Here's my summary of the key events overnight that affect New Zealand with news that behavioural economics has reached the mainstream.
But firstly, the IMF is saying the world's economic situation is pretty good. They see a growth spurt underway nearly everywhere.
China is back from its Golden Week holiday and seems optimistic. The Shanghai Stock Exchange index hit a 21 month high yesterday.
However, the latest reading of the Caixin China services PMI makes for uncomfortable reading in Beijing The Business Activity Index came in at 50.6 in September, the lowest since December 2015 and down a sharp -2.1 points from the previous month. Although new business rose at a slower rate last month than in August, input costs and prices charged both increased. Their inability to turn China into a consumption-led economy must be worrying policymakers there.
And China reported that their foreign exchange reserves continue to grow and that is now the eighth consecutive month of gains. They are now up to US$3.1 tln as at the end of September, inching up by +US$17 bln and slightly faster than the August gain of +US$11 bln. These are tiny gains, easily wiped out by a policy misstep. Reserves are barely +3% ahead of the US$3 tln level they rapidly sunk to in early 2017, and it turns out the US$3 tln level will be strongly defended and is a psychological marker for market watchers.
New data out in Germany shows their factory output increased by +3.2% in August from July, and +5.4% year-on-year, the biggest increases in six years. That suggests strong third quarter GDP growth in Germany and more good news for Europe's largest economy.
And we should note that the Swedish Academy of Sciences has awarded the Nobel Prize in economics to Richard Thaler of the University of Chicago for his work in behavioural economics. It is the second time this branch of economics has been recognised like this. Behavioural economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another. Risk tolerance is a key component. Thaler challenged the notion that we are all rational economic decision-makers. "People often make poor choices – and look back at them with bafflement! We do this because as human beings, we all are susceptible to a wide array of routine biases that can lead to an equally wide array of embarrassing blunders in education, personal finance, health care, mortgages and credit cards, happiness, and even the planet itself," he has said.
With New York closed, the UST 10yr yield is unchanged at 2.36%. Markets there are on holiday today.
The price of crude oil is marginally higher and now just under US$49.50 a barrel, while the Brent benchmark is just under US$55.50. Interestingly, the US is reporting a second consecutive year of reductions on carbon dioxide emissions. In fact, they have fallen in six of the past ten years and believe it or not, are now back to 1992 levels.
The price of gold is up +US$10 today, at US$1,282/oz.
And the Kiwi dollar slipped a little yesterday but has held its level overnight at 70.7 US¢. On the cross rates we are slightly lower as well at 91.1 AU¢, and 60.2 euro cents. Our TWI-5 index is now at 73.6. Election result uncertainty is certainly weighing on our currency.
If you want to catch up with all the changes yesterday we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Update: An earlier version of this story overlooked that Daniel Kahneman won the 2002 Nobel Prize for work including behavioural economics.
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17 Comments
Can anyone explain WHY China likes to have such high foreign reserves..?? I dont see the purpose of it.
Its like having "rainy day" money put aside for emergencies,...(which I understand the need for) , but why so much..??
By comparison NZ has only $27 billion , while being a debtor nation with a chronic current acct deficit..
China is the only country where changes in its Central Bank foreign reserves makes the News and is watched by the mkts..
Can anyone enlighten me..??
I've heard it argued that it is to maintain the strength of the Yuan.. BUT.. as an export driven economy , why would they want a particularly strong yuan..?
part of the reason is that China runs a big trading surplus with the US while the US runs big current deficits in general ... like two co dependent druggies ... without US printing debt and buying Chinese goods, China manufacturing "collapses". And without China continuing to prop up the US dollar (the Yuan would strengthen too much in relative terms ...) and the US would find it harder to peddle debt
this is a good (2010) article along those lines
https://heinberg.wordpress.com/2010/02/03/213-china-or-the-u-s-which-wi…
So im guessing the markets watch it to see where the two big boys are at in terms of confidence...
Exactly. Chinese industrialists' LAX USD export receipts are exchanged for PBOC Renminbi . In past decades when exports were exploding at a plus 20% annual rate unsterilised domestic money supply expansion funded negative consequences in the form of uncontrolled expansion of many not so useful domestic undertakings.
@ROELOF .......... Its because they have absolutely no option . China has such as massive trade surplus with the US it cannot use the US$ it accumulates , so it simply stashes them and accumulates them .
Also , and very importantly, it runs a modern day form of MERCANTILISM and runs a 2 tier currency , one for internal use and one for external use . The internal use one cannot be freely exchanged for other currencies
China makes and pays for everything using local non-convertable internal money , and exports this for $US
So it actually pays wages , rent and other inputs with "monopoly" money , and earns had currency by exporting .
