90 seconds at 9 am: China aghast at debt splurge

American labour costs rise sharply on skills gap; world PMIs tame; US car sales soft; China bans AU milk; China debt concerns; UST 10yr yield at 1.57%; oil down sharply, gold up; NZ$1 = 72.7 US¢, TWI-5 = 76.2

2nd Sep 16, 7:31am by David Chaston

Here's my summary of the key events from overnight, with news the Chinese are increasingly concerned at their debt levels.

But first in the US, final data confirmed a sharp fall in labour productivity in the June quarter (something we have reported earlier), but the reason is that unit labour costs are rising fast there, up +4.3% in the past year, +3.7% of which was due to a rise in pay and benefits. And part of that is from a growing skills gap.

All eyes will be on tomorrow's release of the August non-farm payrolls report in the US. This will be key to how the Fed deals with its interest rate settings on September 23.

Factories across Asia, the US and Europe showed few signs of returning to full activity in August, as demand remained fitful at best according to a series of PMI reports released overnight.

Soft American car sales may be a reason. GM's domestic sales were down -5.2% in August while Ford was down -8.2%. Chrysler was up however by +3%. Unsurprisingly perhaps, given their reputation woes, VW-US saw a -9% fall.

China is playing hard-ball with Australia, banning one dairy company supplying fresh milk products and putting 41 others 'under supervision'. The claim is that they are selling diseased milk, something vigorously rejected by the dairy companies involved.

And staying in China, their National Institution for Finance and Development issued a report overnight raising alarm over the growth of debt in the country. Economists at a forum releasing the report said China needed to rein in the “barbarous growth” of the debt and reverse the “poisonous” obsession with borrowing from banks. Estimates of China’s leverage ratio vary but there is consensus that the corporate sector, especially bloated state-owned enterprises, are the riskiest borrowers. While they can chronicle the rise and heady levels, the report writers could not offer any easy solutions to the problem.

We have been reporting on driverless cars recently. Today brings news of the launch of a driverless tractor.

In New York, the UST 10yr yield is unchanged at 1.57%.

The oil price is down again today with the US benchmark price now just over US$43 a barrel, while the Brent benchmark just over US$45.50 a barrel. Over the past few days, this represents quite a retreat in the oil price. Despite this, China has raised fuel prices today.

The gold price is up marginally, now at US$1,312/oz.

The New Zealand dollar is essentially unchanged from this time yesterday. It’s now at 72.7 US¢, 96.4 AU¢ and 65 euro cents. The TWI index is still at 76.2.

If you want to catch up with all the local changes from yesterday, we have an update here.

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

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5 Comments

by James007 | 2nd Sep 16, 9:27am 1472765227

China's "bloated state-owned enterprises" - they could take tips from Solid Energy....

by sharetrader | 2nd Sep 16, 10:09am 1472767764

guess one day the chinese debt will explode, until then it will flow outside to cities all over the world
http://www.scmp.com/news/china/economy/article/2012380/china-drowning-d…

by Stephen Hulme | 2nd Sep 16, 11:10am 1472771445

China is playing hard-ball with Australia, banning one dairy company supplying fresh milk products and putting 41 others 'under supervision'. The claim is that they are selling diseased milk, something vigorously rejected by the dairy companies involved.

US military is doing much the same to Australia.

A top US military official has said that Australia should choose between stronger ties with Washington or Beijing, stressing that there has to be “a decision as to which one is more of a vital national interest.”

"I think the Australians need to make a choice ... it's very difficult to walk this fine line between balancing the alliance with the United States and the economic engagement with China," US Army Assistant Chief of Staff Colonel Tom Hanson said on radio station Australian Broadcasting Corporation.

"There's going to have to be a decision as to which one is more of a vital national interest for Australia," he added.

Hanson blasted the lack of protest by Australia against Chinese maneuvers in the South Sea, saying that Beijing “clearly … believes that they have an opportunity and they feel empowered to flout that.”

“A demonstration by Australia would be welcome,” also said. Read more

Jerry Brownlee dancing on a tight rope:

Defence Minister Gerry Brownlee has pointed to "tensions" in the South China Sea between China and the United States but says New Zealand does not see its defence relationships with the two countries as "mutually exclusive".

In a key speech to the Institute of International Affairs on Thursday Brownlee reiterated New Zealand's position on China's claims in the South China Sea and the recent decision by an international tribunal that found that its claim to sovereignty over had no legal basis.

"While we take no position on the various claims in the South China Sea, New Zealand opposes actions that undermine peace and erode trust. We support the right of states to access dispute settlement mechanisms in managing complex issues. We also support their right to have the outcomes of such processes respected," Brownlee said. Read more

by notaneconomist | 2nd Sep 16, 11:40am 1472773223

Well done Brownlee I say!!

Australia should unleash Pauling Hanson that would add a touch of mustard to the sandwich they're in!!

by Stephen Hulme | 2nd Sep 16, 11:19am 1472771962

But first in the US, final data confirmed a sharp fall in labour productivity in the June quarter (something we have reported earlier), but the reason is that unit labour costs are rising fast there, up +4.3% in the past year, +3.7% of which was due to a rise in pay and benefits. And part of that is from a growing skills gap.

Main street certainly is not spending where it counts.

It does appear as if “something” has changed in 2016 with regard to the real estate market, a possibility raised not just by permits and starts but also resales, and with weakness coming from the residential end of that market it suggests consumer confidence and/or ability to spend on new homes or the remodeling existing ones. It is also consistent with the growing sense of trouble in the auto sector, as more weakness is indicated across more data points in the two largest consumer purchase items. Read more