Here's our summary of key economic events overnight that affect New Zealand with news all eyes are on China's bond markets today.
But first, it is Columbus Day in the US, a Federal holiday but not one observed everywhere and markets are operating on a subdued basis.
They have had time to reflect on the 'disappointing' non-farm payrolls report and are coming to the conclusion it wasn't as bad as the headline number suggested. That revision has markets with more conviction the Fed is still on its tapering path.
And in turn, some key commodity prices are rising today. Crude oil is up to a seven year high, and aluminium prices are now at a 13 year high. Even chocolate prices are rising fast again.
In Japan, their machine tool orders for September came in very strong, up +79% from the same month a year ago, and up +46% from September 2019. By any measure this is a strong pandemic recovery and indicates the world's factories are investing in new equipment. In fact, apart from the peak at the end of 2018/early 2019, this is back at an historically high level and augers well for Japanese technology firms.
In China, bond yields are rising fast, even infecting the yields on official Beijing bonds. Driving the ruckus are property firms with it now clear Evergrande will miss a third round of bond payments and almost certainly go into default when the grace periods expire. The Fantasia problems are mounting. Now Modern Land and Sinic have become the latest to scramble to delay bond payment deadlines. As you might expect, none of this is playing out in Chinese media - even the Hong Kong media is ignoring the pressures. But investors know the risks are rising and sharply bidding up bond yields (bond prices are falling, even for Chinese government bonds).
And now, suddenly falling house prices are getting some cities to spruik housing again to prevent a run. Distressed developers quitting inventory is very unstable.
And we should keep an eye on seasonal flooding in China, especially in the Yellow River basin where local reports talk about peaks "that have not been encountered in many years".
The 2021 Nobel Prize for economics has been won by three US-based economists who have developed 'natural experiment' techniques that have spread to other sciences. One labour market economist showed why minimum wage increases in fact hardly ever seem to lead to job losses (among a large body of work recognised). The others pioneered how rigorous conclusions can be extracted from social research.
In Australia, the explosion of Delta cases in Victoria has fallen to 1612 cases reported there yesterday after Sunday testing. There are now 19,012 active cases in the state. In NSW there were another 496 new community cases reported yesterday with another 360 not assigned to known clusters. They now have 6,731 active locally acquired cases which is lower, but they had 8 deaths yesterday. Queensland is reporting zero new cases again. The ACT has 32 new cases. Overall in Australia, more than 62% of eligible Aussies are fully vaccinated, plus 20% have now had one shot so far.
The UST 10yr yield opens today at just over 1.61% and very little-changed while the Americans are on a partial holiday. The US 2-10 rate curve is unchanged at +129 bps. Their 1-5 curve is also unchanged at +95 bps, while their 3m-10 year curve has held at +158 bps. But the Australian Govt ten year benchmark rate is another +6 bps firmer at 1.73%. The China Govt ten year bond up by another +6 bps at 2.98% in an unusually large move for them. And the New Zealand Govt ten year is also up again, this time by +5 bps to 2.11%.
In muted trading, the S&P500 is up a minor +0.1% in afternoon trade in their Monday session. Overnight European markets were mixed although the +0.7% rise in London stood out. But not as much as Asian markets where Tokyo rose +1.6% and Hong Kong rose +2.0%. Shanghai was the laggard with only a flat result. The ASX200 ended yesterday down -0.3% and the NZX50 fell -0.5%.
The price of gold will start today little-changed again at US$1756/oz.
And oil prices are up another +US$1.50 in an extended firming trend to just over US$80.50/bbl in the US, while the international Brent price is up at US$83.50/bbl.
The Kiwi dollar opens today just a little firmer at just on 69.5 USc. Against the Australian dollar we have softened to 94.4 AUc. Against the euro we marginally firmer at 60.1 euro cents. That means our TWI-5 starts today just slightly firmer at just on 73.2, but still right in the middle of the 72-74 range of the past eleven months.
The bitcoin price is higher again than this time yesterday, up +3.8% to be now at US$57,347. In NZ dollars, it is back over $80,000 and its highest since April 2021. Volatility over the past 24 hours has been high at just over +/-3.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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79 Comments
They need to be to relieve us from the stress of negative real yields.
Furthermore, nominal seasonally adjusted GDP(E) rose 7.2042% on an annual basis from Jun20 to Jun21.
A sovereign can inflate away debt if the average interest rate on the debt falls below the growth in nominal GDP. (It doesn’t matter whether it’s volume growth or inflation driving GDP.) It's called covert default. Link.
And yet banks keep piling sovereign debt on to their balance sheets seeking liquidity and safety in preference to risky lending to GDP qualifying enterprises.
Until This Changes, Forget Inflation: Banks Bought Epic Amounts of Safe, Liquid Assets in H1 ’21
No different in NZ - check out RBNZ's liabilities to counterparty banks costing OCR set at 0.5% since the onset of QE.
Yes, those liabilities are excess reserves - created when RBNZ purchased bonds (QE). A lot of people don't realise that those reserves can't be 'lent out' to businesses - they just sit across bank settlement accounts until RBNZ drains them off by swapping them for Govt bonds. Steven Hail breaks it down well here: https://www.youtube.com/watch?v=70oxUtzdrec
The same "solution" coming to us?
