Information breakfast; China doubles coal production
Here is our summary of the key overnight economic events affecting New Zealand with news that the Evergrande contagion appears to have started.
But first today we must note that at night dairy products auction did not bring any overall change in US dollar prices, and a small gain of + 0.5% in NZD terms as there has been a slight depreciation of the Kiwi dollar since the last event. This overall result was lower than expected. It seems that food is not really contributing to the current rise in commodity prices. (Although it should also be noted that the palm oil price hit a new high, giving very unfortunate price signals for an industry that causes a lot of damage to the environment.)
And speaking of economic signals of environmental damage, Beijing has order its banks to increase funding for thermal coal production. Only three days of Chinese CO2 emissions are greater than New Zealand’s annual CO2 emissions, so in that order, they’ve probably nullified any gains we’re making for the period up to 2030. (Interestingly, the renewed focus on building up thermal coal reserves does not extend to China’s purchase of Australian coal.)
China may be on vacation this week, but dominoes seem to fall into the Evergrange saga. Other real estate development companies lack payments, and some lenders find it difficult to control the fallout.
In the United States, the IMT which follows their logistics and supply chain activity, has slipped slightly from a very expansionary level. Keeping it high are cost measures. Inventory measures weigh there, but they are interesting. Demand empties the supply chain faster, but supply bottlenecks restrict the entry of goods.
The US trade balance for both goods and services, worsened in August to a deficit of -73.3 billion US dollars for the month, bringing the annual deficit to -817.5 US dollars or -3.6% of the GDP and against -3.1% at the same period a year ago. This is a new record deficit. Their exports have grown, but their imports have grown faster, as one would expect in an economy that is currently growing rapidly.
The last survey on the activity of their service giant supports the prospect of a rapid expansion, both above expectations and slightly above that of August. Activity like this could see revised Q3 GDP estimates upward for the US economy.
In Europe, their expansion is accompanied very sharp rise in producer prices. They rose by more than + 13% during the year until August, the highest in a record that dates back 40 years. But it is largely due to the high costs of energy.
And stay in the EU, Ireland has ceded on maintaining its flagship 12.5% tax rate, and now looks set to increase it to meet the demands of most other EU members.
Other prices are starting to rise and flow through supply chains. Cotton price make peaks. And critical courier and freight companies in the supply chain are increasing their rates. The latest is DHL, with an increase of + 5.9%. They followed FedEx with a similar rise.
Australia reported a record trade surplus of A $ 15 billion for the month for both goods and services. It was half as much as analysts expected. The surge in exports of natural gas and coal was much stronger than expected.
While staying in Australia, there was a Delta explosion case in victoria with 1,763 cases reported today in a “very serious jump” all from the AFL holidays. There are now 14,368 active cases in the state. In NSW there was another 608 new community cases reported today with 438 others not attributed to known clusters. They now have 8,553 active locally acquired cases, which is less, but they had 6 deaths yesterday. Queensland is now report two new cases. ACT has 33 new cases. Overall in Australia, more than 57% of eligible Australians are fully vaccinated, and 23% have only had one injection so far.
The 10-year UST yield opens today at just over 1.52% and is up + 5bp from the same time yesterday. The US 2-10 yield curve is steeper at +123 bps. Their 1-5 curve is also steeper at +89 bps, while their 3m-10 year curve is steeper at +142 bps. The ten-year Australian government benchmark rate is firmer by +4 basis points at 1.53%. The ten-year Chinese government bond remains unchanged at 2.89%. And the ten-year New Zealand government is up +1bp to 2.01%.
Equity markets rallied on Wall Street, with the S & P500 rising 1.3% early in the afternoon in Tuesday’s session and regaining all of yesterday’s decline, but no more. Overnight, European stock markets rose around + 1.0% overall, although Paris rose + 1.5%. Yesterday, the very large Tokyo market fell by -2.2% but Hong Kong grew by + 0.3%. Shanghai is closed until Friday. The ASX200 ended yesterday down -0.4%. The NZX50 fell -1.0%.
The price of gold will start off more slowly today, down from -US $ 9 to US $ 1,760 / oz.
And oil prices are on the rise again, up + US $ 1.50 to just under US $ 79 / bbl in the US, while the international price of Brent is slightly above $ 82.50 US / bbl. These levels are new highs in seven years.
The Kiwi dollar today opened slightly firmer at just 69.7 USc. Against the Australian dollar we are unchanged at 95.6 AUc. Against the euro, we close at 60.1 euro cents. This means our TWI-5 starts today at 73.3, and still in the middle of the 72-74 range of the past eleven months.
The price of bitcoin is higher again since yesterday, up + 2.9% to now sit at US $ 50,014. Volatility over the past 24 hours has been moderated to just over +/- 2.2%.
And finally, join us at 2 p.m. for the latest update of the Reserve Bank’s official cash rate, which is expected to rise +25 basis points to 0.50%.
The easiest way to stay on top of the risks of events today is to follow our Economic calendar here ».