovered technology will save us. Personally I think there are to many people and not enough time left.
That's just a back of the envelope calculation, the point is there is plenty of energy out there.
The change over won't all happen at once, as fossil fuels become more scarce, their price will increase. As the price increases, other sources will look more economically attractive.
The price wouldn't have to increase all that much to start making other sources economic, and in some cases they already beat fossil fuel. For example most of our current power generation is Hydro.
"as fossil fuels become more scarce, their price will increase. As the price increases, other sources will look more economically attractive.."
Sorry
doesnt work like that ... this statement sounds like something an economist would say
The economy can only work on cheap energy
Price just cant increase
Workers need to be able to afford the output of their "energy burn" ... otherwise the system is insolvent
I'd suggest you look for the divergence between debt and GDP - when it takes more debt than you get GDP, clearly there isn't enough split between the energy being expended, and the energy available to do stuff. So society cannot 'afford' itself. So infrastructure neglect - deferred maintenance. So no ability to do what is on the wish-list (think 3 waters).
Saying there is unlimited solar energy, misses the point. It requires fossil energy to build the infrastructure, and nobody has proved you can build renewables with renewables; the EROEI margin is too close. And it requires more material, than is known/discovered.
It's drawing a long bow to blame debt on expensive energy when energy prices been nowhere near all time highs in recent years.
Is energy derived from fossil fuels somehow better than renewable energy, why ever wouldn't it be possible to build renewables with energy generated from renewables? Has anyone proved that you can't?
EROEI should presumably allow for transmission/conversion losses, unless it's even more useless a measure than I thought...
My point is there's no physical law that says we're going to run out of energy any time soon. There's plenty of it, and multiple ways of accessing it even with existing tech.
Most certainly not an economist by the way😃
You are some years ago in those comments.
Yes, fossil energy is more useful; nothing else is as transportable, batteries for instance, still weigh the same when flat.
The problem with building renewable infrastructure with renewable energy, is EXACTLY the EROEI problem. Which is why we haven't.
You count in transmission losses, of course. But many don't; many only count the build, or the operation of, or..... It's total, is what counts
Re tech and much - no - read the Michaux and Without Hot Air links. And we are simply out of time. We built the existing set of infrastructure over 150 years, bit by bit. We'd have to replace it within 10 years. Using FF to do the build; we've got nothing else. And we're using all the FF we can pump, now - and maintenance is starting to go backwards. So triage.
We were having this kind of discussion 15 years ago here, we've moved on. Good to hear you dodged the doctrine..... :)
WTI oil monthly-636770817726201133.jpg (915×434) (azureedge.net)
"Cheap" is what allows actual (not faked) economic growth
Oil hit a $140 ish ceiling prior to 08
And it has lock stepped down since
It looks like anything now above $70 is now a tipping point .... despite MASSIVE stimulus and near zero interest rates
We forget how dependent we are on fossil fuels for just about everything we do. They're a once in a planet's lifetime energy inheritence, and a finite resource. Even those who come to this realisation seem to want to convince themselves that by the time they run out we'll have seamlessly migrated to some other, "greener", method of producing energy, and be using a lot less of it besides, thanks to all sorts of technological advancements which are going to make us infinitely more effient.
So it's BAU. All while continuing to chase exponential growth, of course.
What these people fail to realise is that it's not energy per se which is important, but net energy, or EROEI. Nothing will give us the same EROEI as fossil fuels do today, not even nuclear (the only part of the linked article I disagree with). This means something has got to give. We can't even sustain today's society in the absence of fossil fuels, let alone achieve the growth we've all bet the farm on.
When we remember that debt issuance is essentially a bet on future growth, we realise the implications this has for the financial sector as well, not just the type of car we'll be driving. It's a multi-faceted issue, and a fascinating one to think about.
"No, it's a ratio. And the worse the input, the more you need for a given output."
How can you start that sentence with "No", when it's just a rephrasing of his last sentence?
"EREOI rates are only a problem if you assume the energy input is somehow fixed."
As the ratio get worse, you just increase the input. e.g. more solar panels.
The input isn't fixed - the input has been dropping for 150 years, and it's an exponential curve.
Yes, you'd need more solar panels.
https://www.withouthotair.com/
http://wiseresponse.org.nz/wp-content/uploads/2021/09/ASSESSMENT-OF-THE…
If the input has been dropping for 150 years, and the EROEI ratio has been getting worse, we should have been dead a long time ago.
"EI" is the investment part of the equation, if you need more energy you invest more. And if for each unit you invest you get back 7 units you're doing alright.
No and no - you must be an economist?
Energy needs to be altered in the direction of entropy, to do work. Mostly we burn carbon in little explosions to turn crankshafts. This is not more than say 40% efficient - the losses go as low-grade heat. Same with all energy-to-work conversions - so you need to start with a good margin up front. There's a lot of losses to factor in; tyre distortion every rev, friction losses..... they're all energy losses.
"....Several factors have been pushing coal prices up, including tight supply in China as the country works to achieve emissions standards and reach carbon neutrality by 2060; a lack of mine investment reflecting pressure from socially conscious investors;..."
I very much doubt that these factors are true. I would say that 2060 is so far away that no change to upcoming coal power station projects will be taking place right now. Socially conscious investors? In China? Pull the other one!
Stagflation has always been the big economic risk, not just transitory, but becoming embedded. It has been fueled by monetary policy and flawed by global thinking within Central Banks. Monetary policy has a role in moderating short term cycles, but it cannot solve structural economic issues. Nominal interest rates below inflation rates are a guaranteed way of creating resource misallocation.
