Here's our summary of key economic events overnight that affect New Zealand with news we have been re-rated lower on currency markets.
We start today noting the US dollar is surging higher in markets convinced the US Fed will start reducing some of its money printing operations soon. The NZD has been particularly hard hit by the move, undermined by the perception offshore that we are losing the pandemic struggle.
In the US, the number of signed contracts to buy existing homes in the US recovered +8.1% in August from July, reversing two months of declines. More sellers are coming into this market.
But last week, American mortgage applications actually fell and home loan interest rates rose slightly. So perhaps the September house sales won't be as strong.
In China, their central bank injected liquidity into their banking system for a ninth consecutive day, adding NZ$22 bln today in reverse repo transactions at 2.35%. But it isn't unusual for them to juice their financial system at this time, ahead of next week's National Day holidays. What is unusual is the quantum that is building up, juiced by the Evergrande contagion.
EU economic sentiment edged higher in September after a fall in August, boosted by optimism among consumers and in the industry and construction sectors, while inflation expectations continued to rise sharply. In fact, German import prices rose at the startling rate of +16.5% in August.
Those jurisdictions that have an active carbon price market are still displaying widely varying pricing. The EU price of €62.60/tonne is equivalent to NZ$106. But the New Zealand price is just $64/tonne. Meanwhile the Chinese carbon market seems to be failing with prices below NZ$10/tonne. In Australia, it is just at AU$26/tonne (NZ$27/tonne). In the present situation, carbon pricing variations like this just reward countries with low prices. The recent run-up in pricing through to August seems to have stalled in September.
The airline industry remains exempt from these taxes, and that aids New Zealand trade. Global demand for international aircargo is strong with volumes up +8.6% in August compared with August 2019. It remains at elevated levels we have seen for the past four months. But it is growth that seems to be passing the Asia/Pacific region by, inhibited by pandemic restrictions in the region.
In New Zealand, the Government has announced a one-off resident visa for up to 165,000 migrants who are currently in the country. This creates a residency pathway for them, including 5,000 health and aged care workers, around 9,000 farm workers, 15,000 in construction, and more than 800 teachers.
In Australia, their regulators have confirmed they are discussing how to clamp down on housing market risks and are preparing to release new lending restriction before Christmas.
And staying in Australia, there were another 863 new community cases in NSW reported yesterday with another 634 not assigned to known clusters. They now have 10,362 active locally acquired cases which is lower, but they had a record high daily death toll yesterday. Victoria reported another 950 new cases yesterday and again topping the NSW level. Queensland is now reporting four new cases from new investigations near their border with NSW. The ACT has 22 new cases. Overall in Australia, more than 53% of eligible Aussies are fully vaccinated, plus 24% have now had one shot so far.
In equity markets, Wall Street is trading stronger with the S&P500 recovering +0.7% in its Wednesday afternoon session. Overnight, European markets all rose, led by London's +1.4% gain and trailed by Frankfurt's +0.8% gain. Yesterday the very large Tokyo market fell a sharp -2.2%, but Hong Kong rose by +0.8%, while Shanghai was down -1.8%. The ASX200 fell another -1.1% yesterday while the NZX50 Capital Index slipped another -0.4%.
The UST 10yr yield opens today at just over 1.54% after rising as high as 1.56% overnight and dipping to 1.50%. The US 2-10 rate curve is fractionally steeper at +123 bps. Their 1-5 curve is also a little steeper at +94 bps, while their 3m-10 year curve has steepened further to +148 bps. The Australian Govt ten year benchmark rate starts today up another +3 bps at 1.49%. The China Govt ten year bond is at 2.89% and little-changed. And the New Zealand Govt ten year is now at 1.98% and up +1 since this time yesterday and still in a rising trend.
The price of gold will start today down another -US$12 at US$1726/oz and a six month low. Silver has fallen harder, now at back to where it was in June 2020.
And oil prices have changed little overnight, still just on US$75/bbl in the US, while the international Brent price is still just over US$78bbl.
The Kiwi dollar opens today sharply lower at just on 68.6 USc and almost a full -1c drop since this time yesterday. Against the Australian dollar we are quite soft at just on 95.6 AUc. Against the euro we down to 59.2 euro cents. That means our TWI-5 starts today at 72.6, down -60 bps and down towards the lower end of the 72-74 range of the past eleven months.
The bitcoin price is little-changed since this time yesterday, up +0.6% to be now at US$41,505. Volatility in the past 24 hours has been moderate at just over +/- 2.2%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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44 Comments
It will be just fine. These hapless 165,000 have been in New Zealand anyway, keeping our economy going, making us the Dubai of the South Pacific dependent on an army of toilers without rights. Let them bring their families here, make them all citizens, then stop this immigration nonsense and build a steady-state economy not reliant on low-wage overseas labour.
