Here's my summary of the key events over the weekend that affect New Zealand, with news the head of CBA is now facing calls for his sacking.
But first, on Saturday, the US released its employment data and that showed non-farm payrolls rising by +209,000 jobs last month in broad-based gains. The strong June data was revised higher as well. Average hourly earnings rose +2.5%, maintaining the pace of the past four months. This is far ahead of US inflation which is currently running at +1.6%. Their jobless rate is now 4.3%. These signs of labour market tightness will likely clear the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio. And it will likely keep the Fed on track for at least one more rate hike this year.
Rate rises are expected in the UK as well, maybe more than markets are expecting.
In Canada, their unemployment rate fell to 6.3% in July (from 6.5%), its lowest level in nearly a decade, and job creation is the strongest since before the global financial crisis. But wage growth remains very weak. The average hourly wage increased a mere +1.3% to C$25.79 (NZ$27.50) over July of last year, the 12th consecutive month of very soft wage growth.
Back in the US, their trade balance came in at a deficit of US$43.6 bln, lower than what markets were expecting. The goods portion was a deficit of -US$65.2 while they posted a services surplus of +$21.2 bln in June. However, while it may have beaten expectations, it is little changed from the same month a year ago.
In Europe the EU has imposed new sanctions on Russia over the transfer of EU turbines to the Crimea which Russia annexed by force in 2014. The EU's sanctions build on those by the US.
In China, a monumental shift is underway. The Chinese used to be substantial savers. But that is changing as the drive to own a home becomes a key objective of most households. As a result, the country is quickly adopting debt into their household balance sheets. The shift is swift.
In Australia, the knives seem to be out for the head of the CBA. The latest 'scandal' over the way an ATM system was rorted by money launderers, and the way the fix was handled, seems to look like the last straw for some observers, media and politicians. The fact that it was the bank who brought the issue to the attention of the regulator seems to count for little at this point. The pressure for 'change at the top' seems to be be high at present.
In New York, the UST 10yr yield was up +3 bps on the non-farm payroll report to 2.26%.
The price of oil is up slightly at just over US$49.50 a barrel, while the Brent benchmark is now just under US$52.50.
The price of gold is down -US$9 to US$1,259/oz.
And the Kiwi dollar will start today little changed at 74.2 USc. On the cross rates we are marginally lower at 93.6 AU¢, and at 63 euro cents. As a result the TWI-5 index is at 76.8.
If you want to catch up with all the 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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17 Comments
John Pilger: "A curtain of radioactivity is moving south towards Australia and New Zealand, southern Africa and South America. By September, the last cities, towns and villages will succumb. As in the north, most buildings will remain untouched, some illuminated by the last flickers of electric light.
This is the way the world ends
Not with a bang but a whimper
These lines from T.S. Eliot’s poem The Hollow Men appear at the beginning of Nevil Shute’s novel On the Beach, which left me close to tears. The endorsements on the cover said the same.
Published in 1957 at the height of the Cold War when too many writers were silent or cowed, it is a masterpiece. At first the language suggests a genteel relic; yet nothing I have read on nuclear war is as unyielding in its warning. No book is more urgent."
The escalation of tensions, sanctions and a trade war with Russia is very bad news.
https://www.counterpunch.org/2017/08/04/on-the-beach-2017/
On an irrelevant but positive note - plugging a gap in my literary upbringing, I've read 6 Nevil Shute novels in the last year - all riveting. Any suggestions where else to find this level of storytelling? So many books I start reading and give up because they just don't hold my attention...
Yes they are cracking yarns. My father has the whole collection, so I have been working through them. I think most interesting is "Slide Rule", which has the only large scale project ever where private enterprise competed directly against central control. Thanks to Powerdownkiwi for pointing that one out here some years ago.
I must give them a read. I've not year read Shute.
I recently read a couple of Tolstoy's novels (Anna Karenina, War and Peace) just to have done so, and must say I was impressed not only at the read, but at the parallels between thinking back then and some of the issues we're now facing in NZ around equality of opportunity, social mobility, give-and-take in society, and land.
Also had a Graham Greene month or two...The Quiet American was quite remarkable, especially for its anticipatory account (written in 1955) of the USA's colonialism in Indochina.
George Orwell's other less famous books are also well worth a read!
(NB, I think you can download all these free from https://www.gutenberg.org/)
Re: ".... As a result, (China) is quickly adopting debt into their household balance sheets. The shift is swift"
The answer isn't more 'free money', that's the problem....(sigh)
http://www.telegraph.co.uk/content/dam/business/2017/08/03/alex_cartoon…
These signs of labour market tightness will likely clear the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio. And it will likely keep the Fed on track for at least one more rate hike this year.
