Breakfast briefing; Climate realities move markets

China's property finance risks rise; German factory orders rise; aluminium price at decade high; News Corp surrenders on climate change; UST 10yr 1.33%, oil and gold slip; NZ$1 = 71.4 USc; TWI-5 = 74.1

7th Sep 21, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand with news of some 'big moves' by some big companies on the climate front.

But first, remember the US and Canada are still on holiday today.

In China, eyes are on a resurfacing financial threat: bad loans in the property development sector. Developers expanded aggressively post-pandemic, but didn't factor in the impact of tougher lending and leverage rules, and that has sparked a liquidity crisis and missed debt payments for a number of large players. Policy makers are worried about a potential contagion.

In Singapore, a kind of regional poster-child for opening up, delta is getting them to change course with reimposed restrictions.

German factory orders were expected to be down -1% in July from June, but in fact they rose +3.4%, building on the prior month's healthy rise. Export orders were where the surprise gains came from.

And some of that rise comes from strong orders for electric cars. BMW said it has orders for NZ$33 bln in electric batteries, up more than +60% in just half a year. They claim they are just responding to customer order levels.

The price of aluminium continues to rise, now at a ten year high. A coup in the West African country, Guinea, a world-leading bauxite supplier, production cutbacks in China and India over lack of electricity, and fast-rising demand, have all contributed to the recent surge.

And we should note that News Corp, long obsessed with the ABC in Australia, has done an about-face after years of casting doubt on climate change and attacking politicians and other media who favoured corrective action, are now planning an editorial campaign advocating a carbon-neutral future! They are sensing they have lost this 'conservative battle'. This will leave its 'after-dark' commentators high-and-dry in Australia, with only anti-vaxxing Covid-denial left to prosecute.

In Australia, job ad levels in August fell -2.5% from July but that is off a high base. This indicator is holding up much better than last year, in line with other key indicators, such as consumer confidence. ANZ economist expectations are that activity should again rebound once restrictions ease so this weakness will be temporary.

But not everyone thinks the snap-back from the current lockdowns will actually happen, like the CBA head of Australian economics.

And staying in Australia, there were another 1281 new community cases in NSW yesterday with another 1267 not assigned to known clusters, so they remain completely out of control. They now have 24,805 locally acquired cases and NSW hospitals are bracing for a surge of patients. Victoria is reporting another 246 new cases yesterday, so it is still bad there too with a worrying new surge. Queensland is now reporting one new case. The ACT has 26 new cases. Overall in Australia, more than 38% of eligible Aussies are fully vaccinated, plus 25% have now had one shot so far.

The UST 10yr yield opens today at just under 1.33% and unchanged. The US 2-10 rate curve is at +112 bps and also unchanged. Their 1-5 curve is little-changed at +72 bps, while their 3m-10 year curve is still at +129 bps. The Australian Govt ten year benchmark rate starts today at 1.27% and up +2 bps from this time yesterday. The China Govt ten year bond is at 2.86% and marginally firmer. The New Zealand Govt ten year is now at 1.91% and up +6 bps in a day and its highest since March.

Wall Street is closed for their Labor Day holiday. The S&P500 futures are up a modest +0.2%. Overnight, European markets were firm and up an average of +0.9%. Yesterday, Tokyo rose a strong +1.8%, Hong Kong by +1.0% and Shanghai by +1.1%. The ASX200 closed flat and it was lucky to do that after being lower all day. The NZX50 didn't do much better, closing up just +0.1%.

The price of gold was softish yesterday, down by another -US$5 and now at US$1823/oz.

Oil prices have stayed slightly lower, so in the US they are still just under US$69/bbl, while the international Brent price has dipped to just under US$72/bbl.

The Kiwi dollar opens today at 71.4 USc and just marginally softer than at this time yesterday. Against the Australian dollar we are softer too at just under 96 AUc. Against the euro we are softer at 60.1 euro cents. That means our TWI-5 starts today at just on 74.1 and still above the 72-74 range of the past ten months.

