Here's our summary of key economic events overnight that affect New Zealand with news inflation is high in the US and Europe, but growth is leaking away in China.
China's official PMIs remained in a stall in October. The factory survey showed retreating conditions, and marginally weaker than for September. Their services sector is still expanding but this was a small downgrade too. Overall it is a bit of a sorry story, hampered by high costs, energy shortages, a resurgent pandemic in some northern provinces, and a difficult transition to cleaner operating conditions. It is a clear momentum downgrade.
However Evergrande has made a second overdue bond interest payment late on Friday, late but not so late as to trigger default. It seems to be successfully buying time to organise its finances and negotiate with creditors. But it is one thing to make interest payments; it is quite another to repay the bond principal amounts none of which are due quite yet.
In contrast, in Japan consumer confidence rose again in October continuing its recovery, even if it isn't quite back to pre-pandemic levels yet. But data for Japanese industrial production wasn't so flash, in fact quite disappointing given most other recent industrial measures like their PMIs. Supply chain issues are crimping production and shipments still there too.
Japan voted in national elections over the weekend and the ruling party looks like it will win again, but with a reduced majority.
Also slightly less than expected was the Taiwanese Q3 economic expansion. However strong investment levels probably mean this will improve well from here and rate hikes are less than a year away now.
Singapore business confidence is holding and looks better ahead. But Singaporean producer prices are rising faster that the expected fast rise. But again, this is really all about energy (oil) costs.
Updated OECD data on foreign direct investment for the first half of 2021 shows the expected strong recovery with both China and the US the main beneficiaries, each making identical gains. Interestingly, Australia was one of the new developed countries with net outflows.
In the US, the inflation number the Fed watches was out over the weekend, core PCE, and that came in unchanged from August at +3.6% and well above its policy target but well below the headline CPI rate of 5.4%. Of equal interest was that personal income retreated quite sharply in September as pandemic support was withdrawn. Personal expenditure rose a modest amount, and it was an unexpected surprise that it rose in these circumstances.
But that tightening didn't affect sentiment much, at least according to the University of Michigan survey. It slipped just a minor amount, but it is recording high uncertainty levels again.
The Chicago PMI reported a pickup to quite a high level after two months of consecutive slippages. New orders were up, but prices paid rose again and to a 42 year high. Supply chain issues dominate sentiment here.
Q3-2021 GDP data for Mexico disappointed with an unexpected slip from Q2.
Annual consumer inflation in the Eurozone jumped to 4.1% in October of 2021 from 3.4% in September and higher than market forecasts of 3.7%. It is all about energy costs there.
Economic activity expanded +3.7% from a year ago in the EU in Q3-2021 and that was more than anticipated.
In Australia, retail sales rose in September, but it is hard to know what to make of the data given the pandemic effects. But most analysts saw it as "encouraging".
And staying in Australia, the RBA turned down another chance to suppress runaway bond yields on Friday, reinforcing the view the central bank will bring forward its cash rate guidance to no later than 2023 amid rising inflation. By skipping the opportunity, that has powered up their wholesale market yields - and it has turned a consolidating market in New Zealand into one where earlier falls were cancelled.
More clarity about their evolving policy will probably come tomorrow at the RBA's regular monthly rate review.
In Australia Delta cases in Victoria have risen to 1036 cases reported there yesterday, and quite a drop. There are now 22,013 active cases in the state but there were another 12 deaths yesterday. In NSW there were another 177 new community cases reported yesterday with 3,667 active locally acquired cases which is lower, and they also had 1 death yesterday. NSW is now offering booster shots. Queensland is reporting zero new cases again. The ACT has 7 new cases. Overall in Australia, more than 77% of eligible Aussies are fully vaccinated, plus 11% have now had one shot so far.
The UST 10yr yield opens today at 1.56% and down -8 bps in a week. The US 2-10 rate curve starts the week at +106 bps. Their 1-5 curve is also at +106 bps, while their 3m-10 year curve is little-changed at +150 bps. The Australian Govt ten year benchmark rate has held at 1.95%. A week ago it was at 1.79%. The China Govt ten year bond is unchanged at 2.99%. The New Zealand Govt ten year is holding at 2.60%.
The price of gold will start the week at US$1784/oz. At this level it is -US$10 below the week-ago price.
And oil prices are up by another +50 USc to just over US$83.50/bbl in the US, while the international Brent price is now just over US$84.50/bbl.
The Kiwi dollar opens today just under 71.7 US. Against the Australian dollar we little-changed at 95.3 AUc. Against the euro we are a firmer at 62.1 euro cents. That means our TWI-5 starts today marginally firmer that at this time Saturday at just under 75.3, still well over the top of the 72-74 range of the past eleven months, possibly now resetting this range.
