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Good US data; weak China data; China faces huge population decline; German inflation tops out; container shipping rates do too; Aussie deficit blows out; UST 10yr 1.53%, oil and gold firm; NZ$1 = 68.8 USc; TWI-5 = 72.8

Good US data; weak China data; China faces huge population decline; German inflation tops out; container shipping rates do too; Aussie deficit blows out; UST 10yr 1.53%, oil and gold firm; NZ$1 = 68.8 USc; TWI-5 = 72.8

Here's our summary of key economic events overnight that affect New Zealand with news underestimates of China's birth rate will have very major long term impacts.

But first, new US jobless claims came it just under 300,000 last week, similar to the prior week. A surge in California masked improvements elsewhere. There are now 2.46 mln people on these benefits and also similar to last week.

The closely-watched Chicago PMI came in pretty much as expected in September with a very good expansion even if it was less than in July and August. The pace of new order intakes eased back a little, and the pressure of price increases did too.

The US Q2 final GDP result has ended better than the second estimate, which in turn was better than the initial estimate. A surge in corporate profits was the main reason for the improvement. The US economy grew +6.7% (real) in Q2-2021 to have economic activity running at a record US$22.7 tln (nominal) pace per year.

China is now on a week-long holiday, starting with National Day today.

But their energy crisis isn't going away, and Beijing has blinked on its climate and trade policies, issuing orders for energy companies to do whatever necessary to secure coal for the winter season. No doubt that will mean it will be back buying Australian coal.

The Caixin PMI for September shows the private factory sector neither expanding nor contracting - and that is a minor improvement from August. But if the energy crisis persists, it won't stay this 'good' for long. And the official version was more downbeat, reporting a contraction that is deepening due to the power cutbacks.

However, their services sector does show a noticeable improvement, moving from a sharp August contraction to a good September expansion.

And the Evergrande crisis rolls on. Last week, the company missed an US$83 mln interest payment on an overseas bond, but struck a haircut agreement with domestic investors over a US$36 mln payment which was also due. Now there are reports they have missed a second US$48 mln interest payment to offshore investors. There are grace periods involved, but they seem certain to be heading for default, despite prioritising payments to local investors and depositors. China is leaning heavily on its billionaires to buy-up distressed parts of the business, something they seem reluctant to do. But the risks to them personally for not inconsiderable.

And the liquidity injections by the central bank just keep coming - another +NZ$22 bln added for a tenth straight day.

And if demographics is destiny, China may be in real trouble. A local university has published a review of population trends and they say the birthrate problem has been seriously underestimated - and that China's population could halve in 45 years.

Hong Kong retail sales rose strongly in August off a very weak base and on the basis of some official vouchers the local government handed out to encourage spending. But they still haven't got back to retail levels they once had in 2014.

German inflation came in at +4.1% in September, higher than expected on a year-on-year basis. But in fact, there was no change month-on-month, indicating the cost and price pressures there may be easing.

And we should note that container shipping rates were unchanged at their very high levels again last week. At least they have stopped rising.

In Australia, the Federal deficit has blown out to -AU$134 bln in the year to June 2021 or -6.5% of GDP - year that started with a boast it would be in surplus. Now with extended pandemic trouble in the 2021/2022 year, they could well post an even larger deficit. (New Zealand has yet to release its final 2021 financial result.)

Staying in Australia, there has been an explosion of Delta cases in Victoria with 1438 cases reported there yesterday and more than 10,000 active cases in the state. AFL parties are probably the cause. In NSW there were another 941 new community cases in NSW reported yesterday with another 755 not assigned to known clusters. They now have 10,109 active locally acquired cases which is marginally lower, but they had a record high daily death toll yesterday. Queensland is now reporting six new cases. 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 in a sell-off mood to end the quarter with the S&P500 down -0.8% in its Thursday afternoon session and about to lock in a -4.4% monthly loss. Overnight, European markets all fell by between -0.3% and -0.8% and for the month, Frankfurt booked a -3.6% loss, Paris a -3.5% loss, and London a -0.9% retreat. Yesterday the very large Tokyo market slipped -0.3% on the day and ended September with a starring +3.5% gain. For Hong Kong, it fell -0.4% yesterday and ended the month down -5.6%. Shanghai was up +0.9% which managed it to claim a flat result for September. The ASX200 rose a strong +1.9% yesterday to limit the monthly loss to -2.6%. The NZX50 Capital Index rose +1.2% in its final September session to end the month up a mere +0.2%.