The bitcoin price has risen +2.7% from this time yesterday at US$51,684 to levels last seen in May. Volatility in the past 24 hours has been modest at just over +/- 1.9%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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26 Comments

by powerdownkiwi | 7th Sep 21, 7:35am 1630956908

We had two pieces yesterday, quoting future activity as 'bn' and 'bln' respectively. Can we please have an investigative article looking at what physically backs such claims? I, for one, think we're hearing into a 'two-going-on-six into one' situation; time we asked what the bn represents and whether the bn are actually underwritten; actually backed.

https://www.resilience.org/stories/2021-09-05/a-moving-target-hardening…

The first comment says it clearly. And this graph suggests why we are about to see a widening gulf between digital expectation and real stuff:

https://www.bbc.com/future/article/20120618-global-resources-stock-chec…

Even if out by a factor of two, it is sobering. No wonder inflation.

by brisket | 7th Sep 21, 7:53am 1630958032

The issues in Chinese property (Evergrande) are very interesting, and very relevant to us. The only thing keeping these debt-leveraged behemoths functionally solvent had been the assumption that Beijing wouldn’t let them fail. That faith is now wavering, after seeing how the CCP were willing to let the tech sector get smashed as a side-effect of their interventions, and after much muttering from the top about how houses should be for living in, not speculative assets… It’s really not often I think this, but I wish our government had the cojones of the CCP… (in this one limited sphere…)

by stuart786786 | 7th Sep 21, 8:25am 1630959911

"The only thing keeping these debt-leveraged behemoths functionally solvent had been the assumption that Beijing wouldn’t let them fail."

Brisket, is this not the feeling here in NZ that Jacinda and Orr will not let it fall, in fact Prime Minister Jacinda Arden has declared on public platform that come what may under her the house price will keep rising = will not allow house prices to fall and this has been reconfirmed, the other day by her deputy and Finance Minister of the country Mr Grant Robertson om interview with Jenee Tibshraeny on interest.co.nz :

https://www.interest.co.nz/index.php/news/112066/finance-minister-grant…

Did the the President of China was as blatantly open about supporting the Housing Ponzi as our shameless politicians are

.........and not to forget deputy governor of rbnz who came out last year when the house price fire had just started to flame it further by stating that RBNZ is in favour of rising house price (May be he is right as housing being the only economy in NZ - role of RBNZ is now just to support and promote the ponzi).

.....now they blame citizen for not investing in productive economy....when have support from both rbnz and government, why would anyone look elsewhere when can get easy, fast and BIG money.........even those who were in other business have shifted their focus to housing.

by murray86 | 7th Sep 21, 8:49am 1630961392

I'd suggest it's worse than that Stu. Take a look at the costs faced by ordinary Kiwis on a daily basis. Our Government is actively moving to suppress wages, but the persistent increase in costs, including government charges and taxes means that people are becoming evermore desperate to find streams of income that will help them preserve their lifestyles and avoid become dependent.

I don't know if the data is even captured, but there is much talk about taxing capital gains. The problem is capital gains is a theoretical paper value that means nothing until some action is taken to realise it, such as selling, or borrowing against it. And this is the data that I don't think is captured, and it is where the "income stream" becomes real. We do know when a house is sold, but what about when the change in value of borrowed against? I do recall from the '87 crash, a number of people I knew in Auckland had borrowed against their homes change in values. The crash meant some wound up being burnt quite badly.

by Foxglove. | 7th Sep 21, 8:58am 1630961899

That blaming of citizens is not without precedent though. Dr Cullen whilst in power lamented the penchant NZrs had for investing in property rather than equities, shares etc. Yet only some days later his protege Cunliffe gleefully caused the collapse of the Telecom share price thus costing mum and dad investor types $ millions. Property long ago became entrenched as a safe haven investment compared to the like of JBL, Securitibank, Broadbank, RSL, Fortex, Feltex to name just a few. And when term deposit returns became quite useless, any small wonder investors chose to favour property even more enthusiastically.

by mfd | 7th Sep 21, 9:21am 1630963313

And now there are signs of history repeating itself with the government making noises around the electricity market. Perhaps meridian and maybe the others are due to receive a similar kicking?

It is fairly clear that property investors have been a protected class, hopefully this will change and the market will be allowed to fall back to reality.

by HouseMouse | 7th Sep 21, 9:41am 1630964494

Nice comedy in the last sentence!

by murray86 | 7th Sep 21, 11:10am 1630969823

Your last sentence - not going to happen. The Government has already made that clear. They absolutely refuse to regulate the market to prevent it being manipulated, and continue to subsidise investors.

