Here's our summary of key economic events overnight that affect New Zealand, with news we are nearing the end of the second quarter of 2020 and it has been a terrible one for economies around the world.
The American GDPNow tracker suggests that their economy has shrunk at a stunning annualised rate of -45%. If you are sceptical of AI models, then know that the median "blue-chip" economists' estimates are for a -35% shrinkage rate in Q2-2020. (On a similar basis, New Zealand is facing its own -15% Q2-2020 economic shrinkage - an all-time record decline, but nothing like what other countries are facing.)
In the US, Apple has said it will be closing retail stores, especially in states where the virus is raging still. This is being taken as a signal that the American economic recovery from the virus shutdowns will be weaker than previously assumed.
Canadian retail sales fell much more than expected in April. Of course, a record sharp drop was expected (-15%) but the actual drop was more than -26% month-on-month, and down -32% year-on-year.
China is reporting that electricity usage rose +4.6% in May from the same month a year ago. Electricity usage is often seen as a proxy for how the real Chinese economy is performing.
Since the reopening of the Chinese economy in April, the iron ore price has risen +25%. In the same time, the copper price has risen a similar amount, but to be fair with the copper price, it had fallen very sharply from the end of 2019, so unlike iron ore it is only back to it previous pre Covid-19 levels. Ditto for coal which is back at five year lows. Precious metals prices have been virtually flat now for more than ten weeks, struggling to find any direction.
Global shipping is in turmoil in large part because crews are trapped on board. Most ships are registered with flags of convenience and almost all countries are reluctant to let crews disembark. Even if they could, attracting replacement crews will involve long term "prison sentences" and is now highly unlikely. A direct consequence of all this is that shipping rates have zoomed sharply higher, trebling in the past thirty days. This will be a severe inhibitor to global trade and will hurt New Zealand's export returns.
Taiwan said its exports rose just +0.4% in May 2020 from the same month in 2019. That was lower than expected but at least it was a rise. So far, the Taiwanese central bank has bucked the international trend of cutting rates, but it doesn't see the growth of its trading partners in a very positive light and has trimmed the 2020 forecasts for the independent island nation.
The Russian central bank cut its policy rate by a full -1% over the weekend to 4.5% as their economy stumbles though its coronavirus crisis. They are expecting a GDP drop of up to -6% in 2020.
Australia is claiming that "China's government" has escalated "malicious" cyber attacks against Australian businesses and government agencies including critical infrastructure. The claim came from a careful public announcement by their Prime Minister. Although he did not name China, he confirmed it is when answering reporters' questions. Venture capital firms, defense contractors, and the NSW State government have all been hit hard.
In equity markets, futures trading suggests that when Wall Street reopens tomorrow, the S&P500 will fall about -1.3%.
The latest compilation of COVID-19 data is here. The global tally is now 8,842,500 which is up +290,000 since Saturday and a faster rising pace. Global deaths now exceed 466,000. Brazil is the second country to report more than 1 mln cases reporting more than +40,000 new cases per day. India is the next one to watch with reported cases rising quickly recently to +15,000 per day.
A quarter of all reported cases globally are in the US, which is up +30,000 since this time yesterday to 2,267,400. Twelve states have hit daily peaks as a 'forest fire' of infection spreads sharply. American cases overall are up +15% in the last two weeks alone. But the US President has instructed that testing be scaled back so as to try and cap the reported totals and make it not look so bad. US deaths now exceed 120,000.
In Australia, there have been 7461 cases, +25 since yesterday and a turning tide of cases especially in Victoria and NSW. Their death count is unchanged at 102 deaths however, but their recovery rate has slipped to under 93%. 15 people are in hospital there (-1) with 2 in ICU (unchanged). There are now 463 active cases in Australia (+17).
