Here's our summary of key events overnight that affect New Zealand, with news of very robust service sector expansions worldwide.
Firstly however, the overnight dairy auction has brought a small slip in overall lower prices. They were down -1.3% in US dollar terms but a much more chunky drop in NZ dollar terms at -3.7%. WMP prices are down -1.1%, but both butter and cheese both had falls of about -3.5% in US dollar terms. Overall prices however remain in the range that has existed since early February. Year-on-year we are down -4% in USD terms, but only -2% in NZD terms. So overall, a pretty uneventful auction and payout forecasts are unlikely to be changed by today's event. But it is a weak start to the new dairy season.
In the US, the activity in their giant services sector accelerated in May, pointing to robust economic growth in the second quarter. The official measure of job openings reached a record high in April (although to be fair, it was little changed from the prior month). But in a slightly longer view, trade tariffs and the shortage of workers poses a threat to the outlook. In fact, there are now more job openings that jobless at present.
A more worrying threat comes from the American Social Security System. In a report out today, the trustees say its cost will exceed its income this year for the first time since 1982, forcing them to dip into its nearly US$3 tln trust fund to cover benefits. Those reserves will only last another 15 years or so, meaning after that benefits will need to be curtailed unless contributions rise somehow. There is little political appetite at present for that.
China is claiming that its service sector is growing even faster than previously, up +11.9% year-on-year in the first four months of 2018. That is far faster growth than the overall economy. More credible data shows their services sector expanding at an unchanged and modest pace.
A global survey of the world's service sector shows that expansion is accelerating.
In the UK, their government has sold 7.7% of its holding in nationalised bank RBS. On this transaction, it has incurred a loss of almost £2 bln. Sadly for taxpayers, it still owns 63% of the troubled bank, and aims to sell most of the rest by 2023. Huge losses await British taxpayers who paid £45 bln to rescue this key bank. The British government doesn't use normal accounting practices, so that mark-to-market loss is unbooked yet.
In Sydney, the former head of NSW Infrastructure has called their troubled light rail systems "vanity projects' that were never justified on transportation needs. Adding to their contract woes, construction being hit with strikes today.
And Australia's largest apartment developer is feeling the pressure as banks bring in tighter lending standards for borrowers.
But Kiwis aren't feeling that pressure yet. New car sales in May were their highest ever for that month, up more than +10% on the same month a year ago. SUV sales are now up to a remarkable 65% of all cars sold, up from 58% in 2017.
The UST 10yr yield is slipping today, now at 2.91% and down -3 bps on the day. The Chinese 10yr is at 3.68% (up +1 bp) while the New Zealand equivalent is at 2.81% (up +4 bps).
Gold is a little higher overnight, up +US$6 to US$1,298/oz.
Oil prices up +US$1/bbl to be just over US$65.50/bb, but the Brent benchmark is down to US$75/bbl and the US discount is narrowing.
The Kiwi dollar will start today little changed at 70.3 USc. On the cross rates we are a little stronger at 92.3 AU, but little changed against the euro at just on 60 euro cents. That puts the TWI-5 up to 73.1.
Bitcoin is now at US$7,626 which is +2% higher than this time yesterday.
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30 Comments
It's amazing how developers play the market.. when lending standards were weak, they milked the market by rationally supplying and pushing up prices, when the money restrictions kick in, they cry fowl, that the market will suffer without new supply..
They want their cake and eat it too...
Its only really bad when they are bought and sold by speculators to and from each other for a quick buck, which we have seen alot of in the past and that is why in a falling market the apartment sector tends to be hardest hit.
I suspect credit tightening and the upcoming debt crisis will soon expose alot of the overvalued properties across both sides of the Tasman.
I dont think anybody really has a problem with long term landlords renting out properties in an ethical manner.
Not everyone is in a position to, or wants to buy a property
There is a curious disconnect between our individual adoration of SUVs and all forms of petrol and diesel powered vehicles and our political/bureaucratic process. How to explain it? Actually, I do know people who think that dairy and mining are awful and that everyone (apart from them) should use buses. Still, it is rather curious.
