Here's our summary of key economic events overnight that affect New Zealand with news the Evergrande contagion seems to have started.
But first up today we should note that the overnight dairy auction brought no overall change in prices in USD terms, and a small +0.5% gain in NZD terms as there has been a small depreciation in the Kiwi dollar since the last event. This overall result was less than expected. It seems that food isn't really participating in the current rise in commodity prices. (Although we should also note that the price of palm oil has reached a new record high, giving very unfortunate price signals for an industry that does much environmental damage.)
And speaking of economic signals for environment damage, Beijing has ordered its banks to ramp up funding for thermal coal production. Just three days of China's CO2 emissions are more than New Zealand's annual CO2 emissions so by this order they have probably cancelled out any gains we make for the period to 2030. (Interestingly, the renewed focus on building thermal coal reserves does not extend to China buying Australian coal.)
China may be on holiday this week, but dominos seem to be falling in the Evergrange saga. Other property development businesses are missing payments, and some lenders are struggling to control the fallout.
In the US, the LMI that tracks their logistics and supply chain activity, slipped slightly from a very expansionary level. Keeping it elevated are cost metrics. Weighing on it are inventory metrics, but these are interesting. Demand is emptying the supply chain faster, but supply bottlenecks are restraining goods entering it.
The US trade balance for both goods and services worsened in August to a deficit of -US$73.3 bln in the month, taking the annual deficit to -US$817.5 or -3.6% of GDP and up from -3.1% in the same period a year ago. That is a fresh record deficit. Their exports rose, but their imports rose faster as might be expected in an economy that is expanding quickly at present.
The latest survey on the activity in their giant services sector supports the view of a fast expansion, coming in both higher than expected and marginally higher than for August. Activity like this may see Q3 GDP estimates revised higher for the US economy.
In Europe, their expansion is coming with very high rises in producer prices. They were up more than +13% in the year to August, the most in a record that extends back to forty years. But it is largely driven by high energy costs.
And staying in the EU, Ireland has relented on holding its 12.5% flagship tax rate, and now seems prepared to raise it to meet the requirements of most other EU members.
Other prices are starting to rise and flow though supply chains. Cotton prices are spiking. And courier and freight companies essential in the supply chain are raising rates. The latest is DHL, with a +5.9% increase. They followed FedEx with a similar rise.
Australia reported a record high trade surplus of AU$15 bln for the month for both goods and services. That was half as much again as analysts had expected. Surging natural gas and coal exports were very much stronger than expected.
Staying in Australia, there has been an explosion of Delta cases in Victoria with 1763 cases reported there today in a "very serious jump" all from AFL celebration parties. There are now 14,368 active cases in the state. In NSW there were another 608 new community cases reported today with another 438 not assigned to known clusters. They now have 8,553 active locally acquired cases which is lower, but they had 6 deaths yesterday. Queensland is now reporting two new cases. The ACT has 33 new cases. Overall in Australia, more than 57% of eligible Aussies are fully vaccinated, plus 23% have now had one shot so far.
The UST 10yr yield opens today at just over 1.52% and up +5 bps from this time yesterday. The US 2-10 rate curve is steeper at +123 bps. Their 1-5 curve is also steeper at +89 bps, while their 3m-10 year curve is steeper at +142 bps. The Australian Govt ten year benchmark rate is +4 bps firmer at 1.53%. The China Govt ten year bond remains unchanged at 2.89%. And the New Zealand Govt ten year is up +1 bp at 2.01%.
Equity markets have started firm on Wall Street, with the S&P500 up +1.3% in early afternoon trade in the Tuesday session and making back all of yesterday's drop, but not more. Overnight, Europeans bourses rose about +1.0% across the board, although Paris was up +1.5%. Yesterday, the very large Tokyo market fell -2.2% but Hong Kong rose +0.3%. Shanghai is closed until Friday. The ASX200 ended yesterday down -0.4%. The NZX50 fell a full -1.0%.
