Here's my summary of the key events over the weekend that affect New Zealand, with news China is no longer exporting deflation.
First, however, in the US, Janet Yellen has suggested the Federal Reserve may need to change policies and run a "high-pressure economy" if it wants to reverse all the damage from the 2008-2009 GFC. She said this means they are looking at policies that would lower unemployment further and boost consumption, even at the risk of higher inflation, to get businesses to invest, improve confidence, and bring even more workers into the economy. She said they are not ready to make these changes yet and called for more research. But it is clear that some different 'bold' policy changes are in discussion.
On the ground, American retail sales came in quite positively. In September they were up +2.7% from a year earlier, up from +2.1% annual growth in August and easily outpacing price inflation. Sales for the third quarter as a whole they rose +2.4% from the same period in 2015. More car buying, and slightly higher petrol proces explain part of the rise.
China has reported its Producer Price Index rose +0.1% in September. Actually, this is a big deal. This data has been negative - that is, disinflationary - for a long time (54 months to be exact) so Chinese goods are now not getting cheaper any more. In fact, the change month-on-month is happening very fast. The days of China exporting deflation to the world may be over.
Further, their own CPI inflation is now running at +1.9%, ending a down-trend. Later this week, China will report its Q3 GDP growth, probably to much scepticism.
And there was a little factoid out over the weekend which will give you an idea of the sheer scale of China. They registered 6.2 mln new cars in the June to September quarter, bringing the total number of car on their roads to 190 mln. (The number of cars in the US is 253 mln.) The total number of all vehicles in China has now reached 280 mln.
In Australia, the insurer that declined 37% of its TPD claims has outed itself as "Company A", despite the regulator refusing to. It is the Westpac-owned BT Financial Group. They declined 58 of 137 claims in 2015 for "total & permanent disability". They said they paid out in 2,640 claims for other types of insurance. (BT Financial is run by Brad Cooper who was Westpac NZ's CEO for a year in 2007/08, and prior to that ran parts of the GE Money business.)
In NSW, their government is preparing their land title registry for privatisation. To make it look more attractive, it has raised fees, in some cases doubling them for this monopoly. One can only wonder what will happen when it gets controlled by an investor - CoreLogic is the likely buyer. Big jumps in fees won't help housing affordability, which already struggles with a high transfer tax.
In New York, the UST 10yr yield is up sharply, now at 1.81% and that is its highest in almost 20 weeks.
The US benchmark oil price is unchanged, still just under US$50.50 a barrel, while the Brent benchmark is now just under US$52 a barrel.
The gold price is a little lower, now at US$1,253/oz.
With one exception, the New Zealand dollar is a broadly similar level to this time on Friday. That leaves it at 70.9 US¢, and on the cross rates it dipped quite a bit and is at 93 AU¢, and it's unchanged at 64.6 euro cents. The NZ TWI-5 index is now at 75. We are also at another new high against the sinking pound; 58.1 British pence.
If you want to catch up with all the local changes on Friday, 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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21 Comments
I tried but failed over the weekend to get to grips with what Yellen said. The language made no sense to me. It's all stratospheric stuff, but I can't see how it connects to business, folk, income and assets. Just me obviously, the rest of you get it in one apparently.
I am with you - other than we have witnessed a clear admission by the Fed in respect of that which was adamantly proclaimed to work in the past has abjectly failed and we should be wary of any future monetary experiments predicated on dogma rather than evidence.The UST10s at 1.80% is a clear indication that a one and done rate hike in December is not such a sure thing either. What a shambles.
Prices should be discovered in the market, not administered by a government.
Basically Yellen is saying we need to consume to the bitter end .... free money if necessary .. on with the Ponzi. Unfortunately the economy is well past overshoot in terms of environmental capacity to sustain it ... yet it relies on increasing consumption to avoid collapse.
Given the opaqueness of our real estate markets , I see that Trade Me launched its property insights data last week . Obviously it is very much in its beginnings, but if it follows overseas models then the glamourisation of our real estate markets and the agents that propagate it, may be due a reality check. Obviously REINZ would rather not advertise such data, so Trade me could quickly find itself in an enviable position as its model allows the promotion of such data.
On the ground, American retail sales came in quite positively. In September they were up +2.7% from a year earlier, up from +2.1% annual growth in August and easily outpacing price inflation. Sales for the third quarter as a whole they rose +2.4% from the same period in 2015. More car buying, and slightly higher petrol proces explain part of the rise.
Hmmmm...
With today’s retail sales report “mixed”, the Atlanta Fed now predicts Q3 GDP will be less than 2%. According to its GDPNow model, the weaker retail sales report, particularly the control group that enters the GDP calculation, will add up to just 2.6% Real PCE growth. In prior periods with actual growth, Real PCE has ranged from 4% to 5% or more. From 1983 to 1989, Real PCE averaged 4.42%; from 1993 to 2000, Real PCE averaged 4.19%.
