Here's our summary of key events over the weekend that affect New Zealand, with news mainly on the trade front.
Firstly, China is reimposing a banking rule today to help stop the slide in the value of its currency. Ironically, the fall is from market forces rather than the charge of 'manipulation' from the White House. Doubling the irony, today's move is actual 'manipulation' which should stem the decline. Many other South East Asian countries are very vulnerable to the China-US currency war, caught between a choice of export competitiveness and exploding inflation, or no growth and price stability.
American job growth slowed more than expected in July as employment in the transportation and utilities sectors fell, surprisingly for the transportation sector. But there was a drop in their unemployment rate which ticked lower to 3.9% because of a stubborn participation rate which shows no sign of improving any time soon. Also stubborn is the rise in earnings, up +2.7% pa, again. It has been at this level for more than two years now and if anything seems to be softer now than it was at the end of 2016. It is proving to be a long wait for tighter labour market conditions to show up in broader jobs gains or in pay increases.
Canada's goods trade deficit narrowed from C$2.7 bln in May to $626 mln in June, the smallest deficit since January 2017. This was a much better result tan markets were expecting. The Canadian trade surplus with the US widened however and locals spurned imports from their southern neighbour.
More directly in the trade war, China as announced new tariffs on US goods, ones that will especially hurt US hardwood exports - and some very fast-rising oil and gas exports. They also targeted food products, chemicals, steel, aluminum and consumer goods like furniture, bicycles, baseball gloves and beauty products. More than US$60 bln of trade in additional goods have been singled out for additional tariffs.
The American trade deficit widened in June at the fastest rate since November 2016, pushed by a stronger dollar and front-running buying. The trade deficit in goods and services increased +7.3% in June from the previous month to -US$46.4 bln. It was, however, about what analysts were expecting. But we should also note that the American trade deficit overall is now at its highest point of the Trump presidency and almost as high as in 2009. Of special concern for them is that services exports have stopped rising.
American trucking companies ordered a record 52,400 big rig trucks for regional and long-haul routes in July, what is usually the slowest order month of the year. That is nearly triple the orders from last year, when fleets ordered 18,726 trucks, and a +24% jump from June’s orders.
And there appears to be progress in the NAFTA negotiations. The US and Mexico are close to a deal, and Canada says things are positive. It now all depends on whether Trump can accept the compromises involved.
In Italy, bond investors are retreating and yields are rising ahead of what will be contentious budget negotiations within the new and unstable Italian government.
In Turkey, they are struggling with a fast-falling currency - made worse by an emboldened strong-man president espousing fantasy economics. The Turkish lira is down to a record low and facing a sudden crash. All its debts are in US dollars, all its income-producing assets are in local currency.
The UST 10yr yield retreated on the US payroll data outcome and is now at 2.95% and about where it was at this time last week. Their 2-10 curve is just on +30 bps. The Chinese 10yr is at 3.49% (unchanged) while the New Zealand equivalent is now at 2.83%, also unchanged.
Gold was down -US$2 at the US market close and now a just on US$1,213/oz, another -US$9 retreat over the week.
US oil prices are a little lower today and now just over US$68.50/bbl. The Brent benchmark is now just over US$73/bbl. The US rig count is marginally lower this week.
The Kiwi dollar is starting the week at 67.4 USc, and down nearly -½c from this time last week. On the cross rates we arelower too at 91.1 AUc, and at 58.3 euro cents. That puts the TWI-5 at 71.1.
Bitcoin is now at under US$7,000 and down more than -5% from where we left it on Saturday. We track this rate daily in the interactive chart below.
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41 Comments
In the USA you cannot export trees from Federal or State land, I think it's to protect local industry, the hardwood ban wouldn't do much.
https://www.fs.fed.us/pnw/pubs/pnw_gtr208.pdf
I'm getting very tired of all this talk of the USA and China imposing $X billion MORE tariffs. Incremental figures are hard to keep up with. What I would like to see is absolute figures. ie The Chinese were already imposing tariffs on imported cars before all this kicked off, so it would be much more instructive to know how the absolute figures stack up now.
Sure, it would have to be broken down into trade just with the USA. And it must be remembered that Trump is doing this not only from the point of view of the pre-existing tariffs, but from forced technology transfer and from non-compliance with patents.
Personally I think its a good thing. Should have been done years ago.
Describing NZ's interconnected construction industry "It is a fragile house of cards underpinned by high-risk transactions and IOUs, not unlike a Ponzi Scheme.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Yes indeed.
This article was pretty much spot on, although I didn’t agree we are likely to see further tier 1 contractors fail as we have pretty much run out of such contractors who haven’t already had a terminal or near death experience. The only one who hasn’t had a heart attack (yet) is Downer, but that is by virtue of dumb luck rather than genius I bet. The industry is a prime example of the existence of the winners curse. The construction industry is a dog of an investment, the main winners of the boom have been labour and material suppliers. These companies are run like English football clubs, money just washes through them and out the bottom.