I know some disagree, but I can see taxes on capital gains forcing not only home owners, but small investors out of their homes, and the market, while the larger ones will be able to afford it through shear volume. The net effect will be home ownership being made harder, and a smaller but very wealthy class of landlords fleecing their tenants.

by Foxglove. | 7th Sep 21, 11:31am 1630971071

A speculative extension on that direction. Many households now find their home to have risen in value far beyond any serious expectations say five years ago. For the majority that will be their only property and mostly they have done nothing to increase the value other than live in it. All it is their home and its value remains simply relative to the market. But if that increase is now to be regarded as “booty” for tax purposes, then a lot of ordinary folk in their ordinary homes are now going to be over the threshold as proposed by say the Greens and their wealth tax. That will have a devastating affect on a lot of ordinary lives.

by Fairlyfrank | 7th Sep 21, 8:06am 1630958790

A sizable upset in their property sector may give the CCP something to deal to instead of making mischief in the south China sea and elsewhere via the BIR initiative.

by brisket | 7th Sep 21, 8:20am 1630959638

I’m not so sure - seems to me that small wars are often used as a distraction from trouble at home. The meta-question for me is whether the CCP want to see some pain for investors, to demonstrate that no one is bigger than society (and the Party).

by stuart786786 | 7th Sep 21, 8:06am 1630958814

"China's property finance risks rise:

Can NZ be far behind.

Patriarch of housing Ponzi - likes of Orr's and Robertson's though have started whispering and tweaking little bit to protect themselves in future, when it crumbles.

Their whisper is a sign of what might come otherwise they are the last person to even think in their dreams of such a possibility.

by stuart786786 | 7th Sep 21, 8:43am 1630960989

Stock and housing market are now not running on fundamentals but on stimulus and monetary policies and whenever reserve bank even talk about about tapering starts throwing tantrums and politicians and reserve bank start pissing ....but for how long will they let the economy run by throwing cheap and easy money.

Read an interesting article and it seems now the reserve bank are getting cornered and will have to act fast as NOW they are doing more damage than good with their policies which as it is were emergency measures and suppose to be for short term but now they are changing the very definition of Short Term and making emergency a new norm :

https://au.investing.com/analysis/the-stock-market-is-daring-the-fed-to…

by J.C. | 7th Sep 21, 11:24am 1630970689

Actually it is the commercial banks who have been driving the credit creation. Yes, they do it under the rules and regns set for them. And yes, all the smart people say that there is no problem with how they operate and their actions pose no threat to financial stability. Very little energy or criticism gets thrown their way. In NZ, it's all about the central bank and the govt. In every property bubble in modern history, the banks are involved. It's interesting that nobody seems to include them in the blame game.

by Roy1 | 7th Sep 21, 8:56am 1630961760

Not a big fan of Peter Schiff but have to agree every word of what he says in this latest interview.

Talking about how important supply is and government and reserve bank chasing demand, why fed will never raise meaningful interest rate and why market will fall despite (He always talks about doom but even a faulty clock shows correct time twice in a day)

https://www.youtube.com/watch?v=vNqvhpqwsZQ

He is talking about USA but it also applies to countries like NZ who blindly follows them.

by Carinaz | 7th Sep 21, 9:16am 1630962997

Correct but USA having big economy and also as economy is diversify will still survive with short term pain unlike small countries like NZ where only economy now is housing.

Too much riding on housing, so government and RBNZ has no choice except allowing themselves to be blackmail to support the ponzi but it is by choice as they wanted to be in this situation where they have excuse to support the ponzi as they are doing now.

Their will always be talks on measures to control as have to maintain that are concerned but in reality, if the ponzi burst it will be by its own burden.

by powerdownkiwi | 7th Sep 21, 10:00am 1630965649

He's bollocks in the first minute.

"Where does supply come from? It comes from capital. Where does capital come from? It comes from savings."

Utter, utter bollocks.

Supply comes from in the ground, on the land, from the sun. There is no other source of anything.

And as for savings supplying capital which supplies stuff - that's Samuelson circa 1948, and he admitted he was wrong in 1965. Come on, eh? Read my post upthread. Read this:

https://surplusenergyeconomics.wordpress.com/   read two or three posts. Your link is like a catholic priest denigrating a protestant padre, while both teach pie-in-the-sky-when-you-die.

by Roelof | 7th Sep 21, 11:48am 1630972084

PDK..

Maybe u misunderstood .? In the first couple of minutes Schiff was describing the ideas of Austrian economics, in regards to savings/Capital. He wasnt talking about the way things are.

He made sense to me..... and to a certain point, I agree with quite a few of the Austrian ideas.

The idea of Savings/consumption/Investment being interconnected and having some kind of balance, seems reasonable to me

Savings is deferred consumption. ( a good thing... we walk lightly on the earth )

Debt is a way to bring tomorrows consumption forward to today.