The price of gold will start today softer, down -US$9 at US$1760/oz.
And oil prices are up again, up +US$1.50 to just under US$79/bbl in the US, while the international Brent price is just over US$82.50/bbl. These levels are new seven year highs.
The Kiwi dollar opens today marginally firmer at just on 69.7 USc. Against the Australian dollar we are unchanged at 95.6 AUc. Against the euro we firm at 60.1 euro cents. That means our TWI-5 starts today at 73.3, and still in the middle of the 72-74 range of the past eleven months.
The bitcoin price is higher again since this time yesterday, up another +2.9% to be now at US$50,014. Volatility in the past 24 hours has been moderate at just over +/- 2.2%.
And finally, join us at 2pm for the latest update to the Reserve Bank's official cash rate, which is widely expected to rise by +25 bps to 0.50%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
With that kind of attitude across the world, I suggest that NZ needs to change it's focus from imposing hugely damaging costs on it's people to a diplomatic focus on the majors, getting them to change their ways. If we achieved zero GHG output tomorrow, or even a negative one (absorbing GHGs) the end result would be nothing for the planet. Our economic focus should be towards developing strategies that will allow the country to survive in the face of an environmental onslaught of weather events, with a longer term goal of achieving a sustainable level. No disrespect to pundits such as PDK, but on this matter we are not a significant polluter, but we will be significantly impacted by the consequences of everyone who is. Our strategy needs to change. Leading by example is an admirable trait and goal, but is a wasted effort in this matter.
I agree, if we cant make the slightest difference to global C02 levels, lets stop the pine trees. Instead we should invest in restoring native biodiversity and cleaning our urban and rural waterways. At least it will give us all something to enjoy, rather than just enriching a few offshore carbon traders.
Planting native forest and bush, restoring mangrove swamps in the north, and better reduction / management of dairy, would all make a huge difference to our emissions. The price of carbon is already high enough to make native planting viable - but pine forests are still cheaper and quicker so unless Govt intervene we will end up with shitty mono-cultural pine everywhere.
Do you know how strictly dairy is controlled already? And there are currently 3 national policies that are gong to further increase that. Also dairying has been DECREASING over the last 3 to 4 years.
ETS is a disaster, government is all short term thinking, no long term thinking.
Out of control dairy expansion is doing long term damage and no one seems to notice or care. Restrict recreational fisherman but let dairy make the water uninhabitable for breeding. How stupid are we? 3 waters when we have let the water table and river flows become full of nitrates? Its exasperating.
Nitrates is not the major issue of water quality. A few areas may have some issues, but it is not the predominate issue. There is no net expansion of dairy occuring presently. In fact it is reducing due to land use change, especially in the North Island. A South Island dairy farm has also being sold to forestry.
If we are short of native fish, regulating whitebait fisheries, is the best option available. The vast majority of whitebait are in fact native fish. Trout is introduced so shouldn't be protected. ;-)
That’s a good idea but we must take into account all the contributors to poor quality. This means that soil erosion and sedimentation from clearing land for houses, human waste pollution from urban areas, chemical pollution from human activities, erosion from forestry etc. I know it’s in vogue to blame the farmers and they do contribute to the problem, but until we have an honest evaluation of every single individuals impact on the water quality, it wont be achieved.
Well then, lets allow open door immigration, get our population to a similar population density as others and then we will no longer have a per person issue - if that is the only criteria to consider. We produce enough food to feed approx 40million. UK is a similar land mass and has approx 64million pop but we are probably more mountainous so lets reduce our population goal back to 40million.
As a country we have to do our share or we will be exposed on the world stage and get hit by trade barriers and tariffs. The fact that we are small (as well as being pious greenwashers) makes us highly vulnerable to being made an example of.
The globe has about 400 Gigatonnes of CO2 emissions left before we breach 1.5 degrees of warming (this is not disputed, it is hard physics). The NZ share of that total is 250 Megatonnes of CO2. That's our budget and that's what we will be expected to sign up to as a target next month at COP26. Oh, and a 30% reduction in methane emissions by 2030.