The bitcoin price has slipped -3.1% since this time Saturday, and now at US$60,599. Volatility over the past 24 hours has been moderate at just over +/-2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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38 Comments
https://resourceinsights.blogspot.com/2021/10/your-grocery-stores-are-l…
"The cause for these spreading shortages is a supply chain weakened by decades of streamlining in an effort to cut costs and reward investors with the savings. We have a supply chain optimized for finance, not for actual living."
https://www.odt.co.nz/lifestyle/magazine/last-best-chance
"We went badly astray in the 20th century with the American model of urban planning — building for the car. It was a gigantic, historic mistake. We are now paying the price. A wholesale shift to active and public transport would require a huge change. We could do it, for sure. But it would be a fundamental transformation of our towns and cities."
I always saw "Just In Time", or JIT, in the Quality Management model as essentially flawed. It assumed overly that logistics trains would always operate unimpeded. Not too much of a problem if your supplier is in the next door property, but move them a city or country away and stuff happens. In my late teens I had a job as a die caster in a local factory, and we had to stop work for a week because a railway wagon of aluminium ingots coming from Tiwai got lost. NZR eventually found it in the back of the Dunedin marshalling yards and we got it a month late. The best planning in the world cannot anticipate everything!
I suggest lamenting the urban modelling comment is avoiding the real and needed conversation - population size. Ensuring that population size the the base of any economic/ecological argument and transport issues become a lot easier to manage.
"...the real and needed conversation - population size."
And historically that conversation has been resolved by either disease or war. Perhaps the next event will be a combination of both. If we take notice of any media outlet this morning, we'll see 'resolution' going on, right in front of our eyes - in Afghanistan, Sudan, Yemen, Thailand, Columbia, Pakistan etc etc etc. and if global economies fall in 'developed' nations, how long until 'that's us'?
The overpopulation conversation has been forgotten. Disease? Covid is a tiny blimp - my grandmother mentioned isolation hospitals (Typhus, Smallpox, Scarlet Fever). Ask 'who do I know who has been to war?' - the only people I knew are now all dead of old age but ask that same question anytime pre-1950 and the answer was 'almost every male'.
Global economies, industrialisation and capitalism have produced a new world of peace, health and astonishing comfort. Our ancestors would marvel. [However we are no happier.] As you say disease and war are still the way overpopulation is resolved. Corrections when they arrive may do so fast. Probably the Aztec's were complacent of their 300 year empire until it crashed in less than a decade.
Our govt endlessly talks of climate change but there is never any mention of a population plan. The Chinese had a 'one child policy' that has helped them work their way out of poverty. Meanwhile NZ signed up for greenhouse gas emission controls based on NZ figures without making it 'per capita'.
The alternative is central planning.
Unnecessary stockpiling for everything but a 1 in 100 year event is also wasteful. Do you really want to be buying perishable goods that have been sitting around in warehouse for a while, unnecessary spoiling? Some one is going to skip this step and have lower cost to provide a fresher product.
Paying you to work inefficiently for a week may have been cheaper than the perpetual alternative.
No. Tim. Another alternative is people just putting more resilience into their lives, their work, their businesses. I suggest we'll see that from here on, as people hedge against lockdowns, supply-disruptions, bubble-bursts...... A lot of folk who thought progress was forever, have had reason to re-think, this last year or two.
This is after the event or disruption of course people will adapt and they will slowly stop unnecessary stockpiling when one way or another this resolves.
If it never goes back and stabilises: well everyone's going to figure out how to minimise inefficient stockpiling in the new normal as well (and we can call this "just in time" too).
An interesting grass roots take (truck driver) on the US shipping crisis -
I’m a Class A truck driver with experience in nearly every aspect of freight. My experience in the trucking industry of 20 years tells me that nothing is going to change in the shipping industry.
Let’s start with understanding some things about ports. Outside of dedicated port trucking companies, most trucking companies won’t touch shipping containers. There is a reason for that.
"We went badly astray in the 20th century with the American model of urban planning — building for the car.
We went badly astray at the same time we implemented "free trade" - we traded our jobs for debt, that's what free trade was about. China got the jobs, we got the debt.
Now China has the pollution from industrial production which we off-shored to it, we have the audacity to import that same production without climate import tariffs, which if applied would probably bankrupt us, with incessant tradable inflation issues leading to higher interest rates.
Ditto Japan and Germany
https://www.theguardian.com/cities/2015/may/05/amsterdam-bicycle-capita…
I get the feeling that the e-bike is slowly helping to change attitudes for the Mon-Fri office worker commuter a bit more.