Debt based Capitalism ( Creditism) requires never ending growth. It has enabled the incessant Materialism and consumerism we see today.... that is kinda consuming the Planet.

Also... Raw materials come from the ground/land/sun.... Iphones come from Apple. Big difference.

by murray86 | 8th Sep 21, 7:38am 1631043510

Well said Roelly. I don't think PDK is wrong in his final position though. I think he just makes a mistake many of us make. We often hold opinions for a time, but forget how we got to that position. This creates a problem in that we know what we think, but are unable to articulate why we think it. That is the value of debate. it keeps that rationale fresh as well as continuously testing it against current circumstances. The best situation is when you hold an opinion and someone offers a counter proposal that makes you reassess your opinion against it. Many people are constrained in their thinking by "conventional wisdom". This can be established many ways, but for current generations it is mostly through education. But for those who can think critically, they realise that "conventional wisdom" is not always right.

I have wondered on occasion how common positions, usually in the commercial world but also from my military experience, which are so obviously flawed to an outside observer, come about. Observation has revealed that most often it is politics and weight of personality, not weight of argument that achieves the common wisdom. Today's politics in Government are a very good example of that!

by Squishy | 7th Sep 21, 9:54am 1630965279

"This indicator is holding up much better than last year..."

Should hope so, last year we didn't know if we'd have a vaccine whereas now we've got a way out of lockdowns. Australia and New Zealand may be laggards but we're slowly heading in the right direction now.

by Yvil | 7th Sep 21, 10:05am 1630965944

BTW DC, I haven't been able to login with PressPatron since Interest's makeover (standard login is fine). It won't affect my contribution as I enjoy Interest but it would be nice not to have the ads...

by printer8 | 7th Sep 21, 11:30am 1630971020

Yvil

Took me two or three goes even after logging out and shutting down.

🍻

by blobbles | 7th Sep 21, 11:02am 1630969331

Hilarious NewsCorp with it's about face, while claiming it's not ("this is what I was talking about all along!" - classic narcissism). Wonder if they will start retracting some of their old stories... hopefully internal pressure with their horrific bushfire coverage had a real effect. This has been the case for centuries for those that deny science. Eventually it simply becomes an untenable position and you either cave, or continue to look like a bunch of antiquated idiots.

This isn't just limited to the conservative side either, eventually Greenpeace will have to rethink it's absurd position on GMOs, as will the NZ Green party (who could go on forever about the science of climate change, then deny the science of GMO crops). On the ground realities of GMO crops being used as a form of farmer lock in and control by MNC's should definitely be addressed and be the focus of these groups, not the anti-science "mother earth" stuff Greenpeace spouts.

by False economies | 7th Sep 21, 11:09am 1630969765

That north island soil map is looking ominous...especially as NIWA are predicting a warmer and drier spring up there https://niwa.co.nz/climate/seasonal-climate-outlook/seasonal-climate-outlook-september-november-2021

by Hans Brink | 7th Sep 21, 9:26pm 1631006790

Yeah I agree false eco, we had 10 ml today and it is still raining but listening to commentators in other areas by December if there is no significant rain it will be dire.

by streetwise | 7th Sep 21, 1:32pm 1630978327

No one mentions that we are now on a War Economy footing. These aren't normal times.

The problem with all generations born after WW2 is that they have never had to confront adversity as their forefathers did. As an older babyboomer I include myself in this privileged sector.

But I am old enough to remember listening to both my grandfathers talk about over 3 years spent on the Western Front in France and then coming home to NZ in bad health (one suffering lung problems from toxic gas and the other having to undergo ongoing hospital treatment) then have unemployment to be followed by the Great Depression. My father spent his boyhood in the Depression and went overseas towards the end of WW2, and was lucky not to have seen any action; however he did lose his mother at the age of 3-years-old to pleurisy, a disease which would have been cured in a few days in our times with a course of anti-biotics.

I realize 'history' isn't considered a sexy subject any more but it's worth noting that if the Great Depression taught us anything it was that withdrawing money from circulation made conditions a lot worse. Hence the switch to increasing money supply has been a lesson well learnt. It is an unfortunate side-effect that increasing money supply has increased the cost of houses; but the alternative would be far worse. Don't forget it was only a century ago that NZ lost over 9000 citizens (all ages) in the Spanish Flue of 1918 when the population was a quarter of size it is today.; that equates to 34,000 today.