The UST 10yr yield is unchanged at 0.69%. Their 2-10 curve is marginally flatter at +50 bps. Their 1-5 curve is also holding at +15 bps, while their 3m-10yr curve is also marginally flatter at +56 bps. The Aussie Govt 10yr yield is unchanged after Friday's sharp fall, still at 0.86%. The China Govt 10yr is also unchanged at 2.90%. And the NZ Govt 10 yr yield still at 0.90%.
The gold price is higher again, up another +US$2 to US$1,744/oz.
Oil prices have held over the weekend, now just under US$40/bbl in the US. The Brent price is just over US$42/bbl.
The Kiwi dollar is unchanged this morning at 64.1 USc. On the cross rates we are stable too at 93.8 AUc and against the euro we are still at 57.3 euro cents. That means our TWI-5 is holding at 69.1.
The bitcoin price is also still in its quiet phase, eleven days where the price has changed but +/-½% and it will start this week at US$9,345 today. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Our currency charts are here.
108 Comments
President Trump seeks to reduce the number of new CV19 cases by reducing the number of tests because that will mean the number of new cases being reported will reduce too. The reasoning of an infantile imbecile surely. Like a lot of contributors here I lived and worked in the USA and I have a great deal of respect and friendship for Americans from that experience, but the nation simply cannot go on under this leadership and it is difficult to understand why the great majority of Americans are not by now signalling that beyond just the mish mash of polls.
You might like this comment then
https://www.theautomaticearth.com/2020/06/debt-rattle-june-21-2020/
Well pdk who can tell what the hell is going on and going to happen next. Trump vs Clinton, what a choice. Trump vs Biden, what a choice. Somebody once quipped the great thing about American politics is that anyone can grow up and become the President, and if you don’t grow up, well then you can become the Vice President. There it is.
Hopefully the American people aren't that stupid to keep supporting such an infantile president. Apparently even one or two Trump supporters had the good sense to wear face masks at his latest wash out rally.
Not that Trump had much to discuss at his rally, all he seemed to prattle on about was making excuses about his feeble attempt to walk down a ramp because he didn't have the right shoes on, to how he needed two hands to drink a glass of water due to him not wanting to spill a drop on his luxury silk ties. Not much mention about new policies or the economy and declining jobs market etc..
BBC Donald Trump: Tulsa rally fails to draw expected crowds amid virus fears. https://www.bbc.com/news/world-us-canada-53121488
The "Infantile imbecile" approach is not isolated."The run of more than 20 days without a Covid-19 case may be because testing of travellers was not being carried out."
https://www.rnz.co.nz/news/national/419297/covid-19-prevention-at-borde…
Yeah, what would David Skegg know? "In Australia, positive tests of travellers were being detected almost every day." I guess our travellers must be special.
https://www.rnz.co.nz/news/national/419297/covid-19-prevention-at-borde…
Maybe someone can run a stats model on the chances of 25 days of no cases followed by the number of positives we are seeing now and see if it's realistic. I'm don't dye my hair bright pink so I know nothing but it beggars belief how uninterested the left are in critiquing what they are fed.
Maybe the "left" has the ability to think things through minus the hysteria. And yes, I DO take note of what Dr Wiles has to say, she is THE most reasoned voice of reason in all of this for my money.
Anyway all will become clearer very soon, we are due to find community spread, if there is to be any, from the first waves of returnees about now. I am reserving judgment till then, and perhaps you should as well, as, you know, proof and pudding and all.
Are we? Are we testing in the community at the same rate we were previously? Does MOH know how many people left without a test and have they been followed up yet? As of this morning, it was suggested they did not.
I respect Dr Wiles, she is very pragmatic, but we need to start thinking about whether anyone actually has the full picture, and whether those that claim they do are being lied to or lying to us.
You'll find a lot of information here: https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-no…
Mind you, it is from the Ministry of Health. You may want to get your information from twitter, or facebook pages....
Again, we will know very soon. If there is any community transfer, it WILL show up, someone will need to see their doctor at the very, very least. There is no way it would happen without being spotted.