If that estimate holds it would mean GDP below 2% for the fifth consecutive quarter, and less than 2.5% in seven out of the past eight (the only quarter above that level was Q2 2015 at just 2.6%). This is undoubtedly due, in part, to “residual seasonality” where the BEA has intentionally adjusted its figures to smooth out what were often sharp variations. It hasn’t had the effect its proponents believed it would. Read more
Propaganda or just reality:
EU dairy farmers are already struggling with low prices; the current milk surplus in the US could prove disastrous for the European industry if it becomes part of the Transatlantic Trade and Investment Partnership.
Last week the US press reported that a milk surplus in the country has led dairy farmers there to dump more than 43 million gallons' worth of milk into fields, manure lagoons or animal feed.
Milk was also simply lost on transport routes or discarded at plants, the Wall Street Journal reported.
Dairy farmers there are also experiencing a surplus of cheese, as a result of which the US government has agreed to spend $20 million on purchasing cheddar from farmers, the second such intervention in the last three months.
Farmers in the EU are also suffering due to low prices as a result of the removal of quotas on milk production, as well as the effect of Russian counter-sanctions.
In April the EU Commission eliminated the milk supply quotas which had been in place since 1984. This was followed by a 24 percent drop in prices over five months, leading dairy farmers to protest the move.
According to the EU's statistics office Eurostat, in July the price of a liter of milk fell to a seven-year low of €0.2563, leading some observers to declare milk cheaper than water.
Rather than controlling milk production, the EU has opted to subsidize the industry, as in the US, rather than use direct market interventions such as quotas. In mid-July it supported producers with a €500 million subsidy.
However, removing the production quota and making the dairy industry dependent on subsidies leaves it vulnerable to the proposed Transatlantic Trade and Investment Partnership (TTIP). Read more
"According to the EU's statistics office Eurostat, in July the price of a liter of milk fell to a seven-year low of €0.2563, leading some observers to declare milk cheaper than water. Some how I can't see Fonterra or the supermarkets allowing that to happen here as they gouge all they can get out of the market. Looking at the price here i often wonder how much is dumped.
When challenged over the price of milk at the supermarkets, Fonterra originally said it was set by the international price, but when that fell and the prices did not come down, the bone got pointed at the supermarkets. I don't know who to believe other than we are just getting ripped off!
Short-selling could sweep stock market if inflation pushes up borrowing costs
https://www.theguardian.com/business/2016/oct/16/short-selling-could-sw…
The UK, like the eurozone and the US, has core CPI hovering close to 1% and is almost certainly just one decent recession from experiencing Japanese-style outright deflation.
http://www.businessinsider.com.au/albert-edwards-on-the-pound-and-infla…
http://johnhelmer.net/?p=16564
By John Helmer, Moscow
"The Kremlin has dropped a fish and meat bomb on New Zealand. The casualties are reported to be women, children and the elderly forced to eat food formerly sold to Russia; together with fishermen and farmers whose annual income of US$100 million from exports to Russia has been lost since the start of the Ukraine war.
After the New Zealand Prime Minister, John Key, attacked Russian policy in Syria and on September 26 issued a public insult to President Vladimir Putin, Moscow reacted with the announcement, nine days later, that New Zealand (NZ) exports of meat and fish may be banned from the Russian market. The NZ media have broadcast the prime minister’s attack on Putin; they are not revealing the Russian reaction".
Chinese real estate company finds world's fastest-rising house prices in New Zealand
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117…
And likely the fastest rising deprivation index as well.
This cannot end well.
Can I shorten "high-pressure economy" to HPE? to add to the list of other failed fed policies QE, ZIRP, TARP?
Is this an admission the current policies do not work?
How about:
a) INVErTER INterest quantitiVe Easing TargEted Relief
or my personal favourite
b) INVENToR INterest quantitiVe EasiNg Targeted Relief
Can we trust any statistic coming out of China , particularly those related to CPI , PPI and GDP growth or lack of it ?
I suspect that any PPI cost increases are a direct result of the downward management of the the Yuan , which will naturally have the effect of increasing any imported components or commodities , and this feeds through to production costs , hence PPI going up
The sheer scale of everything in China makes blanket statistics meaningless , the fact is there are real problems looming in the Chinese Merchantilist trade model because there is poor demand globally
If you really want some evidence that global trade is not in a good space , a Chinese shipping Company recently went bust and apart from the sheer number of ships they owned , they also leased and /or owned an eye-watering 2,200,000 shipping containers ....... thats righ over 2 million shipping containers !
Thats about 2 containers for each and every single household in New Zealand
Central banks need more research before they admit that economic theory isn't working anymore in reality. Did it ever really work or was it a nice illusion of control for a short period of time? Did it appear to be working in spite of central banks and governments? Since when were central banks responsible for "growing" the economy? The market no longer exists with so much manipulation and intervention by these misguided institutions.
The illusion is over and the time for preparing for a different model was 10 years ago.
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