The UST 10yr yield opens today at just on 1.53% and down -1 bp from this time yesterday. The US 2-10 rate curve is unchanged at +123 bps. Their 1-5 curve is a little flatter at +91 bps, while their 3m-10 year curve is unchanged at +147 bps. The Australian Govt ten year benchmark rate is unchanged at 1.49%. The China Govt ten year bond is at 2.89% and also unchanged. And the New Zealand Govt ten year is now at 2.01% and up +3 bps since this time yesterday and still in a rising trend.

The price of gold will start today recovering, up +US$33 at US$1759/oz. Silver is recovering too.

And oil prices have been volatile overnight, but are now up +$1 to just under US$76/bbl in the US, while the international Brent price is just on US$79/bbl. 

The Kiwi dollar opens today marginally firmer at just on 68.8 USc. Against the Australian dollar we are a little softer at just on 95.5 AUc. Against the euro we down again to 59.5 euro cents. That means our TWI-5 starts today at 72.8, and back towards the middle of the 72-74 range of the past eleven months.

The bitcoin price is higher since this time yesterday, up +3.4% to be now at US$42,923. 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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56 Comments

At times in posting on  certain articles, as relative to China, I have presented  the not particularly witty comment that it is said that nowadays even the Chinese are made in China. Given the above population trend as disclosed, I see not only was I being trite, but inaccurate. 

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7

This behaviour with Evergrande where there is one rule for local "investors" and another one for foreign "investors", how can this not frighten off 100% of all foreign "investment" from now on? 

We have had our own issues with Fonterra and the like.

Who would "invest" one cent in China?

The stupidity of it amazes me.

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18

thats the risk you take to get the high yields on offer in china

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0

Maybe it's  just the start. Investing is great anywhere else 

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0

Well China got the capital and keeps the capital and the world still has to give China their $$ for all the products they want and if they now change their mind and want to build them themselves, try and do it without prices/inflation spiking even more as local economies try to build goods using local input costs. 

 

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5

China was the lazy investment that many companies took to cut costs, the primary one being labour costs. Many companies got seriously burnt by this as they completely misunderstood the risks associated with an authoritarian country like China. Fonterra and Rakon are two from NZ to name. 

Chinese business's have a long track record of piracy, and to transfer manufacturing to China effectively meant transferring technology and intellectual property to them and once across their border the ability to control that technology and property is to all intents and purposes gone - handed over to the care of the CCP. In effect those companies were asking their competitors to manufacture their products for them. Yes they weren't competitors then, but they were certain to become competitors when they got the technology and the capability to manufacture when the proprietary company had no ability to manufacture. Rank stupidity really, all in the name of greed.

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16

Unbelievable as well Australia handed control of Darwin to China. Australia’s most vital strategic port. Bet the nuke subs won’t be docking there.

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2

So you must think that all the companies investing in China are idiots! 

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0

Still problems in England....(doesn't seem to get much coverage here...?)

Petrol panic  https://www.bbc.com/news/business-58747281 

Gas companies going bust https://www.bbc.com/news/business-58732683

And there's talk of a lack of turkey, beer and toys for "Christmas"

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7

But they got BREXIT done..well done!

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14

Yep, maybe they can eat their blue passports (made in France or Poland I think!) for xmas lunch.

Could be a very difficult winter there. Covid still running at 35,000 a day, although vaccination/infection is keeping deaths down to about 130 a day so it's not all bad news

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8

From what I've read most deaths are still among the unvaccinated. Given most have had ample time to be vaccinated I think this will just be what the future looks like for us until the Covid-19 Delta virus burns itself out.

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4

'As of 15 July, Public Health England’s modelling group, with the MRC Biostats Unit, estimated that overall infection mortality rate is approximately 0.096%.'

https://questions-statements.parliament.uk/written-questions/detail/202…

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9

Average age of death somewhere in the vicinity of life expectancy. 

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2

'Thousands more people than usual are dying ... but it’s not from Covid

Almost 18 months of delayed treatments, fewer consultations, and a lack of immunity may be starting to take their toll'

https://www.telegraph.co.uk/news/2021/09/24/analysis-thousands-usual-dy…

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1

Brexit is long bow. Such an emergency you are put under house arrest but a not emergency enough that a license extention can be issued.

'The DVLA faces a backlog of 54,000 heavy truck drivers after just six employees worked inside its Swansea headquarters during the pandemic, an insider said.