If we get no community transfer then I think it is fairly safe to assume this was blown out of all proportion in the hope we DO have community transfer and lots and lots of political points can be scored. Excuse my being very unimpressed at the thought of that.
All of this, for us, is wing and a prayer stuff and would be whoever held the strings. We weren't set up for a perfect reaction to a pandemic, having not really experienced one in recent times. It would have been no different under the Nats, in fact, if you go back through the timeline of this and see what they were demanding at various stages, assuming what they were demanding was what they would have done, we would be in the same place as just about the rest of the whole world.
Those cyberattacks against Australia? The fact that they have been 'discovered' probably means they are meant to be more of a warning than an objective.
"Look at what we can do to you if you don't do as you are told!".
But there have been no attacks against New Zealand - well, not that we know of!
Yeah but if no real harm is done, I would classify it as just plain stupid. Why reveal your abilities when there is nothing to be gained? In fact it will only harden the resolve of the Australian politicians to pursue things that they value such as transparency about how the Wuhan virus came about, opposition to the Chinese land grab in the south China seas etc.
Your quite right - "Why reveal your abilities..." and I'll suggest "They haven't!"
That's my point. The fact that the attack was 'discovered' was intentional.
We'll see if Australia hardens its policies or not, and if it doesn't, then what should we conclude? (Answer: The attack did what it was supposed to do - enforce compliance)
What "hard and early" looks like. "As soon as China reported the unidentified outbreak to the World Health Organization on December 31, 2019, Taiwan assembled a taskforce and began health checks onboard flights from Wuhan. Taiwan’s rapid implementation of disease prevention measures helped detect and isolate the country’s first COVID-19 case on January 20, 2020. Laboratories in Taiwan developed 4-hour test kits and isolated 2 strains of the coronavirus before February."
https://wwwnc.cdc.gov/eid/article/26/7/20-0574_article
normally I think hosking is a buffon but this morning he was on the money questioning the PM about how do we know if its not in the community (luck most likely) if we didn't test those going through quarantine, and they still don't know the numbers they missed testing to get them tested
I still don't see why we are not testing as they come off the plane after 6 days and after 12 days and why daily cohorts are not kept together
Would've been much better with a lot beholden to the CCP in charge, definitely. And if they'd been in charge all the folk on the ground at every level would've been mistake free, indeed, while allowing all sorts of compassionate exceptions. This is a believable reality if I've ever seen one.
If National was managing this pandemic they never would have had the balls to lock down. There’s no doubt they would have put the economy above everything else and we’d still be battling community transmission and still have restrictions in cafes, restaurants and pubs like in Aussie.
As role models at dealing with Covid-19 NZ is a lesson in luck with good PR (sounds more dismissive than I meant - great PR was essential) but Taiwan is the real deal. I doubt their plan relied on prompt delivery of quality PPE and tests from their big brother China.
I think govt spin doctors present a huge problem with modern democracy. Journalism has been hollowed out and downsized to a huge degree while at the same time comms teams are growing without check, all paid for by the tax payer who's interests they are (quite fundamentally) working against. There is no balance in that escalation.
True, that's happened over the last decade or two. This is a good book on the phenomenon:
https://www.bwb.co.nz/books/complacent-nation
Journalism has also suffered because it has commercially been turned into clickbait. Look at Stuff / Granny Herald and how much they've veered toward trying to pull anything out and use it to generate outrage.
We're perhaps seeing a little more broad objection to the issue now that the shoe has been put on the other foot. Inevitable consequences of allowing such decline, as will be an issue when Trump's pendulum swings back to the Democrats.
To avoid misuse of wage subsidy how can IRD close loopholes or are aware but allow anyway like many companies who do business and raise invoice have been advised to raise few invoice / delay raising invoice to show 40% fall in business though the business may be much more or more cash transaction.....