By the way, we will burn through our remaining CO2 budget in around 2029. But don't worry, we are going to carpet the country in Radiata pine and become a net CO2 absorber in the 2040s so we'll be all good!
Humanity will not stop the stupidity, until it crashes. Murray is pragmatically right, but truthfully/morally we should de-carbonise; per head we are first-order sinners.
The trick is to realise that what we need to adapt to/for, is not what we are currently doing. It will be orders of magnitude 'less', less energy, less work, less do-able per time. And it will happen fast. The one field few are addressing, is triage/repurposing of existing (soon to become obsolete) infrastructure.
Thanks PDK, and take Frazz' and Willamonte's comments above - if we work on cleaning up our environment as being the priority (water for example), we will result in reducing our GHGs anyway. It is a step in the right direction, and the next steps and targets will become clearer as we do that too I think.
Solar panels over carparks are a good one. Keep your car cool and dry so you don't use the AC as much and save some emissions there.
I understand the way of Malthusian theory is we should all just kill ourselves an avoid the hassle but i'm trying for some feel good schemes first.
Ditch the international agreements. Don't let Shaw go to Scotland. Those are all just dishonest fiascos. (with junkets)
But we should behave well and do our share to build a sustainable environment. Including reducing carbon, of which per head we are a big offender.
No cash flowing out over our border to international rorts for daft pine forests. We could tax and tariff incoming goods from polluting countries.
(and for forests, Oaks, carefully managed and pruned on 150 year rotations. Like France.)
Is he suggesting wine could be collateral damage to NZ overall emissions? Is the Sustainable Winegrowing certification not relevant over there, or is it, that not enough wine growers are certified?
Some carbon mitigations help with water quality, but at times carbon emissions and water quality can be in opposite corners in on farm practical terms.
Not quite, due to global trade, much of what we import has inbuilt emissions from China that we decide to ignore. And even if we do ignore that, we are still, per capita (which is what counts), way up there.
And if you don't understand how global agreements work, then maybe don't espouse us doing nothing. See tragedy of the commons for why we all need to act (China could essentially say "NZ, a developed country isn't doing anything, so why should we?").
We have done this before with the Montreal Agreement. Yes, this one is harder, but requires commitment from everyone. NZ is currently failing so badly, we should all be embarrassed by our feckless, inept government.
...but requires commitment from everyone. NZ is currently failing so badly, we should all be embarrassed by our feckless, inept government.
Well, we've seen what kind of commitment NZers are capable of, with the whole vaccination rate/lockdown thing. Which begs the question - is it really the government's fault?
... congratulation to Orc Land : today is day 1 of Jacinda's road map out of level 3 ...
Now ... if you're smart enough to negotiate the back streets of Casablanca at midnight with an 1896 map drawn up by a drunken British cartographer & translated into Morrocan ... you'll get there ... easy peasy , tangine squeezy ...
The playgounds are open?? They didn't even announce this. Kids climb over & breathe one another in playgrounds. It will spread like wildfire. Looks like NZ schrodinger's Covid elimination strategy is in full swing. Maintain elimination but not maintain elimination at the same time.
Since the US has 0.2% dead from COVID you are implying every single American has had it. And how do you explain 0.6% of Peruvian's dead? And even if we take your number as IFR (1) long COVID is a real thing - it's not a full recovery for many, and (2) if you gave me 1000 M&Ms and told me only two would kill me I sure as hell wouldn't be eating any of your M&Ms.
The reason for internal coal mining appears to stem from a rather serious foreign currency problem with China. There are rumours of China buying rice in large volumes to deal with the food shortage and then not paying for the rice. It's likely they couldn't afford to buy Australian coal so it's easier to to run the printing press and open mines within China rather than blow up the currency in FX.
