Breakfast briefing; World divides into a fast-track and slow-track set

Inflation tracks divide the world economy; China house prices waver; Evergrande rescue deal collapses; Taiwan exports continue surge; UST 10yr 1.64%, oil stable and gold firm; NZ$1 = 72 USc; TWI-5 = 75.4

21st Oct 21, 7:23am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news investor risk sentiment continues to improve as the prospect for stronger interest rate rises.

More inflation data was reported overnight but it is clear there are two global tracks emerging, depending on the state of the economic recovery.

Canadian inflation has been reported at 4.4% and slightly higher than expected. Core inflation is up to 3.7% and also higher than expected. Inflation is running at an 18 year high in Canada now.

US CPI inflation has already been reported at 5.4%.

They join the EU where inflation was reported at 3.4%, as expected and above August levels. It was held up by Germany (4.1%) and Spain (4.0%), and restrained by France (2.7%) and Italy (2.9%).

India reported almost 4.4%.

Australia has reported 3.8%, and New Zealand of course surprised with its 4.9% leap.

But not all large economies are getting high levels of price rises at the consumer level - just those where economic activity is expanding at healthy levels.

Those where recovery is waning or a bit of a struggle are not getting strong price increases. That includes British inflation slipped to 2.9% and that was not only lower than in August, it was lower than expected. Demand conditions are tough there making price increases hard to stick. That also includes Japan (-0.4%) and China (+0.7%).

China also released its official data on house prices and that recorded a stall in growth, but not the sharp falls others have noted in regional pockets. But it is very noticeable from the city data released, more than half are showing declines in September from August. And 15% of the cities reported now have year-on-year declines in this official data.

Separately in China, Evergrande’s plan to sell it's property services division for US$2.6 bln to ease its liquidity crunch has collapsed at the last minute. The whole situation is very opaque in a country where transparency for investors is rare.

Meanwhile, China also reported foreign direct investment data and it was healthy, especially from countries linked to it via its Belt & Road initiative. The September increase is off a low base however.

Taiwanese exports keep going from strength to strength, up more than +24% from September a year ago and a new all-time record high. And they are now +40% higher than in September 2019.

Meanwhile, in Australia Delta cases in Victoria have risen to 1842 cases reported there yesterday, and no improvement. There are now 22,958 active cases in the state and there were 12 deaths yesterday. In NSW there were another 283 new community cases reported yesterday with 5,428 active locally acquired cases which is lower, but they had another 7 deaths yesterday. Queensland is still reporting zero new cases. The ACT has 17 new cases. Overall in Australia, more than 69% of eligible Aussies are fully vaccinated, plus 16% have now had one shot so far.

The UST 10yr yield opens today up +1 bp at 1.64%. The US 2-10 rate curve is very much steeper at +127 bps. Their 1-5 curve is little-changed at +106 bps, while their 3m-10 year curve is much steeper at +160 bps. The Australian Govt ten year benchmark rate is firmer by +3 bp at 1.78%. The China Govt ten year bond is unchanged at 3.03%. The New Zealand Govt ten year is up to a new higher level at 2.38% and another +4 bps rise and to nearly a three year high.

Wall Street has opened its Wednesday session with another +0.4% gain on the S&P500, by more good corporate earnings reports. In overnight European markets, most were up just +0.1% - except Paris which recovered a stronger +0.5%. Yesterday, Tokyo rose a minor +0.1%, Shanghai slipped a minor -0.2%. But Hong Kong rose sharply again, this time up another +1.2%. The ASX200 ended its Wednesday session with a +0.5% gain. And the NZX50 chipped in with its own +0.4% rise.

The price of gold has risen +US$18 to US$1787/oz, a +1% gain mainly because of the depreciation of the greenback.

And oil prices are little-changed at still just under US$83/bbl in the US, while the international Brent price is also still just under US$85/bbl.

The Kiwi dollar opens today further on the rise and now at just over 72 USc and up another +½c since this time yesterday. Against the Australian dollar we are now at 95.9 AUc. Against the euro we are up again at 61.8 euro cents. That means our TWI-5 starts today at just on 75.4, and now well over the top of the 72-74 range of the past eleven months. We have now appreciated +1.4% since the surprise CPI result on Monday.

The bitcoin price has risen a sharp +5.5% from this time yesterday and is now at US$66,429. That is now a new all-time high. And that puts it at NZ$92,225, also a record, and also the first time over NZ$90,000. Volatility over the past 24 hours has been high at just over +/-3.3%. The arrival of derivative products around cryptos is driving this latest surge.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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23 Comments

by frazz | 21st Oct 21, 7:30am 1634754651

Bitcoin.all time high...and no Orange banner?