I would be watching canam construction pretty closely if I was their creditor. I don’t know if they walked or got chucked off the Alexandra park site, but neither sounds good. That project has the making of a shambles, appparently there is already substantial delays.
Prevalent in our industry. A drag race on what a metre of pipe costs. Contractors often taking for granted that everything required to make all the bits go together has been quoted by the merchant.
“Oh can you send me through an excel version of your quote?”
*scroll down, “=autosum”, enter*. Jobs yours mate.
Holy moly, did I hear that right, 20% of Aussie borrowers are required to take out LMI repayment insurance!? This LMI thing is different from other loan insurance as it seems to be credit default insurance rather than incapacity insurance linked to illness or death. Is LMI a thing in NZ? Sounds awfully like a CDS..... and they turned out real well
Conspiracy theory or Trump strategy?
“The best way to bring Beijing to its knees is by running a tight monetary policy in the US,” continued the same investor. “China has the world’s most overleveraged, fragile financial system.” In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing. “The economy is held together by capital controls. If those fail, the whole system fails.” The capital flight in 2015/16 cost the government $1trln in reserves, and that was with ultra-dove Yellen in charge. Imagine what would have happened with Volcker at the helm. “The Chinese are dying to get their money out.”
“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. “And we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates,” he said. “The combined policy mix makes capital want to leave at the same time it makes the dollar more attractive and effectively shuts down new investment inflows to China.”
The Consigliere:
“Made in China 2025 is a policy that came out with great fanfare,” said Peter Navarro, White House Trade Advisor, referring to Beijing’s overarching strategic industrial plan, unveiled in 2015 by Premier Li to move China up the value chain. “The Chinese are now suppressing it from being referenced in public because they don’t want people to know the intent of the plan, which is to capture 70% of global production in the emerging industries of the future within the next 7yrs. Think about that. And as President Trump has said, ‘If we lose the industries of the future, we won’t have a future.’”
https://www.zerohedge.com/news/2018-07-29/hedge-fund-cio-it-makes-you-w…
Okay, I know it's unfashionable to say it, but it rather looks like Trump is trying to do to China what Reagan did to Russia. At the time the fashionable media all made us think that Reagan was a fool.
I suppose you could call it using the inherent contradictions of the Communist State to bring about its downfall.
The US is the most self sufficient country on the planet. US exports are a mere 12% of GDP. They have a wealth of minerals, vast tracts of agricultural land, a large population, developed institutions and defendable boundaries (the Pacific and Atlantic oceans). They are not number one by chance. Having said that, their ability to shoot themselves in the foot is also well developed.
Meanwhile within America Trump is a lightning rod for fruitcakes and fascists.
I would agree about some places in US being a bit... well... weird. Portland is ground zero for this. I would suggest searching through youtube for some of the video about the various marches in Portland. Note which groups are being violent. A large percentage of the violence is being done by the antifa group, which is more than a little bit anti-trump.
There are many reasons around to dislike trump. Not sure that these reasons rise to the level of advocating violence.
It is sad that US has become so polarized, and that some groups are using this polarization to advocate violence. Following along this path is likely to result in a civil war.
Re civil war - I do note that California has gone very quiet recently on its earlier threats of a separatist movement.
Things will definitely improve there once the Democratic Party has a proper clean out. Presently they are not a credible opposition;
https://www.bostonglobe.com/news/politics/2017/11/03/elizabeth-warren-c…
"...capture 70% of global production...." This is a concerning goal, because if it succeeds, then China would effectively control the world! It high lights all the issues associated with the free market and globalisation, such as how will countries maintain living standards for their populations, or how will they maintain economic independence and therefore political independence?
Equally concerning is that with the moves that these two are beginning to make, it is like watching a fight between two bulls. The small observers on the peripheries can easily get trampled on the sidelines. And as suggested above at some point every other country could well be asked to pick sides and without strong allies, the consequences of trying to stay unaligned, or for that matter - picking the wrong side, could be devastating.
If my olnly source of news about the US was from this site I would think the US economy is in serious trouble rather than "strong" as the Fed said last week - first time the Fed has described the the US economny as "strong" since 2006. The fact of the matter is the US economy is booming and if a person isn't investing in the US then you really should. Put your prejeducies aside about Trump and foucs on facts. Yes there are wierdos but the US is a big country; if 200 people turn up to a rally that's like if 3 here did the same - hardly news worthy.
Oh, look at the Trumpista playing the victim card. Time to get back to reality ZS, I haven't seen any censoring on the basis of political views, just on off-topic nonsense, ad-hom attacks and profanity/racism. One thing you can't say about this forum is that the editors are heavily partisan, they only step in when things get ridiculous.