Australia needs an explosive post-World War II-style immigration surge that could bring in 2 million people...Dominic Perrottet is being urged by his top bureaucrats to seize the national leadership by pushing for a staggering boost in net migration...
https://www.afr.com/politics/australia-needs-explosive-surge-of-2-milli…
(NB: Something similar is the last thing New Zealand needs. But because it's the 'easy option' it is probable. The harder option, by far, is actually restructuring our economy and society. It's still doable, but politically unpalatable. Let me think.....)
Evergrande, Sinic, Fantasia: a tidal wave of Chinese debt is about to sink Australia’s economic recovery | South China Morning Post" https://www.scmp.com/week-asia/economics/article/3151634/evergrande-sinic-fantasia-tidal-wave-chinese-debt-about-sink
Thanks Colin, great read.
My immediate thought is the flow on - how many Kiwi's who live and love Aussie right now (due to the abundance of cash floating around from mining related activities) will end up on the Redundancy pile over the coming years, and fly back 'home' to find a living.
Even Boris of the UK understands it's an illusion to see immigration as economic progress.
“The answer to the present stresses and strains, which are mainly a function of growth and economic revival, is not to reach for that same old lever of uncontrolled immigration to keep wages low,” he told an appreciative crowd.
“The answer is to control immigration to allow people of talent to come to this country, but not to use immigration as an excuse for failure to invest in people in skills, and in the equipment, the facilities and machinery … they need to do their jobs.”
Ever since Fed began QE in '08, US births/families w/ children have been in freefall. Almost like Fed's balance sheet rewards asset holders (4 being asset holders) & punishes those w/out assets (aka, young adults). Higher Fed's BS goes, the lower births / families go?!? Link
It is a tragedy when even Boris Johnson understands the benefits of sensible immigration better than our politicians. Not 'immigration to keep wages low' but 'immigration to allow people of talent to come to this country'. Failure to invest in people, in skills and in equipment - that describes NZ's failure to increase productivity. Two related subjects our politicians avoid: immigration and productivity. They prefer vague and hard to define topics such as diversity and well being.
Well, this article says sales (not prices) dropped by 36% in September:
I read it on Saturday, but it seems to be members only now.
I would guess it's because we face similar issues to Aus (high h'hold debt, exposure to China) but that Aus benefits right now from the current spike in commodities, esp. coal. I think our currency will have a similar trajectory overall, but they can get a 'pump' (or dump) from iron/coal/gas that we don't get.
Chinas Property Market Dominoes are wobbling like crazy now. Is Beijing going to divert the flow as the fall or is the whole show going to come tumbling down.
Dont think this wont have consequences for NZ it will - we may see come next Autumn some very cheap dairy and produce.
The Chinese seam to be taking a long term approach with there economic planning. I think they will opt for some pain in the short term if it provides the economic re-balancing neccessary for there economy to perform better in the long term. In saying that they won't want a "fire sale" situation so they will probably inject enough to prevent that but no more.
Chaillan, 37, who spent three years on a Pentagon-wide effort to boost cyber security and as first chief software officer for the US Air Force, said Beijing is heading for global dominance because of its advances in artificial intelligence, machine learning and cyber capabilities. Link
Oil price up, coal prices rising and natural gas in short supply. With our natural resources it should be fairly easy for NZ to get out of any economic hole we are in! We can always plant a few trees to offset any issues and maintain full employment whilst we are at it.
"Vaccinations to become mandatory for health and education sector workers"
Why is this government not pro active and only react after, that too without forward thinking as is too afraid of losing votes ( guess most politicians are).
Need to plan road map for the future with understanding that one has to live with virus and if one trust vaccine ( Not that will immune 100% but if it reduces the probability of getting infection and even if it one gets, it's severity will be minimmum) than should try to bring normalcy by allowing vaccinated people to travel / freedom with condition like mask and test result within 72 hours if travelling / coming from overseas atleast to residents and citizen like Australia.
Great to see some recognition for economists who use real world experiments to work out what actually happens in the real world (as opposed to coming up with 'reckons' after sitting at their desks playing with models that behave nothing like the real world).
Now that the higher minimum wage leads to job losses myth is fully de-bunked, can we throw out: Inflation as a monetary phenomenon, Loanable Funds Theory, Govt 'borrowing', all of Nordhaus's work on climate change, the NAIRU, and the idea that simply waggling the OCR up and down reduces inflation / stimulates the real economy?
Then you miss the point completely.
What will that 'extra' $1,000 get 'spent' on?
Processed parts of the planet, is the only answer.
I have no trouble with sharing the wealth around - I do have trouble adding claims to a being-depleted planet.
Socialism is a necessary construct in a sustainable society (dog-eat-dog is what has brought us to creating the potential for our extinction) but it has to recognise real sustainability, as a prerequisite.
... according to Stats NZ , in the year to 30 June 2021 ... 33 486 people died ... 92 of us per day , averaged !!!
OMG ... alert the PM ... we all need a hug ... lockdown level 4 the entire country until we get ontop of this .... ye gods , this is mega times worse than covid .... be safe , be kind , wash your hands-santitize , keep a safe distance of 2 meters , team of 5 million less 33486 ...
Yes. It's a global pandemic. It's obvious this will put pressure on health systems. That's why we have health systems.
But get a grip. 'overwhelmed' what does that mean? Did the systems completely cease to exist?
There is a mountain of middle ground between 2 deaths and say 7000.
the numbers to watch now are the jab numbers, auckland at 87% and 62% so close to hitting the 90 but the last few are the hardest, my take, if they dont want it or too lazy to bad, they need to set a date and one more month and we need to open up and get on with our lives
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