...Deep, a heavy truck driver, revealed that his license expired about a year ago and that he was unable to get a replacement despite repeated calls to the DVLA'

https://www.fr24news.com/a/2021/09/striking-dvla-staff-lead-to-backlog-…

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2

Long bow you think profile?..from the same article you linked...

To make matters worse, EU truck drivers are refusing to come to the UK because they believe the issues affecting the supply chain are Britain’s fault.

The government has approved plans to bring in 5,000 foreign heavy truck operators to deal with the shortage, which has been blamed on a number of factors, including the coronavirus pandemic and Brexit.

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1

hmmm... 54,000 local drivers parked up vs. 5000 - out by an order of magnitude. did you miss this bit - 'He said on LBC: “They want Europeans to come with us and drive when we have people in this country waiting to drive, waiting to do these kinds of things and they can’t. It takes forever.' Politicians love to use brexit as a excuse. 

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7

Ignore. Posting from a sad Remoaner

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1
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0

...if demographics is destiny, China may be in real trouble. A local university has published a review of population trends and they say the birthrate problem has been seriously underestimated - and that China's population could halve in 45 years.

The official fertility rate (TFR) of 1.3 births per woman used here is probably too high, it's probably circa 1.1 now [link] so I imagine that number will come in further. However China is not unique, there has been a distinct slowing in birthrates across the world.

Across most of the world that matters economically there are far fewer people entering the workforce than retiring, as you can see by worker shortages technology is not keeping up. We had the deflationary demographic bubble, now we are about to have the inflationary demographic bust.

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2

Lets build more roads. And airports. etc.

Somebody will maintain them.

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6

Worse for China as most of its infrastructure was built on credit and quite a lot of that infrastructure will probably have a negative return over their useful lifetime. This is why having a proper population strategy is important.

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2

Sounds like NZ

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13

Anything China can do we can do .... slower and less efficiently and with greater leverage 

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4

Money doesn't matter a damn. The debt-increase will have popped its bubble long since.

It's resources per head is the proper count; on that basis China will be the envy of most, by 2050. If we're still thinking internationally by then - which I doubt.

They will be able to triage housing and infrastructure (much of which will turn out to be superfluous, to the surprise of only those who choose ignorance) but we all will be spending much more time (or working time exchanged for) food production, vis-a-vis everything else. They haven't as far to revert, on average, as the West still has.

The demographic reversal is a blessing; yes, it requires a change in societal structure, no it's not to be lamented.

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1

Is demography destiny?  Certainly being successful may result in more surviving children but the success comes first.  Why was it little countries were the first to dominated the globe: Portugal, Holland, England not those with wealthy large populations such as Persia, India, China.

When there is are resources to exploit that need people to do the exploiting then population growth is useful (USA, Argentina, NZ about 150 years ago) but in our modern world too many people just share the natural resources more thinly.  I have family in a developing country where the population is growing faster than the wealth.  Auckland with 50% fewer people would be a better place for Aucklanders (but not for politicians or investors). 

 

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11

Persia has never had large population Lapun. It was (and is) a very vast empire/kingdom (country), but has always had a very small population relative to its size. Its population density (even in its major urban areas) until very recently has always been far less than Europe or India. Even today, its population is not that much more than the UK. Iran/Persia at best is comparable with Spain (though Iran is a lot less habitable than Spain, given that about half of the country is covered by deserts and probably another 10% covered by very high altitude montains). Never in the same population leage as China or India, ever. 

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1

The faster the better. But it is also scary as if they do intend to start a war they will be pushed to do it sooner rather than later before they run out of people. It would also be the perfect excuse to force woman to have more children, to help the great nation of China.

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1

If they're going to start a war it'll almost certainly be to secure resources. If their population drops, this will take pressure off certain resources and improve their own domestic energy and food security. Overall it would actually be in China's long-term interest to have a lower population.

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5

"in trouble"? 

 

I think it's great news for all of us.

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1

More data and evidence to support the China bears among us.

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4

"China may be in real trouble. A local university has published a review of population trends and they say the birthrate problem has been seriously underestimated - and that China's population could halve in 45 year"

that might be good news for the planet

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17

Would sort of nullify too the justification for any “Lebensraum” strategy to arise to the West or any other direction.

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3

China leads the world and should be copied.  NZ shoud aim for a 2m population. The UK would be quite pleasant with 35m population.