Gareth Vaughn is extremely anti Trump. I'm not playing the victim card. It's more like that martial art trick of reflecting the force back at the attacker. All I can say is that I have been explicitly ordered not to discuss these things. I have views on the events that Gareth has linked to that are not particularly controversial although are political and strategic but I daren't express them.
Zachary,
I am becoming very concerned about your mental well-being. Recently,you put up a bizarre post which started with it being a crime to have children and then became really weird. Now, you have been " explicitly ordered" not to discuss certain things. Are you hearing voices in your head? Are you taking your medication as prescribed?
Of course,Those few Kiwis who admire Trump are all to some extent deranged,but you appear to be taking it a step further. Apart from his other many character failings, he appointed to head the EPA,a man dedicated to destroying it.The fact that Scott Pruitt has had to resign abruptly will not save it while Trump is in office.
An interesting twist on "growth" i noted on the weekend a piece that identified 1 August as "Earth Overshoot Day" This apparently is the day that the human foot print on the planet for the year exceeds the ability of the planet to recover or replace the resources in that year. The piece identified that it was the earliest that it had ever occurred. So just like Trump and the US, we are all living in an ever increasing deficit for our presence. Taking the debate beyond economics and politics - what can be done about it? The next war, which we seem to be getting rapidly close to?
Population overshoot events - no need for the traditional famine, disease & war - now we have educating girls and access to porn by children - it surely must be very off-putting to most women - and the combination of helicopter parents and social media for kids so they never learn to interact with other kids. The future belongs to children of religious fanatics because there will be no other children.
the overshoot is actually worse than that - it ígnores the one off use of lowhanging fruit (ie the easy fossil fuels ALREADY burnt to ramp up population are gone for good.... unless we're happy to wait a few million years for some repletion)
The overshoot is apparent in increasing wage disparity ...
https://ourfiniteworld.com/2018/08/02/supplemental-energy-puts-humans-i…
"Instead, the issue that tends to arise as humans reach carrying capacity is increasing wage disparity. This issue arose in the 1930s, and it seems to be rising again now. Increasing wage disparity is a way, within our economy, of squeezing out some members, if there are not enough energy supplies to go around. Providing climate-controlled homes, automobiles, paved roads and electricity transmission lines for people all over the world would take a huge amount of energy supplies–far more than we have available today. Wage disparity assures that some groups cannot afford these goods and services, thereby effectively holding down demand for these goods and services."..
In case you missed it last night - a well worthwhile watch - interview with Trump's man on the ground here;
https://www.tvnz.co.nz/shows/q-and-a/clips/q-a-with-us-ambassador-scott…
"China: $7T to $34T in total credit mkt debt in 9 yrs yet foreign currency reserves that stock mkt pundits claimed was their safety net post '08 have fallen to $3T from $4T. $3T was one thing when total debt was $7T, but not at $34T. More and more debt, less and less growth."
@MI_Investments
https://pbs.twimg.com/media/Dj18ws2UcAIQWW9.png
China Is Now Left With Just Three Options, And They Are All Equally Bad
https://www.zerohedge.com/news/2018-08-05/china-now-left-just-three-opt…
Interesting article on National Party connections to the Charter/Partnership Schools industry;
https://www.newsroom.co.nz/2018/07/30/172058/creationism-taught-in-scie…
The science teacher was Rachel O’Connor, sister of National Party leader Simon Bridges and wife of National MP Simon O’Connor.
And here's the video lesson;
Science Has Found Proof of the Existence of God!
https://www.youtube.com/watch?v=Er9D00DXQQs
“They [O’Connor] said, we’re going to watch a video. They didn’t tell us anything about it, they just started showing it. What followed was a documentary of twisted quotes trying to prove how scientists had discovered God.
“I’m watching, thinking, hang on this is really weird. I respect anyone’s religious beliefs, I have no problem with that, but this is a science class.
“This felt really wrong to me. I do respect the process of science, for them to twist - really twist - these quotes, especially from Albert Einstein, someone loads of people, including myself really respect, it made me quite angry.”
Not just teaching creationism, but anti-semitism.
They inappropriately quote Stephen Hawking alot in that video.
Here are 2 quotes from Hawking that reveal his true feelings
“Before we understand science, it is natural to believe that God created the universe. But now science offers a more convincing explanation,” he said. “What I meant by ‘we would know the mind of God’ is, we would know everything that God would know, if there were a God, which there isn’t. I’m an atheist.”
“I regard the brain as a computer which will stop working when its components fail,” he told the Guardian. “There is no heaven or afterlife for broken down computers; that is a fairy story for people afraid of the dark.”
Oh dear, now we have Judith Collins being taken in by a "fake news" site;
https://www.newshub.co.nz/home/politics/2018/08/judith-collins-calls-on…
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