I really hope you are right and it'll be ok. This govt is merely fixing a mess made by Key Govt. However, I do have my concerns
1. With a change of Govt will those reliant on a subserviant labour force the Govt to take us back to square one. How many in the "army of toilers without rights" working on dairy farms etc will move to the cities once they are no longer "bonded-servants" and are free residents? If the Govt of the day holds it's nerve and forces the landed gentry to up their game and improve employment conditions then great. I am hearing plenty of stories about fierce competition for farm workers being "poached" and moving to other farm jobs for better pay and conditions - something a number farm owners are not happy about.
2. While it is kind to "let them bring their families here" I suspect this may set up a massive chain migration where net migration goes back up to the many 10s of thousands per annum for the next several years resulting in ongoing infrastructure and housing issues along with other distortions in the economy.
3. Finally I am concerned about the implications for Maori and Te Tiriti. How will adding 100k plus new voters impact politics? Not an economic issue but one that has potentially far reaching implications. What if these new voters do not want "to stop this immigration nonsense and build a steady-state economy"?
good time to reset the whole system, sort out those here let them stay and going forward make sure only skills we really need (not cheaper labour) is brought in. a classic is farmers, they bring in experienced farm managers from the phillipines, really, are MP's that dumb
Around 99% of milk products in the Philippines are imported, presenting a significant opportunity for industry growth. The Philippine Government has prioritised the development of the dairy sector.
Mr Faafoi says employers must still look for ways to build resilient workforces and to attract, train and retain local workers and reduce their reliance on low-skilled migrant labour. How does a high rate of low wage immigrants and their families do that?
All professions and work areas should have a quota - too many immigrants indicates something seriously wrong with the Kiwi job market.
This government is clearly using this as a way to suck up to NZ businesses and allow them easier access to low-paid workers.
With the health and education system already under the pump, how will our infrastructure cope with an overnight surge of over 200k covered/eligible people (spouses and children of applicants will be eligible as well).
Australia in perspective - Is their loss of basic human rights justified?
'Cumulative reported COVID-19 deaths/million 2% (1/45) of US.
Cumulative reported cases/million 3% (1/37) of US.
Negative age-adjusted excess death from http://mortality.org'
https://twitter.com/MLevitt_NP2013/status/1442689935492861963
Two year anniversary (gift token cotton, largest producer China) of the dawn of Covid 19. It has come to stay and by now most of the globe has acknowledged that with life recommencing adjusted to that reality (many examples such as Argentina) and the accompanying reality that it is those that are unvaccinated that are producing the large statistics in both new infections and mortalities. The journey has come a long way in two years, it is far from ending, but those are two firm realities that have developed and ones that New Zealand will sooner or later have to accept and manage.
You mean like the large death tolls like in countries like the UK - that had higher age adjusted death tolls 1946-2008 and didn't go batshit crazy?
'Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.'
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarr…
The dramatic uptick in mortality in 2020 in that data (13% increase in one year) is the interesting bit as far as I'm concerned. For instance, 1914 -> 1915 saw a 14% increase, 1939 -> 1940 a 20% increase.
Anyway, not really interested in having this argument, just found the logic of your first post fascinating.
BS - the age adjusted stats only started in 1942. Though if you want to go down the war death rate path 1951 (227% higher than 2020) had a higher death rate than 42.43.44 and 45 so a high death rate without a war is not unprecedented. What draconian measures were put in place in 1951 when the death rate was 227% higher? They must have been very unkind back then.
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarr…
True, I was looking at the crude mortality rate as that allows direct comparison. I thought that would be clear as it's the one that covers the date range I was discussing.
My real point is that it's the sudden change which is actually relevant to us, not a comparison so what happened 70 years ago. Society remembers what a normal death rate over the last couple of years feels like, no-one remembers what a 1950s death rate 'feels like'. The fact that crude mortality increased by a similar amount 2019 -> 2020 as in the opening years of the two World Wars shows how significant an event Covid is/was - with the obvious proviso that these are the deaths suffered despite heavy social restrictions in the UK through most of the year, and having fewer restrictions would make this even more dramatic.
"having fewer restrictions would make this even more dramatic." Like Sweden that had a lower death rate and bare minimal restrictions? Even in the last couple of decades the UK's age adjusted 2020 death rate ranked a boring middle of the pack.
https://ianmsc.substack.com/p/why-does-no-one-ever-talk-about-sweden
Carbon trading is simply a tool, run separately in each country, as part of each country's attempt to reduce greenhouse gases. There is no fundamental reason why prices should align between countries unless the scheme is international. And last time that was tried it was destroyed by too many of the units not having integrity. I don't expect any quick progress on an international system.
KeithW
Other countries are 'making an attempt to reduce greenhouse gases'? The whole exercise is pointless virtue signalling - rather than a tool.
'Not a single G20 country is in line with the Paris Agreement on climate, analysis shows ...Of particular concern are Australia, Brazil, Indonesia Mexico, New Zealand, Russia, Singapore, Switzerland and Vietnam'.
https://edition.cnn.com/2021/09/15/world/climate-pledges-insufficient-c…
Time to abandon international co-operation for carbon. Just doesn't work. Just creates squads of bureaucrats, and endless waffle in the media.