GST too should apply in the month invoice is raised as delay in raising invoice will delay sale from current month to next month when invoice is raised and the business can show less sell in the current month to meet the criteria of wage subsidy.
Check with any Chartered Accountant and will advise ways to exploit wherever possible.
Looking at both my current invoicing and GST return on payments basis there's no need to try to exploit the system. If it's not there in invoicing or payments it's a real effect.
I'm less worried about people cheating the system and instead looking at whether or not the money is flowing through the economy.
Totally agree - I see it more of oil lubricant/fuel for the economy - as long as its spent on local services the better. Central Banks are printing it out of thin air so best we make sure its spent as quickly as possible when its dolled out. Stuff the future generations who have to pay it back ..since when did we give a stuff about them?
Current workers are bailing out pensioners, having to fund their own kiwisaver and the superfund, and had to pay for their student loans as well. Might as well bail out the economy on top of all that. Although I expect that workers are going to have to wise up and stop kicking the can down the road as we keep paying for the lack of planning for the future.
Oil prices have held over the weekend, now just under US$40/bbl in the US. The Brent price is just over US$42/bbl..
US Oil Dominance Coming To An End?
U.S.’ energy dominance agenda is dead as the country’s shale industry is looking at a steep production decline.
The U.S. tight oil or shale rig count has fallen 69% this year from 539 in mid-March to 165 last week.
U.S. oil import dependence is set to grow in the next couple of years.
'Oil Stockpiles Are Enormous
Enough oil has gone into storage to drive every U.S. truck around the world five times.'
https://www.bloomberg.com/opinion/articles/2020-06-21/buyer-beware-oil-…
Even Zollner doesn't think low interest rates are a good idea....
https://www.stuff.co.nz/business/300039490/weve-painted-ourselves-into-…
At least the retail banks aren't completely blind and great to hear them talking about this openly! They must be able to see what I can see - and at present, it isn't good. Central banks are walking a plank right now, inch by inch.
While the Reserve Bank has said it will keep the official cash rate on hold at 0.25 per cent least until March, banks have been asked to report by December 1 on how ready their systems are for a negative cash rate.
Cripes, banks that exchanged government bonds for RBNZ OCR bearing reserves will be paying the government interest on the projected QE target currently set at $60.0bn. An asset transformed into a liability.
Swapping fixed interest rate government debt for floating rate government debt is not looking so attractive and will impair the profitability of NZ banks going forward - much like Europe and Japan. We can monitor the progress here.
Is this the end game?
Central banker speaks the truth: A "central bank digital currency" ie. retail current accounts offered by the central bank, would break the banking system by destroying banks, leaving the central bank as Soviet-style monopolist of all money flows. No more economic growth either! Link
Research by the Phily Fed makes clear what I have been saying for a while: A central bank issuing digital currency is a regulator who is competing with the regulated - conflict of interest. Paper points out in this unfair competition the banks get killed. https://philadelphiafed.org/-/media/resear
Link
Oil glut. Well our trusty 2006 Corolla needs a new gear box which the local mechanic has quoted $1000. They will buy the car and do the work - use it for a loana.
Decided to go EV after looking at our driving habits - will rent a car for any long haul stuff (4 -5 year) as rentals are cheap as chips at the moment. Will pay it self off from the get go. Will cop some grief from friends as you need the big black SUV or ute for your image in NZ - one mate just forked out over $50k for a big black Mitsubishi..needs it for the surf trips he rekons (20 mins away)
2015 Nissan Leaf Aero off TM - the more thrashed the battery the better. As long as the interior is fine and the Aero makes it look less derpy.
Then get in touch with Blue Cars about their pilot battery upgrade - currently $20k but will fall once they commercialise their process.
Android Auto/Carplay head units can be dropped in the S models.
More resilient cells than the current Nissan Leaf and will give you 230km of highway driving - so probably plenty around town.
If I had the cash, that's what I'd be doing - let us know what you end up with!