One needs to hope for a better outcome than that.
The still “missing” 15 or 16 million Americans, a number so incredibly large that it equals one-tenth of all payrolls in the Establishment Survey, are all the difference – certainly between 2006 and 2016-17. The mainstream recovery narrative says these people don’t matter, as if an economy could ever just ignore that large of its proportions. Only by dismissing them can this lackluster situation be called a recovery. Including them in any considerations shows, proves, the Great “Recession” wasn’t a recession, raising legitimate, impeaching criticism of the whole discipline (and those that have been tasked with practicing it, not just within central banks). Read more
Most of the employment gains in the US are for people with less than a high school diploma. The categories of high school diploma and above have a marginal decrease (-0.2%). I've seen one set of statements that the increase in jobs is people transitioning from full time work to working 2-3 jobs which is driving the increase. Damn statistics, lies and all that.
FDIC Vice Chairman Thomas Hoenig vents his frustration, given banks opt for liquidity preference when the appropriate risk/reward opportunities to fund productive endeavour are missing in the current monetary environment.
When tighter regulations were imposed on the banks after the Financial Crisis, the largest among them, the very ones that threatened to bring down the financial system, began squealing. Those voices are now being heard by Congress, which is considering deregulating the banks again. In particular, they claim that current capital requirements force banks to curtail their lending to businesses and consumers, and thus hurt the economy.
Nonsense! That’s in essence what FDIC Vice Chairman Thomas Hoenig told Senate Banking Committee Chairman Mike Crapo and the committee’s senior Democrat, Sherrod Brown, in a letter dated Tuesday, according to Reuters. The senators are trying to find a compromise on bank deregulation.
If banks wanted to increase lending, they could easily do so without lower capital requirements, Hoenig pointed out.
Rather than blowing their income on share-buybacks or paying it out in form of dividends, banks could retain more of their income, thus adding it to regulatory capital. Capital absorbs the losses from bad loans. Higher capital levels make a bank more resilient during the next crisis. If there isn’t enough capital, the bank collapses and gets bailed out. But banks that increase their capital levels through retained earnings are stronger and can lend more.
Alas, in the first quarter, the 10 largest bank holding companies in the US plowed over 100% of their earnings into share buybacks and dividends, he wrote. If they had retained more of their income, they could have boosted lending by $1 trillion. Read more
Why does the NZ government allow our Australian bank subsidiaries to export their retained earnings across the ditch?
While we're on this sort of note, governments should say "Enough!" to banks' penchant for wanting to enjoy the profits while socialising the risks in the form of bailouts. If there's a next time, any bailout should be in exchange for equity, a la Iceland, rather than simply handing over corporate welfare.
In Europe the EU has imposed new sanctions on Russia over the transfer of EU turbines to the Crimea which Russia annexed by force in 2014. The EU's sanctions build on those by the US.
Hmmmm...
The Big Lie today is this: that the reason for the economic sanctions against Russia, is that ‘Putin’ or Russia ‘stole’ or ‘conquered’ or ‘seized’ the Crimea region of Ukraine.
The Big Truth, about the matter, is that US President Obama conquered Ukraine itself (all of it), via a February 2014 CIA coup that he had secretly started planning by no later than 2011, which on 20 February 2014 culminated with the violent overthrow of the democratically elected President of Ukraine, Yanukovych, who had won 90% of the votes in the far-eastern Donbass area of Ukraine, and 75% of the votes in the far-southern Crimea area of Ukraine, both of which intensely pro-Yanukovych regions refused to be ruled by the Obama-appointed rulers — the hard-right, fascist and rabidly anti-Russian, team that the Obama regime imposed upon Ukraine, after Obama’s agent Victoria Nuland told Obama’s Ambassador to Ukraine on 4 February 2014, that «Yats» (Arseniy Yatenyuk), a hard-right and even racist anti-Russian Ukrainian politician, was to become appointed to run the country as soon as the coup would be over, which happened 23 days later (and Yatsenyuk did then receive the appointment and establish very hard-right anti-Russian policies — including massacres of ethnic Russians in Ukraine). Read more
This isn't a dig at (only) David, because a lot of journalists do it, but I find it annoying: why do they often prefix Ukraine or Crimea with the word "the,' i.e. "the Ukraine" or "the Crimea?" It's grammatically incorrect. You don't see anyone say "the China" or "the Australia."
And the latest from US media:
America's Ukraine Hypocrisy - http://nationalinterest.org/blog/the-skeptics/americas-ukraine-hypocris…
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