Bitcoin notched a fresh all-time high as investors cheered the successful launch of the first U.S. bitcoin futures exchange-traded fund.
The world’s largest cryptocurrency previously set its record at $64,899 in mid-April.
Bullish comments from legendary trader Paul Tudor Jones also boosted sentiment as the billionaire investor said he preferred crypto as an inflation hedge over gold

by Pacman_46 | 21st Oct 21, 7:59am 1634756365

It should be no surprise that a digital, deflationary monetary system is booming in an out-of-control inflationary environment. It’s what it is designed for, and is now the World’s 13th largest currency. It is now in price discovery mode, so it’ll be interesting to see where it goes from here.

https://twitter.com/bitcoinmagazine/status/1450840947806380032?s=21

by frazz | 21st Oct 21, 9:50am 1634763054

I wonder if those who mocked El Salvador on this site care to comment today?

https://www.bloomberg.com/news/articles/2021-10-19/bitcoin-is-part-of-t…

"The central bank expects remittances to rise to a record $6.3 billion this year, 31% more than in 2020, as the U.S. economy rebounds. Larger inflows could lead the bank to revise its growth forecast up to 10% before the end of the year."

(Those inflows can now come in without the 10% clip from Western Union and instaneous (no need to travel to a branch). Game changer for many unbanked citizens and maybe it won't be long before the El Salvadorians will be sending money to their relatives in America, the way this is going.)

by Rosenstein | 21st Oct 21, 9:42am 1634762555

For the financial parasites, it's an inconvenient truth that Strike is better than anything else at sending money from one place to another.

by J.C. | 21st Oct 21, 11:08am 1634767726

I notice some of the ultra orthodox attitudes seeping through. And it's not just about ol' Ratty, Ethereum has been much stronger in the past 12 hours.

by frazz | 21st Oct 21, 11:42am 1634769732

Solana much stronger than ETH today..I wonder if Vitalik will throw another hissy fit?

by stuart786786 | 21st Oct 21, 7:34am 1634754872

Greenlight's David Einhorn: Fed doesn't have the stomach to fight inflation

https://seekingalpha.com/news/3755614-greenlights-david-einhorn-fed-doe…

Reserve Bank Governor now stand exposed and voices have started to raise as for how long could they lie and manipulate ......time has run out for them and will be very hard for them to justify and defend if the next data is also high

Inflation ‘single biggest threat’ to markets and ‘society in general,’ says investor who called stock-market crash in 1987: https://on.mktw.net/3jmwqV4

Money printing - only solution that reserve bank opted is now set to misfire very badly and in trying to cover up are bound to make more harm than good.

by Roy1 | 21st Oct 21, 7:52am 1634755966

He is correct that central bank has no exit plan and have screwed and are screwing up further and further.

https://youtu.be/7P9M3h-jzG8

Monetary system / reserve banks hasfailed and time for change as it normally is needed after every 50 years - last was in early 1970s.

by Audaxes | 21st Oct 21, 7:51am 1634755888

But not all large economies are getting high levels of price rises at the consumer level - just those where economic activity is expanding at healthy levels.

We have nearly 262 million people ages 16 or older in the United States. Almost 60 percent — roughly 154 million people — are employed. That leaves us nearly 108 million on the sidelines. Of those, approximately 8 million are unemployed, defined as actively seeking employment. This translates to an unemployment rate of 4.8 percent. In South Carolina, that number looks better, at 4.2 percent.

But, as evident in this recovery, the unemployment rate tells only a part of the story. It misses the roughly 100 million individuals (about 1.8 million in South Carolina) who aren’t working and haven’t recently looked for work. Link

by Lapun | 21st Oct 21, 11:15am 1634768136

How that 100m is split would be interesting. First question is what do they define as in paid employment - in NZ that can be 1 hour a week.

You have 8% of them actively looking for work. What are the percentages for full time retired over 65 and full time retired under 65. Then prison population. Full time house wives (or husbands). Seriously disabled and less seriously disabled [there is a distinction to be made between my ex-neighbour with mental age of under 5 who could never work and someone in a wheelchair living in a rural area who nobody will employ.] Full time students.

by Rob Reid | 21st Oct 21, 11:44am 1634769886

Yes, boomers and young people dropping out of the workforce (for some similar and some different reasons) is a mega trend at the moment, not just in the US. A squeeze on employers, and happening too fast for automation to replace yet. Stagflation is meant to come with high unemployment, but the reasons have almost flipped; In the 70s it was low work availability, now it's high work availability but low rewards (relative to just owning stuff and having your wealth pumped up by central policy).

by stuart786786 | 21st Oct 21, 8:04am 1634756665

Australia has reported 3.8%, and New Zealand of course surprised with its 4.9% leap.

Bigger the economy, bigger the chances to manouvere but small economy like NZ and that too with focus only on one sector - housing sector is bound to have more severe repercussion.