These coal mines aren't going to open instantly and I doubt this will make a difference this winter. Power shortages and people dying is a more likely outcome. That and no doubt corruption will soak up some of the money while producing no coal.
It is about which foreign currencies they hold. China own about $3.5 trillion of foreign currency - mostly US dollars, Euros, Yen and Sterling. These reserves, their trade surplus, and their use of Yen as an intermediary currency (Reminbi is used internally) means that can can trade with the outside world in foreign currency (or Yen), and use Reminbi internally, which they can create at will - and do in very large amounts! We view this currency creation as driving up 'debt', China recognise that this debt is simply the amount of the 'peoples' currency' circulating around the economy! China are right.
If China are not totally in control of trade, prices, and exchange rates with another country (e.g. Australia), they will adjust their trade to correct that.
China. There’s trouble a t’mill. Hence deploy the airforce over Taiwan and look for another border skirmish with India. That will settle down the peasantry alright. Similarly here in NZ, Delta is in and out and about so nows the time, in the midst of a pandemic, to occupy parliament with electoral reform, water reform and anything else that might distract from the big elephant rumbling around in the room.
Yesterday Interest.co provided an article written by Rosie Collins. It contained a number of significant factual errors. Singapore's health system was not overly pressured during September.
During September 52 patients who had tested positive with Covid were treated in the ICU units, at months end there were 34 patients in ICU . 228 patients at end September were receiving ( at any time) supplementary oxygen . Supplementary oxygen is not the same as ventilation., 228 patients were not on ventilators as Ms Collins has written. The extrapolation of what may occur in New Zealand using incorrect data from Singapore is pointless.
yep and just wait Cowpat for the cluster in rolling out the "passports", website crashes, can't find your name, incorrect addresses, jabs not being recorded. Jacinda has put her neck out there saying people will need them by November to attend large gatherings so hope she has dotted the i's and crossed the t's.
The kids want to go to the festivals, fait call. I heard one of the promoters on RNZ yesterday, the lack of clarity for these guys is unbelievable. How are you supposed to run this sort of business when the goal posts are strapped to a lambo doing 240 up a winding mountain pass.
The Chinese situation is looking increasingly ugly - looks like Evergrande took a 17.5% haircut on its property arm sale - but in the long run thats going to look like they overpaid. More companies are defaulting by the day - a lot of assets are about to come to the market and with foreigners increasingly wary of investing in the sector - China might not have enough domestic buyers.
As for NZ - there are huge lessons to be learnt from the Chinese disaster - although I suspect we will ignore them until its far too late
Yeah can't be right because NZ property prices double every 7 years.
So Auckland average price will be $2 million in a few more years, and NZ average $1.5 million.
And average take home pay, used to service the associated debt that has allowed prices to double every 7 years over the last 30-40 years, will only grow at the rate the RBNZ allows, which is the targeted rate of inflation, which is 2%.
If people can't see the disconnect, then its likely they won't until the pain starts and we are forced to realise that it is productivity (wages earned) that create affluence, not debt speculation in an era of falling interest rates.
There are three problems I see:
- In China companies don't admit losses, they just carry the asset on balance sheet. This makes it difficult to actually value assets and precludes a voluntary buyout. One of the main reasons Evergrande may not have been able to deleverage was that the assets backing the debt where never worth much money.
- Local authorities are ringfencing projects which is reducing the "good" assets Evergrande has available in the form of partially completed projects.
- There isn't demand at the moment for these houses when they are released into the market even at steep discounts. The market was predominantly speculator driven and speculators have been scared off.
Izvestia: Too early to write off coal as energy source
While many economies are beginning to move away from coal as their main energy source, at least in rhetoric, it is clear according to Izvestia, that it won’t be an easy or quick transition. In March 2020, coal prices dropped to $35-40 per tonne, the lowest in the 21st century, it seemed as though it was the beginning of an end of what is known as the dirtiest fuel. Coal in fact has been on the decline, from 50% to 30% in global electricity generation over the past 50 years, or so. However, September 2021 is breaking all the price records with $200 per tonne, amidst a world energy crisis, and coal is yet again proving to be a dependable source of fuel.