What do you do to it? My 1994 Corolla has 315k on the clock, bought it at around 135k. I've lifted the head once in all that time, done the clutch once recently, never had a peep from the box. CV'S yes, box no. And we haul some reasonable loads up some serious climbs.
But the storage thing is a piece of propaganda - someone peddling something to change what people do/think. The reality is that the planet has less than 3 weeks usage stored (some say half that, but that's the biggest stab), at the old rate of 100mbpd. That might be a tad longer, given usage reduction. It's still diddly-squat in the big picture. Beware folk who need to peddle......
Rentals cheap as chips? Not what I've seen. Was looking at doing the Kepler track and figured they should be cheap, so fly to q-town, rent a car to get to Te Anau and just leave it parked rather than busing. Avis still wants $1000+ for week and a bit rental.
Might be a Drive/ferry/drive trip (but i won't get lost and need a kiss and a cuddle on the way out of Auckland)
73 businesses fail after receiving wage subsidy:
https://www.stuff.co.nz/business/121880373/coronavirus-73-businesses-fa…
The Russian central bank cut its policy rate by a full -1% over the weekend to 4.5% as their economy stumbles though its coronavirus crisis. They are expecting a GDP drop of up to -6% in 2020.
Theoretically, a 4.5% policy rate points to more investment opportunities than one set at 0.25%.
Milton Friedman:
“As an empirical matter, low interest rates are a sign that monetary policy has been tight-in the sense that the quantity of money has grown slowly; high interest rates are a sign that monetary policy has been easy-in the sense that the quantity of money has grown rapidly. The broadest facts of experience run in precisely the opposite direction from that which the financial community and academic economists have all generally taken for granted.”
Off topic but what is with the weird criminality of German companies? The Wirecard story is amazing. The freakin market regulator was trying to destroy the lives of journalists for daring to say that something didn't add up. The anti short seller hysteria in Germany is an all of state effort.
That type of behavior doesn't happen in the US though that is my point. I followed Theranos very closely (including physically going to their Newark location) the cultural differences are huge. Theranos was private and stole money from gullible old men. They took nothing from any sophisticated investors in their space.
The Wirecard story is amazing to me because the entire German state - regulators, prosecutors, press - went after anyone shorting or pointing out issues in a staggeringly aggressive way. This is common in Germany. The entire society believes that short sellers are bad which is almost comical naivety. There are plenty of crooks in the US corporate space but if they go public the short interest goes through the roof with shady companies.
It doesn't surprise me. Look at German manufactured cladding systems. They don't comply with anything for fire spread, and even there FR (supposedly fire rated product) uses the old trick of adding non-combustible material to the foamed plastic to comply with a standard. High risk (and mostly non-compliant products for commercial use) manufactured in Germany and sold globally.
e: There's also VW with their fraudulent software to defeat emissions testing.
And slowly, as it does, dawn broke...
"ANZ chief economist Sharon Zollner says.... We’ve painted ourselves into a corner and now we’re painting more....the RBNZ could be creating a problem that it was difficult to unwind. Very low interest rates worsened wealth inequality, suppressed the pricing of risk and influenced people’s financial decisions in a way that could be unhelpful....It could set up financial stability issues if people were encouraged to borrow and then had trouble servicing that debt.
“We’ve had more than a decade of very low rates and the general expectation is not only are rates going to stay low, they might go lower… people borrow up to their capacity on the assumption rates are lower for longer and it becomes impossible to raise rates."
When most commentators on a financial news site have been saying this for years, it's hard to believe that he didn't know this before.
Surely these economists can't be so locked in to their economic models that they fail to realise reality isn't following their model.