James Shaw should ditch his Glasgow trip.
New Zealand should keep up it's carbon reduction work solo. Won't be worse that getting internationally tangled.
Nothing NZ can do will directly have a measurable effect on global warming. The only point is if we virtue signal hard enough we might socially pressure other countries that can make a significant difference or if we make it look easy and painless they might be more receptive to the idea.
These days I don't put much stock in James Shaw, but every now and then he does come out with a clear statement and i think it was him who said tht in the last 30 years, despite general agreement, not one country has made any substantial progress in reducing GHGs.
Indeed in that time Germany mothballed all it's nuclear reactors. To be fair though they were old technology and a liability with a likely high risk profile. But the new molten salt types offer a completely different risk profile and ecological foot print. I read PDK's referenced article on EROEI yesterday and I would suggest that the jury is still out on the EROEI of wind turbines as most are still in service. But as many like to point out, when the wind isn't blowin' the fan isn't turnin'! Nuclear would provide the surety that most societies will need for an equitable future.
Yeah, I got into the green thing in the 80s. The climate talks and targets got going in the 90s but by early 2000s I concluded it was hopeless - meetings, targets, reports, rising emissions. There is way too much money at stake, plus the tussle between China and the US for dominance, for this sort of regulation to turn the super tanker fast enough. Maybe we'll be saved by things like modern salt reactors and a combo of other things - there is a lot of luck at play.
The perfect place to locate any new technology "nuclear" style power source would of course be where the current aluminium smelter operation is. It has exactly the infrastructure needed already in place including the powerlines that can now be out-feeders to the grid.
A wonderful opportunity for any government to provide long term power stability and jobs in a location that would otherwise be a wasteland when the smelter closes
So we are just back to the same situation we have now - people will export their pollution to countries whose carbon price is lowest, which looks like China (likely by design).
This is why some sort of country/regional based carbon pricing market system will NEVER work. It's a race to the bottom between countries, akin to subsidies for movie companies. But with significantly more severe consequences. Again, referring to a recent article, politicians have been seduced by a carbon market approach, which is fundamentally against the idea of reducing carbon. It simply gives countries a license to manipulate their own market and traders another revenue stream, while doing nothing to solve the actual problem.
Only thing that will ever work is a global tax on carbon. Same price, everywhere, ramping up over time. Once everyone is on the same playing field, then it's an efficiency game, which we should all be aiming for. Quite simply, nothing else will work.
How to make a coal plant run more efficiently.
'Which is why an investor-owned utility has dropped a containerized data center outside a coal-fired power plant 10 miles north of St. Louis. Ameren, the utility, was struggling to keep the 1,099 MW power plant running profitably when wholesale electricity prices dropped. But it wasn’t well suited to running only when demand was high, so-called peaker duty. Instead, it's experimenting with running it full-time and using the excess electricity to mine bitcoin.'
https://arstechnica.com/tech-policy/2021/09/old-coal-plant-is-now-minin…
Fascinated to see how that unfolds over the next few years, if it is true.
They will tie the housing and wellbeing of people tightly to the strategies and success of soulless corporates - by becoming the driving force in house values or the sole landlord option for renters.
If they are as big as they say they can extract money from the economy in all sorts of ways and set it aside.
Then when something goes wrong houses will get ripped out from underneath people and either the government is required to bail them out to protect the functioning of society, or the corporate landlords can silently collapse with very little liability.
I doubt many could afford at current prices. However if the expedition of those who are are currently stuck in queue (and are highly-skilled with plenty of cash yet unable to buy due to residency) happens quickly then that could lead to a relatively huge surge in demand.
Think about it. How many people on moderate incomes in hospo, care giving, teaching etc can realistically buy in NZ's biggest 3-4 cities?
I would suggest a minority.
And they won't be adding much to rental demand, although there might be a tiny bit if people who might have been staying on a temporary basis with friends / family now look to put down roots.
We start today noting the US dollar is surging higher in markets convinced the US Fed will start reducing some of its money printing operations soon.
I thought the Fed claimed it wanted inflation to run hot for a protracted period of time.
Furthermore, the debt ceiling issue has spiked 1 yr CDS.
The demand for USD is due to a global shortage of credit creation by global eurodollar banks expecting higher counterparty failure risk - check out this BIS paper.
Demand for dollars via FX swaps - updated
Aggregate data on the use FX swaps and FX forwards can be obtained from the BIS derivatives statistics.2 The BIS OTC derivatives data (OTC data) show that the total amount outstanding at end-June 2019 neared $86 trillion (Graph 2, first panel), with FX swaps accounting for an estimated three quarters of this total. Not surprisingly, the US dollar is almost always one of the two currencies exchanged (89%). Link
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