Cognitive dissonance. Especially when bicycles, buses, and in large lumps Trains and Trams, need Mining, Smelting with Coal (iron plus carbon), heavy-duty Transport ('cos steel is Heavy), and so on. Plus them Woikers need Fed: bread, cheese (a Dairy product unless they've magicked up a lab-grown Stilton...) and Beer.
So the anti-mining and anti-private transport thang is just a way of keeping the business of actually building
essentials like EV's and eBikes, in faraway places, staffed by cheap labour that thankfully doesn't live alongside the virtue signalers, paid a pittance (no Fair Pay Agreements for them!), transported in un-Sailing Ships across stormy seas crewed by more of the above, yet available at the touch of a key from a Local Business (who we must Support, or Else....), delivered locally via cargo bike in the next six months or so.
Hypocrisy cubed.....
Innovation over hand wringing. "The U.S., where production was once thought to have peaked nearly 50 years ago, will become the largest oil producer on the planet by next year.
...But what should really frighten energy ministers in Riyadh, Tehran and Moscow is how that oil is produced. The number of drilling rigs now active in the Permian is the same as back in October 2011, yet the region is producing three times as much crude.
...These rigs drill over a wider area and increasingly are being guided by instruments developed for offshore drilling that see hundreds of feet into the rock.
...The efficiency and drilling intensity is clear from just one site owned by Encana. The pad in the Permian started out with 14 wells, recently had 19 more added to it and may reach 60 wells—a once unimaginable concentration.
Encana’s approach, which it calls “the cube,” targets different layers simultaneously, which can boost the amount that can be recovered economically by about 50%, Mr. Suttles said."
https://www.wsj.com/articles/the-new-tech-that-terrifies-opec-1527845401
A clear example of attacking the problem from a different angle. Proven oil reserves have tripled in my lifetime and tech like this will keep that trend going. The Saudi wells and shale formations are chalk and cheese. It's akin to nickel production. Price sky rocketed and people started using nickel laterite clays instead of the traditional resource.
"The overall balance between U.S. imports and exports of both crude oil and finished products fell to 2.6 million BPD in December. That is the lowest level since the EIA began tracking this category in 1973. Last fall the International Energy Agency declared in its World Energy Outlook 2017 that the U.S. could be a net exporter of oil within a decade. On the current trajectory, net imports could indeed turn into net exports in 2020."
https://www.forbes.com/sites/rrapier/2018/03/21/u-s-net-petroleum-impor…
Saudi oil is heavy/sour, it's Russia that everyone is watching
https://oilprice.com/Geopolitics/International/Russian-Oil-Turns-Its-Ba…
Àrt Berman ..."“Shale is not a revolution–it’s a retirement party. Shale plays were not some great new idea. They became important only as more attractive plays were exhausted."
Art Berman: Higher Oil Prices Not High Enough (Yet) to Damage The Economy?
https://www.youtube.com/watch?v=38aoOi6I3BU&feature=youtu.be&t=2
http://www.artberman.com/update-u-s-supply-oil-ending/ ...Update: The U.S. Over-Supply of Oil is Ending
https://www.bnnbloomberg.ca/video/investors-get-reality-check-on-u-s-sh…
Anyone who says buses are better for the end user than rail has obviously never caught public transport in their life. Trains are a million times better than buses in every way. If you removed the London underground and replaced it with buses does anyone really think that would be better? Yes trains are expensive and sometimes hard to justify, but claiming they are better for the user is just crap.
Meanwhile Aucklands light rail to the airport is expected to be one of the slowest public transport airport links in the world.
https://i.stuff.co.nz/auckland/104412552/transport-minister-phil-twyfor…
But all is good because Phil Twyford has said it’s not primarily for people catching planes or for tourists.
For many people on or off aircraft a few minutes more on light rail means little, and you get to observe the streets and people.
Those that are hurried will take a cab and pay the price.
We use the bus and its fine, not sure what its transit time is as we allow an hour anyway.
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