Here's our summary of key economic events overnight that affect New Zealand, with news investors have had enough of high valuations unsupported by the real economy - for today at least. Risk is off.
Firstly, the US trade balance has come in a terrible -US$63.4 bln for July, the worst result since 2008. Exports were down more than -20% from the same month in 2019, imports were down -11%. The tariff war is having no impact on imports from China because the US deficit with China went up to -$31.6 bln in the month and worse than for June. The only impact it is having is that American are paying more for these imports - and ironically they purchased +8% more from China in July than June. The Chinese purchased -2% less from the US in the same period. The US is running a busted trade policy - although that comes as no surprise to everyone but about three people.
Initial US jobless claims were up +881,000 last week which was slightly lower than expected. The total number now on jobless benefits dropped to 13.25 mln, a decrease of -1.25 mln as increasing numbers of people lose their social support entitlements. Congress can't get its act together to renew support programs.
US job cuts so far this year surged +230% compared to the same period of 2019.
The widely-watched ISM services PMI is still expanding but at a much reduced pace than was expected. Employment is still contracting in the sector however.
The combination of the dire trade balance and the toxic direction of unemployment support has been too much for investors and markets are down very sharply with the NASDAQ down -5.3%. All other indexes are also sharply lower. Today no-one is buying the dips, not yet at least.
China's private sector PMI for services was out today and it came in marginally lower in August than for July, expanding at a PMI of 54.1, as normal business conditions return to China. A feature of this report is the shift of the employment component into expansionary territory. Also this services PMI version is now slightly weaker than the official version (55.2) and that hasn't been the case for all of 2020.
The Chinese central bank made a surprise net liquidity injection into their banking system of NZ$4.5 bln via open market operations yesterday.
But traders are watching the copper price as Chinese demand is rising while supply is not. And iron ore prices just keep on rising and rising.
In the EU, PMIs came in on average slightly better than expected in August. They were marginally lower than July, but still expanding. They were bolstered by the German result.
But EU retail sales disappointed in July, falling far short of expectations. But at least they did eke out a small year-on-year gain which in the circumstances is positive.
France has launched a €100 bln economic stimulus package to kick-start their coronavirus-damaged economy. It's 'investment' will be focused on green energy and transport.
In Australia, their July trade surplus narrowed a bit more than expected. Exports fell (-4.4%) and imports rose (+6.9%). Their service exports took a sizable step lower, down -12%. Their July surplus was +AU$5.4 bln and well below the June surplus of +AU$8.1 bln.
In New York, the S&P500 is being trashed today, down -3.9% in afternoon trade today. Overnight European markets fell about -1.4% on average. Yesterday, Shanghai closed down -0.6%, Hong Kong was down -0.5% and Tokyo managed a +0.9% gain. The ASX200 ended up +0.8%, and the NZX50 Capital Index was up +1.3%.
The latest global compilation of COVID-19 data is here. The global tally is 26,112,000, up +277,000 since yesterday. Global deaths reported now exceed 864,000 (+5,000 in one day).
Just under a quarter of all reported cases globally are in the US, which is up +36,000 in a day to 6,310,000 and a relentless rise. US deaths are now just over 190,500 and a death rate of 575/mln (+4/mln). The net number of people actively infected in the US slipped overnight to 2,564,000 (-9,000).
In Australia, there have now been 26,049 COVID-19 cases reported, and that is +126 more than yesterday with a new small but stubborn NSW outbreak. Australia's death count is up to 678 (+15). Their recovery rate is now 84%. There are 3464 active cases in Australia (-112) indicating a turned tide and more recoveries than new infections.
The UST 10yr yield is down another -3 bps today at 0.62%. Their 2-10 curve is flatter again now under +50 bps. Their 1-5 curve is down -2 bps at +11 bps, and their 3m-10yr curve flatter too at +53 bps. The Aussie Govt 10yr yield is down -2 bps at 0.89%. The China Govt 10yr is still rising, up +3 bps at 3.14%. But the NZ Govt 10 yr yield is little-changed at 0.64%.
The price of gold is down again, down -US$9 today to US$1,932/oz.
Oil prices are slightly lower again today, down to under US$41.50/bbl in the US while the international price is down slightly less to just on US$44/bbl.
The Kiwi dollar is lower today and has given up some of its recent gain to be at 67 USc even. Against the Australian dollar we have dipped to 92.1 AUc. Against the euro we are down -½c to 56.6 euro cents. That means our TWI-5 has softened to 69.9 but still above where it was this time last week.
The bitcoin price is sharply lower today again from this time yesterday, now at US$10,744 which is another -5.5% drop. In fact since Wednesday it has dropped more than -US$1200 or -NZ$1600. 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 ».
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89 Comments
It's always worth watching what the money is doing.