Countries used to do this a lot , and a recent example was in SOUTH AFRICA , which had 2 currencies , one was called the FINANCIAL RAND which was freely traded by foreign investors and the ORDINARY RAND which was used inside by citizens , and which was fixed and restricted by exchange controls ( they could not easily convert this and had a thing called "holiday allowances ')
China has the same system , they can only legally convert a tiny fraction of their money to US$ each year ,and thats why we dont understand how the Chinese arrive here in some cases with millions of US$ .
A long-time practitioner in behavioural economics one finds oneself out of step with the over-crowded macro-space wordsmiths who dominate the opinion scene with a lot of mumbo-jumbo nonsense. And the reason they get away with it is because it can never be fact-checked
Im trying to find out more about Russian Ag, or at least the CIS States. interesting stuff keeps turning up.
"One of the strategically important sectors where Russia has made striking progress is its agricultural industry. After the disastrous 1990s when she found herself dependent on food imports, Russia again became self-sufficient in food production and a net food exporter. By 2014, Russian exports of agricultural products reached nearly $20 billion, almost a full third of her revenues from oil and gas exports. Not only is Russia now producing abundant food for its own needs, the government is explicitly favoring production of healthy foods, a strategy which includes a ban on the cultivation of genetically modified (GMO) crops, introduced by the State Duma in February of 2014. According to official Russian statistics, the share of GMO foods sold in Russia declined from 12% in 2004 to just 0.1% by 2014.
These and many other constructive reforms have had a very substantial impact on Russia’s economic aggregates as the following examples show:
Between 1999 and 2013, Russia’s gross domestic product (GDP) leaped nearly 12-fold from $1,330 per capita to more than $15,560 in 2013, outpacing even China’s remarkable economic growth.
Russia reduced its debt as a percentage of GDP by over 90%, from 144% in 1998 to less than 14% in 2015!
Gross national income per capita rose from $1,710 in 2000 to $14,810 in 2013.
Unemployment fell from 13% in 1999 to below 5% in 2014. Among the working population (those aged 15-64), 69% have a paid job (74% of men).
Only 0.2% of Russians work very long hours, compared to 13% OECD average
Poverty rate fell from 40% in the 1990s to 12.5% in 2013 – better than U.S. or German poverty rates (15.6% and 15.7%, respectively)
Average monthly income rose from around 1,500 rubles in 1999 to nearly 30,000 rubles in 2013.
Average monthly pensions rose from less than 500 rubles to 10,000 rubles."
At the start of the year, I mentioned an Australian listed company Clean-Teq, which Shanghai Pengxin ( Crafer farms) had invested significantly in 2016. For those who interests outside New Zealand real estate, and may see a future in electric vehicles ,rare metals, lithium batteries and indeed understand the need/wishes for China to have ready access to supplies , and their willingness to invest, may want to take a look.
Has the mindless dash to exterminate cash been eternally extinguished?
In the days following Hurricane Maria's devastating blow to Puerto Rico, air traffic on the island came to a complete standstill as airport damage prevented commercial pilots from servicing the island. That said, with the island economy grinding to a halt, San Juan International apparently managed to find a way to accept one very important plane...a "jet loaded with an undisclosed amount of cash" from New York Fed president William Dudley. Per Bloomberg: Read more
You might have heard me call the peak in the rate of population growth in 1961 peak EROI of energy. Well here is good confirmation bias of that :-) https://medium.com/insurge-intelligence/the-new-economic-science-of-cap…
Yes, interesting work, scarfie, thanks for the link.
Very relevant to planning in NZ given the RMA is based around that 'ecological modernization' premise, i.e., that mitigating the negative environmental effects of an action/proposal will achieve that decoupling between economic growth and environmental degradation.
How different would a piece of environmental legislation be if it accepted that notion as the false premise that it is, and instead decided to direct environmental planning toward active promotion of energy
de-intensification initiatives?
My Q is how long before "we" figure out that "legislation be if it accepted that notion as the false premise that it is, and instead decided to direct environmental planning toward active promotion of energy
de-intensification initiatives"
isnt an option but an imperative.
The winners (or maybe not so big losers) will be the ones that move early as they will get resources before everyone else realises the game has changed.
2010 Park Management Plan. Check out 8.2.2.1 a through d are a result of my submission. They didn't quite fully embrace what I envisaged, but it is there as a template to use.
I actually said park rangers should use public transport to get around where possible. I suggested the parks themselves be used for biofuel crops, and the plant to produce the fuel be mobile.
http://temp.aucklandcouncil.govt.nz/EN/planspoliciesprojects/plansstrat…
Gas companies weigh a heavy influence over Australia’s political leadership. As the horror show over high gas prices unfolds, Big Gas Con whistleblower and analyst, Simone Marsh, reports on National Party donations, the gas lobby, the “revolving doors” between industry and politics, and Deputy Prime Minister Barnaby Joyce and his land parcel at Narrabri where Santos is planning to drill. This is the first of a two-part series.
https://www.michaelwest.com.au/investigation-barnabys-gas-bonanza-and-t…
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