According to Izvestia, while many countries wanted to get away from coal, they just weren't able to find a suitable substitute quickly enough. The drop in demand for coal in 2019 coincided with cheap natural gas, a perfect substitute in a "carbon-free economy." However, this spring, gas prices went up and now they are showing no signs of any decline. Also, wind energy, a renewable source that Europe prefers to use, performed worse than expected due to calm weather. In addition to that, cold winter depleted the energy reserves of many countries.
China is experiencing a drastic coal shortage, in part because last year it refused Australian coal, and now its coal deficit will not only drive market prices, but also create a deficit for the rest of the world.
To make the long story short, it will take several decades to comfortably replace coal on the energy market, according to BCS World of Investments analyst Dmitry Puchkarev. "It’s not a question of the next decade, because the world can't just switch over to the green way of doing things. We are seeing that consumers who are interested in a more environmentally friendly fuel just don't have enough resource offers. Gas is becoming more expensive and they have to go back to coal," Puchkaev told Izvestia.
"It’s not a question of the next decade, because the world can't just switch over to the green way of doing things. We are seeing that consumers who are interested in a more environmentally friendly fuel just don't have enough resource offers. Gas is becoming more expensive and they have to go back to coal," Puchkaev told Izvestia.
Lol, golden comment!
The US trade balance for both goods and services worsened in August to a deficit of -US$73.3 bln in the month, taking the annual deficit to -US$817.5 or -3.6% of GDP and up from -3.1% in the same period a year ago. That is a fresh record deficit. Their exports rose, but their imports rose faster as might be expected in an economy that is expanding quickly at present.
Government deficit financed consumption.
By far, the most robust and untouchable factory category is for transportation equipment and goods. Compared to demand excluding those, new orders for that particular segment is and continues to be unstoppable. Cars and other vehicles, sure, but also transportation equipment – as in, trucks and other means of conveying the robust bulge of goods consumers are purportedly buying.
Not consumers, though. What if we’re seeing a wave of orders which are largely based upon trying to mitigate these transportation and handling chokepoints themselves? There hasn’t been a huge increase in either consumer goods demand nor in global trade volumes, yet there has been a nightmare of limited capacity to handle even this much.
How much of factory orders is really shippers, handlers, and freighters (as well as, possibly, warehousing and inventory management capabilities) attempting to get some new equipment just to fix these bottlenecks?
It would be almost circular as it would turn out to be transitory; consumers go nuts buying some goods but not others, goods demand rebounds faster than constrained supply can handle, and in that imbalance the supply chain flush with high prices rushes to upgrade and add new equipment that may not otherwise have been needed if not for the original and artificial disruption. Link
Just for fun:
As we transition to an economy where you own nothing and have no agency, we will provide plenty of therapy and drugs to make you happy. You’ll own nothing, and you’ll be happy. Link
The Australien Government has made an ad for its new AUKUS military alliance, and it’s surprisingly honest and informative Link
Its not pointless , its actually all about trade, and if we don't go we will be shut out.
https://www.rnz.co.nz/programmes/the-detail/story/2018814010/the-climat…
From the Herald:
A person has tested positive for Covid-19 in Kawhia - which is currently the country's least vaccinated area and is outside the Waikato level 3 boundary.
Ōtorohanga district Mayor Max Baxter confirmed he had been informed of the positive case this morning.
The Herald understands the Kawhia case is a close contact of the Hamilton East case.
I thought some might appreciate this essay on the concept of the 'bezzle' - the gap between real productive activity and asset prices.
https://carnegieendowment.org/chinafinancialmarkets/85179
It seems like a concept that gets talked around, for example when we discuss housing or energy, without being addressed directly. I suspect the current size of the bezzle is unprecedented.
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