"Drury family sells $204m Xero shares, PushPay boss Bruce Gordon offloads on way out the door."
https://tinyurl.com/yy3yte6q
And Tesla has lost 20% over the course of this week.
https://tinyurl.com/y6t6497j
Many insider selling in last week and who will know better than people running the company of what is comming.
Similarly yesterday heard construction board member asking for relief to construction industry by providing $50000 relief to buyer to boost new construction (Is new construction not high at the moment).....do they too know what is coming next.
Yeah but when market falls, worst hit are those who have entered last on high price unless have deep pockets and are in for loooong period but this time when market falls many first time investors who have been lucky so far and having not experience downside and who have streched beyond to invest will be worst not only losing money but even mental health.
One day fall on equity market may be healthy but steep fall is a concern and have to watch with cautious for if it continues for another day and carries over to next week than may be bad .
Something has triggered a sell off in the AUD this morning. AUDNZD and AUDUSD pairs have been dropped for about 30 minutes or more.
CNBC are reporting doom and gloom.
https://www.cnbc.com/2020/09/03/markets-are-facing-a-potential-minsky-m…
This is where the cash flow crunch is starting to happen. Everyone needs cash to pay taxes and other financial obligations in October. Given that we've seen EU investment funds go illiquid I'd say we're heading for a huge crash in the US. That'll likely drag our market down with it, then when the margin calls come in gold will get dragged down as well.
I'd take a financial position of sneaking onto a spaceship and leaving earth.
I switched from Growth to Conservative quite some time ago as the market is just too volitile. My provider acts progressively by changing
investments to try to meet the marketplace which is difficult when their are multiple variables. Needless to say, it doesn't always work.
Still,its best to take a shower than a bath.
Been in govt bonds since early 2019 and mostly cash since March.
US Treasuries go up in value when yields fall, but many don't seem to understand this inverse relationship and they think lower yields are bad. Dropping yields are awesome as your bonds will go up in dollars.
Falling rates means that the smart money is pouring into government bonds. And for good reason.
I suspect the government is moving with sentiment. Lockdown fatigue and businesses being pushed to the brink of collapse will lose support.
Level 2 in Wellington has hit businesses with many people working from home. After restarting all the delayed projects I'm seeing a light forward workload. It's going to look increasingly brutal heading into the end of the year.
" Bullish Switzerland moves on from lockdown and focuses on economy
Critics warn of complacency but Bern believes the country must learn to live with virus
... just 1.9 per cent of new infections occurred in nightclubs and a further 1.6 per cent in bars and restaurants. Most — 27 per cent — occurred within families."
https://www.ft.com/content/42a1a52b-287e-4dee-9a60-01ab01dcf5c9
Similarities Covid/'flu readmission. "In summary, among patients discharged following admission for COVID-19, the rate of early return to hospital was relatively low (3.6%), with only half requiring readmission. The most common cause for return to hospital was respiratory distress. Returning patients were more likely to have a history of COPD and hypertension
...Another study on influenza observed 5.2 readmissions per 100 index hospitalizations within 10 days and 8.6 within 20 days."
https://link.springer.com/article/10.1007/s11606-020-06120-6
Public Sector workers are being told to come into the city even if they are still capable of working from home. It's hard not to see that as political as much as anything else. Imagine being freed from your commute, being able to spend time with your family and then being ordered back to that grind when it doesn't really change your output. Seems like an opportunity lost tbh.
Interesting MB
The next week will be interesting as to whether we have been able to get on top of this outbreak. Yesterday's figure was promising.
The reality is that Covid is not going away any time soon, a vaccine and widespread supply is likely to be some time off, and numbers of Kiwis concerned about and resisting lock down restrictions growing.
A positive is that we seem to have not only got good testing but just as importantly also our tracing system.
Our tracing systems seems to be the world's best.
Hoped that Australia would have the coronavirus more under control by now, was surprised how authoritarian its turned in to literally over night. Apparently they're now arresting people who post government protest messages on Facebook. BBC article: Covid: Australian anti-lockdown suspect's arrest draws controversy.
"The arrest of a woman in Australia for promoting an anti-lockdown protest online has drawn criticism, after video of the incident went viral." https://www.bbc.com/news/world-australia-54007824
The young gentleman with the large boots who inspected me thoroughly for explosives at Melbourne airport a few years ago had a small man, couldn't believe anyone would be stupid enough to give him this much power, bad attitude. I am assuming and hoping he got beaten up a lot in the school playground for being a total pillock. Aussie authorities seem to employ a lot of these people. I am also hoping he gets robbed of the 34 power giving items he had attached to his belt. What a classic plonker.
We do take for granted what we have here. Call me glass half-full but I feel we punch well above our weight for a small country in the middle of nowhere.
I may be going out on a limb here but I believe there is still a great deal of social cohesion in NZ despite being ethnically diverse, which I realise when I travel elsewhere in the deeply troubled world.