Keith W
Keith - can I suggest that's upside-down? There are indeed structural issues; real ones. No amount of financial manipulation can change that. We started that distancing with land-rent, then money-rent. Now the money-renting is orders-of-magnitude bigger than the real activity it parasites on. But the problem is the real curtailment of real activity; that has to have a knock-on curtailment on the return on money-renting. First zero, then negative; it's the only trend which fits. It's caused, not causal.
PDK,
On this particular issue we may be in agreement. I think we are agreeing that structural problems cannot be solved by monetary policies.
But I go a little further than that in saying that inappropriate monetary policies can exacerbate structural issues because of the capital misallocation that they create.
KeithW
capital "misallocation" is only a SYMPTOM ....
its a red herring pointing the finger at that .... theres capital for africa with no home
the real story is Resource limits / depletion
ie theres nothing to do with the capital except pile it into human breeding Ponzi schemes ... which exacerbate the underlying problem
You mean like this .... (with little scope to increase wages?) .... = Stagflation
"“Why global food prices are higher today than for most of modern history… Global food prices shot up nearly 33% in September 2021 compared with the same period the year before…
“Based on real prices, it is currently harder to buy food on the international market than in almost every other year since UN record keeping began in 1961.
“The only exceptions are 1974 and 1975. Those food price peaks occurred following the oil price spike of 1973, which drove rapid inflation in many parts of the global economy, including the production and distribution of food.”
“Soaring fertiliser prices likely to weigh on agricultural output… Fertiliser prices will remain elevated over the next few quarters due to the surge in the price of natural gas and coal, their main inputs with a knock-on impact on crop yield as farmers cut back on fertiliser use.
“High prices will pose a downside risk on fertiliser demand and weigh on both agriculture yields and production for all crops, particularly corn in the US.”
https://capital.com/fitch-solutions-soaring-fertiliser-prices-likely-to-weigh-on-agricultural-output
The Oil Crash: La crisis del gas (crashoil.blogspot.com)
"Not only the shortage and eventual shortage of gas impacts and will impact on electricity generation and domestic uses: it also impacts, and strongly, on the industry. A large number of industries that use industrial heat consume a lot of natural gas, such as the cement or ceramics industry, not to mention others of a more modest scale such as bakeries (greetings to the master Félix Moreno for the indication). At the present time, the company Fertiberia (dedicated to the manufacture of fertilizers, which require natural gas for their synthesis) has stopped its plant in Palos de la Frontera, in principle for a month; the reason, the high prices of natural gas. Two British fertilizer plants have also stopped,while China halted its fertilizer exports as early as July. The shutdown of this type of plant is widespread throughout the world, andalready s and anticipate new problems, shortages and shortages in world food production. Winter is coming, and we have a half-empty pantry.
I sometimes wonder about Snider.
For him..yields dropping , proved that inflation was just transitory, and that disinflation was the reality...
Now his narrative, since only a couple of weeks ago, is that yields rising is some kind of " just autumn again'.
I wonder if this guy is credible..? Its as if he thinks the 10yr treasury mkt is some kind of crystal Ball... and that's all that one needs to discern things?
I much prefer the economics based views of Peter Warburton. He suggests there are 2 acts (parts ) to how this plays out.
Act one is the financial repression/money printing, which gives a period of stability. Act 2 will be the inflationary pressures, which will
finally bring to light, once and for all, the structural problems of the whole" Inflation targeting policy framework" that we evolved as a consequence of the inflationary 70s and 80s. ( I think NZ brought in the policy framework in 1989 )
Back in 2019 he had discussed Supply side issues , in regards to how inflation/stagflation might manifest.
https://www.macrovoices.com/podcast-transcripts/640-dr-peter-warburton-…
https://secureservercdn.net/160.153.137.14/rxi.cb4.myftpupload.com/wp-c…
New Zealand needs to get it's production and distribution systems for electricity muscled up hugely. Starting now.
Electricity is going to be the major energy pattern in our nations future. And realistically it's going to from be wind and solar.
Such will drive our engineers crazy as they make it all work, but they need to come up to speed, including on distributed sources and storage. We cannot keep our big electricity companies and get this done.
Downturn has arrived
And who among the perma Pollyanna brigade forecast it??
Higher costs and ratchet impact of stopping the world then throwing $10 trillion at it and thinking it could just go back to normal. Things look v far from normal. Looks like a mix of 2005-8 and 1973-77 to me. 50% drop in stocks in next year
Anyone else want to argue against that?
Read elsewhere that the chief honcho had availed himself of $11 billion or so dividends and whatnot? Might too have bought the prime position for scapegoat and attached prosecution for corruption leading to the gallows as has befitted and doomed previous examples such as Lai Xiaomin of Huarong. Just evidences whatever the political system these types of self enrichment abound. On the other side for instance Lay of Enron.
I tend to agree with Elizabeth Warren and think Powell and the Fed are the biggest risk to world stability.
At present I believe the Fed are a bigger risk to world stability than the CCP, North Korea, Iran, Afghanistan…(the list goes on).
And the problem Is that they have created the instability under their mandate on maintaining stability…what an amazing achievement 😬
And reflecting the higher yield demands of investors, today's US Treasury 7-year bond auction brought a higher median yield at 1.27% compared to the month-ago level of 1.10%. The latest event was as equally well supported as the prior event.
Barely more than two weeks. That’s all was needed for the headlines to scream “bloodbath”, “end of the bull market”, and the always popular BOND ROUT!!! The 10-year Treasury yield had bottomed out in August and by mid-September 2019 this key benchmark rate screamed upward by 43 bps in just seven sessions. Yes, seven. Link
We must push up the price of wrong energy forms within the next few years, have more unemployment, energy poverty for the poor, additional costs for the middle class and industry and in time revert back to adobe huts, horse and cart transport. Rolling blackouts without increase in costs could achieve the same end right now if we shutdown Huntly. If you are really a climate alarmist, extinction rebellion type you'd be applauding this move.
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