US and even Australia is not dependent and have not put all eggs in one basket unlike NZ.

by donny11 | 21st Oct 21, 8:17am 1634757474

Caught between a rock and a hard place we are. The 10 year is pushing 2.4%. Don't think the RBNZ/Treasury will be all that happy about this. But what can they do? Pretty difficult to kickstart the inflationary LSAP programme when CPI is hitting 5%.

by murray86 | 21st Oct 21, 8:24am 1634757889

Yes and this inflation is stealing people's standard of living, which in NZ, was always under pressure. Private business will find themselves facing increasing demands for higher pay, and the Government has put in place a plank of it's election losing strategy denying government workers, especially the front line ones, any pay increases for three years.

by Ahuhyeah | 21st Oct 21, 2:52pm 1634781134

We will be into the self-reinforcing stage now. "I'm putting my prices up because my inputs are up." That flows the the next level and reinforced by petrol/oil at all levels. Next quarter announcemwnt going to be painful.

by Roy1 | 21st Oct 21, 8:16am 1634757414

China Housing Crisis will be controlled by Chinesse Government just like government and reserve banks in developed countries are supporting, as houssing market now, is too big to fall and this applies to not only housing but also to stock market.

If stock market falls by few percentage, can see how reserve bank get together instantly with announcement and policy to boost it. Stock Market is very intelligent so whenever their is is talk of tapering or interest rate hike, it throws tantrums and reserve banks are forced to not only continue but throw more money to support as is the only solution they know to avoid recession but for how long as moment/ whenever they withdraw, markets are bound to react, irrespective. Earlier reserve bank realize it and let the market takes its own course, better it will be for economy in long term.

by colinchch | 21st Oct 21, 9:26am 1634761567

Eventually the market will take control and that time may well have arrived

by alittle | 21st Oct 21, 10:40am 1634766056

Agree. RBNZ to avoid being ask questions came up with parroted reply that inflation is temporary (How does one argues when RBNZ governor assure that is for shor time), but after kicking the can number of quarters have run out but still can blame corona virus but themselves.

Last year when had lockdown, reduced interest rate and started printing money - if that was the right approach, why is it not being followed now when the situation is as bad if not worse instead are forced to take U turn - thiugh is right approach but is as compelled by econony and forced, not that they are happy to do.

Time for fundamentals to catch up to try to contain the damage that like of Orrs and Robertsons are done all under the garb of panademic.

by murray86 | 21st Oct 21, 11:32am 1634769170

As to the printing money issue - this is where the flaws in the 'conventional wisdom' will out. Most believe, erroneously that printing money creates debt, but in reality it creates an obligation, not a debt. So where it is spent is the biggest issue. The Government could for example argue that they will create a budget to sort NZ's infrastructure to support economic activity. This would then form a base for future economic activity. But instead, because they failed to give a direction, and have consistently failed to properly regulate the economy the printed money has effectively been hoovered up by the banks and the wealthy property owners (landlords). Even those funds provided to support employers through wage subsidies and other things have generally found their way to landlords and the banks. Poor really, but I suggest National wouldn't have got this either.

And ultimately because that money hasn't supported economic activity of substance, then it risks being both deflationary on the value of the dollar, and inflationary on prices.

by blobbles | 21st Oct 21, 9:36am 1634762210

Am picking Orr's resignation in the next few months. Bascand has gone already (smartly left before the s#%t hit the fan), Orr won't have a leg to stand on once deleveraging starts and the collapse comes. Depends how crazy he wants to go though, he might decide to start up a real estate LSAP program to avoid mass defaults...

by lowercase capitalist | 21st Oct 21, 9:45am 1634762721

Isn't his term up some time early next year anyway?

by Audaxes | 21st Oct 21, 9:42am 1634762556

China’s system advantage in tackling Northern Hemisphere’s ‘winter challenge’: Global Times editorial

The National Development and Reform Commission (NDRC) announced Tuesday that the rise in coal prices has deviated from the fundamental level of supply and demand, and will use necessary means stipulated in the Price Law to bring coal prices back to a reasonable range. This statement is of great significance for stabilizing market expectations.

by Audaxes | 21st Oct 21, 9:56am 1634763412

Russian authorities worried about possible aftermath of European energy crisis, says Putin

"What I am worried about and, as far as I understand the Russian government is worried about, is the potential consequences [of the crisis on the energy market], including the measures to support the population proposed by some of our colleagues in Europe," he said, adding that such measures might lead to many problems in various areas.

"Right, people should be supported, of course," Putin contended. Meanwhile, he noted that "some European countries are now planning to make decisions on supporting households." "Where will this lead to in real terms? It won’t lead to people cutting back [energy resources] volumes of consumption, meanwhile there will be a further reduction of industrial consumption, mainly in energy-intensive sectors," the president explained, mentioning the metals industry and the production of ammonia fertilizers among them.

"But this will have its own further consequences that will affect people, and prices for other goods will eventually increase," he noted. "This way of supporting citizens, which is projected (in European countries), is plain to see, but ultimately, we will witness that those are most likely decisions prompted by the current domestic political environment, meaning particularly the pre-election situations in certain European countries," Putin explained.