Here's our summary of key events over the weekend that affect New Zealand, with news China's debtbook diplomacy is spreading.
But first, May 18 is a key date for the renegotiation of the NAFTA trade agreement between Canada, Mexico and the US triggered by the US President. But talks are faltering and the latest week of discussions has broken up without a deal in sight. All sides say they will resume 'soon', but the US is raising the rhetoric and the other two are tiring of the gamesmanship. If a deal isn't before Congress by May 18 (NZT), it can't be passed by them in the current session. But it is not only Mexico and Canada resisting the base urges of the US President; a powerful Republican senator crucial for a trade vote is as well. calling the President's tactics "blackmail".
In Canada, employment growth evaporated in April. Markets were expecting a gain of about +20,000 jobs but in fact a small loss of -1,100 was recorded. That was not enough to change their jobless rate, but it did mean their participation rate sagged to 65.4%. The overall result is raising a few eyebrows. Also raising eyebrows was the +3.6% rise in the average hourly rate, now at C$27.02 (NZ$30.32), and that is the fastest wage growth in six years. In the key provinces of Ontario and B.C. the average hourly wage expanded by +4.3% and +5.6% respectively. This is the first major economy where strong wage growth has started.
China added ¥1.18 tln new loans in April, according to data from central bank, ¥79.7 bln higher than in the same period a year earlier (+7.2%) and about what analysts were expecting. This is a key China metric given their commercial life is essentially based on bank debt.
China is using debt to trap vulnerable small Asian and Pacific nations and pull them into its orbit. It is loaning hundreds of billions to countries that often can't afford to pay it back, and it is going to want something in return for that money. Laos and Cambodia are already being termed "wholly owned subsidiaries of China" while concerns are growing for the financial hooks into Vanuatu, the Philippines, Thailand, Malaysia, Sri Lanka, Tonga and Micronesia. The recent Malaysian election has seen as one of its early signals, a demand to renegotiate their economic relationship with China. As in all cases, the deal works via corruption; those at the top get to keep a slice of the loaned money, but the country gets a sovereign obligation to repay, something both parties know at the outset is unlikely. The overall scheme is just a way to buy UN vote support.
India’s factory output expanded at the slowest pace in five months, up only +4.4% in March from a year ago. This is a sector that has cooled quickly, and may be trouble for their economy. The result was far below analysts expectations and far below the 7.0% growth in the year to February.
The UST 10yr yield is still at 2.97% and unchanged from this time on Friday. The Chinese 10yr is at 3.71% (down -1 bp) while the New Zealand equivalent is at 2.75% (down -4 bps). We have more on these shifts here.
Gold is at US$1,318/oz in New York. That is down -US$3 since Friday morning.
Oil prices are also lower and are now just over US$70.50 and the Brent benchmark is now just over US$77/bbl.
The Kiwi dollar will start the week at 69.7 USc. On the cross rates we are at 92.4 AUc and 58.3 euro cents. That puts the TWI-5 just under 72.2.
Bitcoin is now at US$8,610 and that is down -6% from this time on Friday. South Korean prosecutors raided the offices of Upbit, one of the world’s largest cryptocurrency exchanges, and that certainly hasn't helped sentiment.
This chart is animated here. For previous users, the animation process has been updated and works better now.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
13 Comments
China is attempting to build a new empire. China calls itself the middle or central kingdom and that's not based on location. Rather, it sees itself as the most important and "central" to the world. All nations around them should be vassal states. I think NZ needs to be very careful with our relationship with China - their price will be far too high for us in the end.
The US and China seem to be in a contest to indebt the most client populations.
The Auckland house price bubble can be seen as the result of cheap money flowing to:
a) Kiwis, from the US, via our friendly Aussie banks,
b) people from China either residents or non residents.
Anyone who thinks China does anything for altruistic reasons , is delusional .
Hambantota Port is a case in point
As recently as 6 months ago Sri Lanka which is hopelessly indebted to China , handed over this major port to the Chinese Government in a management contract ( disguised as a lease ) .
Google it , it makes for interesting reading
Kai Shultz of the New York Times penned an interesting article :-
In recent years, China has shored up its presence in the Indian Ocean, investing billions of dollars to build port facilities and plan maritime trade routes as part of its “One Belt, One Road” initiative to help increase its market reach.
Along the way, smaller countries like Sri Lanka have found themselves owing debts they cannot pay. Sri Lanka owes more than $8 billion to state-controlled Chinese firms, officials say.
Sri Lankan politicians said the Hambantota deal, valued at $1.1 billion, was necessary to chip away at the debt, but analysts warned of the consequences of signing away too much control to China.
And lets not kid ourselves , China has been doing this for at least half a century , the TAZARA RAILWAY was built in the 1960's from Dar Es Salaam to the Zambian Copperbelt for one purpose and one purpose only .............. to rail copper to the port, for China . Zambia could never and will never pay for the rail link , and the formerly Anglo American -owned Mines mines are now run by ............. ?
No guessing , China
Given we can only print, borrow or sell assets to fund our 47 consecutive years of current account deficits I would suggest we - as Buffett states - will end up in the same state as sharecroppers not shareholders in our own lands.
The external accounts are really an issue NZ needs to a address.
Start with dealing to an overvalued exchange rate - how do we know its over valued - because as a developed nation we have run these deficits for so long with no change in sight.
We need to decrease investment - mainly in property and increase our national savings to remove the savings shortfall for our level of investment that creates these deficits.
Singapore has an answer - target exchange rates - not interest rates.
Part of NZF's policy but didn't get far. On this - I'm with Winnie !
Exactly why it's always struck me as incredibly naive when I see comments of "What does it matter if the assets are foreign owned? They can't be picked up and taken away and we can still legislate over them."
The truth is, a country that couldn't even keep two French terrorists in jail in the face of French trade threats will have very little ability to legislate over assets in ways with foreign state-private companies do not like.
China is using debt to trap vulnerable small Asian and Pacific nations and pull them into its orbit. It is loaning hundreds of billions to countries that often can't afford to pay it back, and it is going to want something in return for that money. Laos and Cambodia are already being termed "wholly owned subsidiaries of China" while concerns are growing for the financial hooks into Vanuatu, the Philippines, Thailand, Malaysia, Sri Lanka, Tonga and Micronesia.
The Philippines is seeing this play out right now with their president Duterte, who's turning out to be quite willing to do what China asks of him. In recent weeks he's decided to close all tourist access to the resort island of Boracy - under the guise of "environmentalism" - in order for a new 23-hectare Chinese casino resort to be built there.
This is why I prefer we give aid to the pacific island we have relationships with, even though it appears overly-generous...
Otherwise China will step into the hole and hey presto all of Oceania is "colonized" by stealth...and I doubt their motivations are altruistic...
I think we are at risk of seeing dangers in a Chinese expansion that we didn't see in other colonial expansion.
For many years England owned all the meat works in NZ - thereby taking much of our control over product and price. We get excited about people owning farm land - when in fairness you can't take it back offshore they way you can Fisher and Paykel manufacturing.
The US has 662 foreign bases in 38 countries - yet we ignore this completely.
"The US has 662 foreign bases in 38 countries.."
Right. Capitalism at the end of a gun. Éveryone must play by the big boys rules or bear the consequences
Hence the Petrodollar and the trade of everyones resources for printed dollars to buy precious ... (Oil )
Now that resource growth is hitting real limits, the chess pieces are on the move.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.