See how peaceful countries react when faced with a growing minority that don't necessarily adhere to their 'liberal' values: https://zeenews.india.com/video/world/after-sweden-riots-erupt-in-norwa…
Looked a bit top heavy from the pictures, any wind loads on a structure like that, needs something down the bottom pretty heavy to resist typhoon wind loads. Not many of those ships around, and one less now. Who will be paying for the loss, the importer or the exporter?
It's an inherent problem with livestock carriers, all the feed (several 1000 tonnes) is carried below deck but as it's consumed they become topheavy. The master of this ship will have questions to answer (assuming he survives) about sailing into the tail of a typhoon but was no doubt driven by schedule demands from the owners. Just like the Rena
frazz
Personally, it feels a little close to home as I watched the boat loading in Napier.
Concerns - as with live sheep exports - expressed at time ,but it was more about the economics of exporting live cattle to China and less about animal health.
The loss of 42 crew very sad, but neither is the visualisation of 6,000 caged cattle drowning.
Agreed p8.There is no justification for live animal exports other than short term economic gain. O'Connors positioning about an ethical responsibility is pure dross. NZ can easily trade it's genetics without the trafficking of live animals to do it. Hopefully O'Connor will grow a backbone and place a permanent moratorium on live cattle exports
What has surprised me (well not really) is that they have eight MPs of whom only two are men. Surely someone in the media has quizzed them about their lack of "diversity". If it was good enough for Todd M to be asked that Q then surely it needs to be asked of the Greens.
https://www.resilience.org/stories/2020-09-03/education-in-a-time-of-co…
"Instead, we are witnessing the slow but inexorable disintegration of our quasi-religious faith in the story of infinite material progress as capitalist hubris collides against the biophysical limits of our planet".
Heck, I could have written that. Good to see the conversation becoming more mainstream.
I hear a lot more people questioning BAU - right across the board. The echelon I watch closest are the academics, hence the link.
Professors, lecturers, vice-chancellors, they've all got an obligation to tell those they teach, what really IS. Economics, particularly, more and more is about teaching what WAS. And almost nobody is teaching what WILL BE. And the ones brave enough to do so, don't gain advancement, indeed it's Jonathan Livingston Seagull vs the Elders, 101.
Fascinating times.
Great article. I certainly feel a weight of obligation in that regard. The difficulty I have is in presenting the reality of our predicament - I feel an educator has an obligation to provide solutions as well. Which is why I think so many academics struggle with saying that collapse is a fait accompli, even though we might well see it as that.
On that subject, here's a recent quantitative analysis that is very useful;
https://www.nature.com/articles/s41598-020-63657-6
It's why I think one of the foundational disciplines/knowledge that our children need going forward is ethics. Our choices are only moral ones, but few people understand their own morality and even less understand there are alternate ways of looking at our moral decisions.
Academia is a great place to be wrong though - been very lucrative for whack-jobs like Ehrlich. Still on the public teat after all these years. Where else could you be so wrong and still employed?
"The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate…”
"the expected global cereal output still stands at 2 765 million tonnes, an all-time high and 58 million tonnes above the 2019 outturn."
http://www.fao.org/worldfoodsituation/csdb/en/
Kate I would think and hope that the 'solutions' that educators offer are about teaching students not to be constrained by 'conventional thinking', or to be bound by their own brilliance. Being open minded, receptive to others perspectives and ideas, with a dash of humility by understanding that they are not and cannot be the font of all knowledge or approaches to developing solutions. To say you must teach solutions could be a path to disaster as it could lock out innovation and new ideas.
Michael D Burroughs from Penn State University on dealing with ethics
Academics avoid, ignore and pretend the issues will go away
https://www.youtube.com/watch?v=_8juebyo_Z4
10 minutes of your time
I'm not suggesting you avoid or ignore
Must be the circles I mix in.
Business people, especially successful ones, are particularly in denial. I suppose they think how can it be so bad when I've done so well.
Another group is many elderly like my dear mother (nearly 80). She just can't accept that it's got so bad so quickly. That's when I try explaining the exponential nature of growth only to see her eyes glaze over.
big setback for US employment
https://wolfstreet.com/2020/09/03/big-setback-for-the-unemployment-cris…
this is a nice overview of our predicament in some charts ...
https://ourfiniteworld.com/2020/09/01/todays-energy-predicament-a-look-…
extract: The US economy is expected to have added 1.4 million jobs in August. The country is expected to have recovered another 1.4 million jobs in August, after adding 1.76 million in July.Over 40 million Americans lost their jobs between March and April, and less than half of those have returned to work. According to the US Labor Department, roughly 27 million people are still receiving some form of unemployment insurance
https://www.fxstreet.com/analysis/nonfarm-payrolls-preview-feds-policy-…
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