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16

Thats actually fantastic news not good news. Their population as does everyone's need to halve in the next 45 years in a controlled manner or else the planet will do it for us in the most cruel ways imaginable.

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6

The halving will be the old folks in the sticks who don't use many resources at all.

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0

The article's link on China's population trends (a review of population trends) reveals some more interesting stats on how birthrates collapse as the cost of living (including housing of course) goes up.  eg:

"Another study in August suggested that in China, each 1,000 yuan (US$155) per square metre increase in property prices reduces the likelihood of having one child by 2 per cent, and that of having two children by 5 per cent."

 

Feels like the early stages of the age of the robot.  When they get really good we will only be able to tell a human in a crowd because it will be the one wearing a mask.

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7

Per capita China has more residential floor area (49 sq. m) than the UK or Germany [link] despite not being nearly as wealthy. This was a really big housing boom and they're massively over-built and it makes no sense because their population will fall far faster than countries like the UK or Germany.

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5

Someone once said 'Greed is Good'...

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2

Worst case a crash, best case an eased decline over many years.

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1

I wouldn't give most Chinese apartments that long, they're often extremely poorly built from a structural perspective and all of the land they sit on is only a 70 year lease anyway. There's a fair chance many will never actually be lived in.

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1

They can't be as badly built as ours?!!? I'm not sure what percentage of Chinese apartment blocks require rework a few years after completion?? 

Did you see the purpose build MIQ area that sprung out of the ground? Pretty impressive. Puts our hair brained central Auckland hotel idea to shame.

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3

The Caixin PMI for September shows the private factory sector neither expanding nor contracting - and that is a minor improvement from August. But if the energy crisis persists, it won't stay this 'good' for long. And the official version was more downbeat, reporting a contraction that is deepening due to the power cutbacks.

Russia to triple electricity supplies to China on October 1 — TV

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0

China's population falls.  I don't understand the assumption that's a problem.  Might be good for them and us both.

Certainly better than the "standing room only" future advocated by some common taters here. 

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8

I think it's a good thing overall.

But in terms of conventional GDP economics and development it's a bad thing for China, and wider.

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4

We look through the prism of slumlords. Less renters is always bad. 

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4

The US Q2 final GDP result has ended better than the second estimate, which in turn was better than the initial estimate. A surge in corporate profits was the main reason for the improvement.

Beneficiaries of government deficit spending?

In its snapshot assessment, the BEA reports that "in the second quarter, government assistance payments in the form of loans to businesses and grants to state and local governments increased, while social benefits to households, such as the direct economic impact payments, declined. Link

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0

Because something stops rising for a few days does not lead to a rational conclusion that it has “topped out”. Rises and falls have overall direction. Which is that inflation is still rising and incomes are not and demand exceeds supply. And rates are beg to rise. So overall it is plain to us non economists that it is less jam today and tomo and not the perma Pollyanna reflex of forecasters who get paid that all will improve and is improving 

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1

So much for China overtaking USA 

how many are trying to get in to China??

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6

Who would want to get into a dying Empire? One with more guns per head, than anywhere? One with dangerous residual religion/fanaticism? One capable of electing a Nixon, a Trump, a Reagan, a Bush Junior? One capable of promoting a Palin, FFS? One with more decaying infrastructure, than anywhere?

Answer: Only folk from countries repressed/raped into an even worse state, by said Empire.

Ultimately, we will get around to discussing the fact that surplus energy, for a short time, gave us the freedom to be individually indulgent, as per the US. The reduction of same, will see an increase in altruism; in cooperation. We view any trend in that direction with fear, but it may be the only way humans can exist long-term. In which case, China is ahead of us.

Ignorance often produces mass-assumptions which don't necessarily align with the truth..... the current refugee-streams represent lower-deck passengers heading for the upper decks; it's a natural reaction to their flooded cabins, but doesn't address the fact that the ship is sinking.

 

 

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3

Ronald Reagan was one of the best presidents they have had. Very underrated in his ability.

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2

Overnight Reverse Repurchase shot up for the last day of the month.

 

27th Sept - 1,297.1B

28th Sept - 1,365.2B

29th Sept - 1,415.8B

30th Sept - 1,604.9B

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2

Whoa - the banks really are choking on cheap money they don't want to lend out.  Really is starting to look like it's near the end for top down stimulus having any effect, even more negative effects - the pipes are full and overflowing.  

Next - send in Friedman's Helicopters.

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0

I don't think China will be buying Aussie coal.

The energy issue is going to exacerbate global inflation further.

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1