Just sums up the unsustainable nature of the model we've been operating and our 'herding' mentality as people. Banks have been happy to lock people into debt because mortgages are their game, but they're now realising that if unemployment rises and inflation comes back its a bad place to potentially be. Mortgage debt of $500,000 for a FHB in 2025 with 10% rates, high unemployment and stagnant wages looks very different than when it was approved in 2019 @ 3% with no unemployment. But in reality, shouldn't we plan for the worse, instead of everyone planning for the best - which is what everyone appears to have been doing - and if you point out one of the many possible outcomes of loose lending you get/got labelled a DGM?
"But they did plan for the worst. They stress tested every new mortgage at 7%, and every borrower had to stump up with a 20% deposit."
Banks are conservative in their lending criteria. In most cases, the real estate is the backup source of repayment of the mortgage. (I heard that 5/6 of bank lending in NZ was secured by real estate)
On the otherhand, households are on a spectrum in terms of their fiscal approach. They can range from the fiscally conservative to the fiscally aggressive to the fiscally irresponsible and then the fiscally ignorant / financially illiterate.
The scary part for me is our RB, who stress tested these banks with huge unemployment at 11%+ and drops of around 35% in real estate markets, basically coming back with "they would be fine if such an event occurs, without any intervention by the RB". Then as soon as we get a slight change to conditions that is a fraction of what they stress test for, the RB suddenly has to open the flood gates like they have never done before, drop interest rates hugely and then start with QE.
So the very people we put in charge of ensuring financial stability appear to be engineering the results they want from the stress testing that indicate financial stability. If the banks were in so great of a position, there was no need to intervene in the banking sector, nowhere near to the degree they have done or are doing. This needs explanation and the RB governor & cohorts should regularly be made to face up to a "Senate Committee" style questioning from financially literate MP's from both parties (as an unbiased/non government controlled entity). They are given FAR too much leeway in deciding what is right and wrong with their decisions not questioned.
They know Bobbles. It is just that they have to keep painting it happy colors so their master can continue to sell.
Last year they said property to rise by 7%, then changed to flat, then down 7%, now down 12%.
When they make a call we should basically double it and add a handful of percentage points to the down side.
If ANZ forcaste 12% decline in house price - must be very serious and may be even 12% fall is underplaying the downfall to come and internal predection may be much higher.
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Agree that affect of lockdown/panademic has not yet been felt in the street as is cushioned by wage subsidy and other freebies and euphoria will soon end with the subsidies and lockdown pent up demand.
Have always maintained that meaningfull visible correction in housing market should be visible by September/October for number of reasons so first home buyers should not get carried away by FOMO created by many.
FHB should beware and wait few more months. Should not wait for ever but if have waited such long, waiting few more months may only help to get more for your money/deposit though may see some data highlighted by many agencies and so called experts with vested / paid interest.
What about the greater QE good proclaimed by many - they led me to believe credit creation would be stimulated to support the leveraged valuations of residential property prices?
Could this be a actor here: Nearly Half Of Americans Consider Selling Home As COVID Crushes Finances
Those Fletcher layoffs that were signalled a few weeks back? Well, I believe the "numbers on a spreadsheet" are turning into faces in the tearoom from this morning on for businesses in the Fletcher Family.
Sadly, it's about to get very real from some New Zealand families....
There's going to be a flow on effect with all the layoffs. I walked down Lambton Quay to see what the state of retail stores was. Still the same number of sales but no significant shop closures right now. Difficult to say what it will be like in a few months time, or how many shops will just operate until their lease runs out.
Everyday new news sometime positive and sometime negative : https://www.newshub.co.nz/home/money/2020/06/coronavirus-get-ready-for-…
"shipping rates have zoomed sharply higher, trebling in the past thirty days. This will be a severe inhibitor to global trade and will hurt New Zealand's export returns"
Not at all, if you zoom out to 1y, you can see shipping rates have returned to where they were before Covid19.
Infact zoom out to 5 years and you can see it's perfectly normal for shipping rates to oscillate on a yearly cycle of low prices for first half of year and high prices for the second half.
How exactly will normal shipping prices "be a severe inhibitor to global trade"?
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