I still don't understand why they're not, the CO2 savings of shifting a commute from a car (ICE or EV) to an e-bike is an order of magnitude higher that the shift from an ICE vehicle to an EV.
We regularly spend billions on new highways that maybe save a couple minutes in their first few years before demand stabilises at a higher level and cause massive CO2 increases. A billion dollars would buy a million e-bikes, imagine the time and CO2 savings across the whole network if they spent the money there instead.
Because riding a regular bike uphill sucks? Doubly so in your work clothes before a big meeting. It's a pretty simple reason why there's been a huge increase in people riding. It's not the lycra crowd anymore. Dedicated cycle lanes also make a big difference, combine the two and your commute can be faster than in a car.
Any bike is never going to fly, your exposed to the elements. You would also need dedicated bike lanes everywhere if there were people still in "Cars" because riding a bike in NZ is a near death experience every time you go out on the road. Yes riding a bike to school 40 years ago was great, did it for years. Tried it to get to work 20 years ago and didn't last a month before I got taken out.
An e-bike makes enables commutes up to about 20km without too much difficulty, heck I used to commute 20km each way on a regular push bike and it only took 45 minutes. Having a commute under 20km hits a pretty wide swathe of our cities, and those that live further out would benefit from the decreased congestion.
Great. Small point though - Amsterdam, Copenhagen and Christchurch are flat, but Auckland, Wellington and Dunedin are not, in fact, having lived in them all, I know them to be typified by their hilly terrain and, in the case of Auckland particularly, very spread out - unlike Amsterdam. Minor points I know, but this may be why as an UBER driver in Auckland since 2015, I very rarely see bikes on our mind bogglingly expensive cycle ways. Yes indeed, I can just see an increasingly ageing population getting on their bikes in the rain in the outer suburbs, where so many of us are forced to live because of ridiculously high house prices, to travel across an isthmus or two avoiding the drunk and drugged drivers.
I know ! Let's dig up the walking /cycling bridge! Initially priced at a modest $600 million it soon blew out to well over $700 million the last I heard. It sure sounds neat. Anyway the Auckland Light Rail to the airport, the initial version of which was "definitely going to be finished by 2012 " has been dug up again, why not the bridge ? Yes ! but wait, with a shrinking , ageing population and hence a rapidly deteriorating dependency ratio might we not have some problems with affordability ? Don't worry, Labour and the ACC have not heard of the concept of Opportunity Cost anyway.
As Predictable Transitory ‘Inflation’, Predictably The Fed’s Taper Is (truly) Something Else
In a very real sense, neither the current rate of PCE Deflator “inflation” nor any more expected to be added by the reported LABOR SHORTAGE!!! are what’s pushing the Federal Reserve toward its next taper error. The Fed doesn’t do money, so that’s not an option for them by which to set policy parameters.
All that’s left, then, is “expectations.”
Jay Powell was perfectly clear (and correct, for once) about consumer prices earlier this year. Transitory. All the data, including the latest PCE stuff today, shows this is going to be the case. The increasingly obvious bends in all the various indices, including the headline despite stubborn energy prices, are rounding nicely into shape (and this shape is, believe it or not, a familiar one, as I’ll get to later today).
Inflation History Everyone Should Know (but only certain people do)
"the RBA turned down another chance to suppress runaway bond yields on Friday, reinforcing the view the central bank will bring forward its cash rate guidance"
this will have potentially significant repercussions in the NZ swap markets too - yet another factor pointing to sharply higher interest rates in NZ in the near future
The absurdity of us strangling a productive industry in the name of housing -
https://www.stuff.co.nz/dominion-post/wellington-top-stories/126823251/…
One of the most ignorant pieces of journalism I've read for a while - and I've read a few.
Firstly, the planet is nudging up against the Limits to Growth - Climate is merely one facet of that; empty shelves, refugee streams and the mild pandemic, are others. So lauding GROWTH at this late stage is crassly ignorant - and more so when it's the media.
Secondly, take away houses and the stuff people fill them with - and what 'productive economy' have you got left?
That was the foolishness of Bill English, years ago; didn't get the link either.
Everyone please remember an Evergrande default is "manageable" and nothing to worry about.
https://oftwominds.cloudhostedresources.com/?task=get&url=https%3A%2F%2…
Balance sheet of the 4 major banks now well over 31 TRILLION
https://twitter.com/NorthmanTrader/status/1454750608074936320?s=20
German 10 year bonds hit an all time low real return of -4.61%
https://twitter.com/Schuldensuehner/status/1454322475106541571?s=20
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