US default trades; Evergrande misses payment for the key; factories are expanding in Japan, Taiwan and Singapore; soaring prices of major commodities; China drops the hammer on cryptos; 10-year UST 1.46%, oil companies but gold slips; NZ $ 1 = 70.1 USc; TWI-5 = 73.6
Cape Brett Lighthouse, Bay of Islands
Here is our recap of key overnight economic events affecting New Zealand with news that factories around the world continue to expand and the prices of some key commodities rise.
But there is now reports that the White House is about to order its federal agencies to prepare for a shutdown because its debt limit is now exceeded.
Meanwhile, the Americans new home sales data for August was slightly positive, adding to the good month of July, but only really bringing them down to pre-pandemic levels. Still, this latest data is a four-month high.
Global investors who hold Evergrande’s USD bonds did not receive their $ 83 million coupon before yesterday’s deadline. However, there is a 30 day grace period before a default event is triggered. At stake are bonds with a face value of only US $ 2 billion, but this is an event that spills over to Asian debt markets of US $ 400 billion. Evergrande paper now trades at just 28c to the dollar. Total liabilities of Evergrande, which includes much more than its negotiated bonds, exceeds US $ 300 billion. Given that China’s GDP is US $ 14.5 billion, or 2%, the Chinese economy could therefore experience an Evergrande collapse.
And China is Stop the senior management of another bankrupt conglomerate, HNA.
In Japan, consumer prices have fallen of -0.4% in August 2021 compared to a year ago, after a decrease of -0.3% a month earlier. This was the eleventh consecutive month of consumer price decline, against a backdrop of weakening consumption due to the ongoing pandemic. Underlying consumer prices remained stable, in line with expectations and ending a decline for the first time in 13 months. (In the linked report ▲ means negative.)
The last Japanese factory PMI for September shows that the sector is still developing at a modest level. New orders fell but managers are obviously confident for the future as hiring has remained strong. Price pressure was not noted in this survey. Meanwhile, the Japanese services PMI for September registers a slight contraction, but much less than in August.
In Taiwan, their export order data grew less than expected in August due to surprisingly lower demand for new smartphones. But they were + 17% more than a year ago and + 34% more than in August 2019. Perhaps more important, the ratio of their companies’ exports that are produced abroad is declining .
Singapore industrial production rose + 11% in August, better than expected, and + 29% above pre-pandemic levels two years ago.
But despite a full vaccination rate of 84%, Singapore is seeing a further rise in Covid cases, stressing their hospitals, and they are institute new social restrictions including working from home.
Last week, the cost of shipping a container has remained stable at record rates. At least he didn’t get up anymore. Most of the pressure is on goods from China to the US and the EU. The least pressure is on goods entering China and transatlantic to the EU.
But the Baltic dry index pushed higher this week, now at a twelve-year high.
The price of lithium continues to rise, unchecked, and now up + 310% in one year. Coal prices remain close to record highs in September, in a context of tight supply and strong prospects for winter demand. Iron-ore however, prices are still falling. But this is not the case for aluminum which rose to a 13-year high this week. Dr Copper isn’t that bullish though. Corn tin prices are in the clouds, at an all time high due to high demand from the electronics industry and very low supply. Nickel the prices are high also on the demand for stainless steel. But 10% of the world’s nickel ends up in the Chinese real estate market, offsetting recent increases.
The IMF has reviewed Australia’s economic situation and released their staff report yesterday. He noted that Australia faces growing risks to financial stability posed by soaring house prices, which are expected to rise by as much as + 20% this year. I wonder what they would say about New Zealand’s higher hikes? The IMF has also warned Australia that there will be an “account” for so-called zombie companies once pandemic support is withdrawn, which could lead to increased corporate bankruptcies, especially in SMEs.
And staying in Australia, there was another 1,043 new community cases in NSW reported yesterday with another 840 not assigned to known clusters, and these numbers are not significant for improvement. They now have 12,148 active cases acquired locally. Victoria reported 733 new cases yesterday. Queensland is report zero new cases again. The ACT has again 19 new cases. Overall in Australia, over 49% of eligible Australians are fully vaccinated, and 25% have only had one injection so far. Reluctance to vaccination is rapid dissolution in Australia, therefore a target of 90% now seems achievable.
The S & P500 is up + 0.2% late Friday afternoon, and up + 1.3% for the week but still more than -2% below its all-time high. This follows a general decline of almost -1% in European markets overnight. Yesterday, the very large Tokyo market rose an impressive + 2.1% to reduce its weekly loss to -1.2%. Hong Kong fell -1.3% yesterday, leaving it with a weekly decline of -1.6% while Shanghai fell -0.8% to cement a weekly loss of -1.4%. The ASX200 ended down -0.4% for the day and -0.7% for the week. The NZX50 Capital Index ended the day down -0.4% but for the week managed to post a gain of + 0.2%.
The 10yr UST yield opens again today at just over 1.46% and +5bp higher than yesterday and a 3-month high. A week ago it was 1.37% and rising. The US 2-10 yield curve is steeper at +119 bps. Their 1-5 curve is also steeper at +88 bps, while their 3m-10 year curve is steeper at +140 bps. The benchmark ten-year Australian government rate starts today at 1.40% and also increases by +7 basis points. The 10-year Chinese government bond is at 2.89% and up +1 bp. And the ten-year New Zealand government is now at 1.89% and up +6 basis points from yesterday and a week ago.
The price of gold Today will start slightly lower, down from -US $ 5 to US $ 1,747 / oz. A week ago, it was at US $ 1,753 / oz.
But oil prices rose overnight again and compared to yesterday’s levels they rose another $ +1 to just under US $ 74 / bbl in the United States, while the price International Brent is even higher at just under US $ 77.50 / bbl. At these prices, we’re seeing a lot more rigs being put back into production, especially in the United States.
The Kiwi dollar opened today at just 70.1 USc and more than -¾c lower than yesterday at this time. It is -¼c less in a week. Against the Aussie we are weaker at just over 96.6 AUc. Against the euro, we are down -50 bps to 59.8 euro cents. This means our TWI-5 starts today at 73.6 and below the top of the 72-74 range of the past eleven months, and has changed little in a week.
The price of bitcoin fell today and is down to US $ 42,089 and a decline of -6.2% from this hour yesterday. This time around, one of the main reasons is that China has moved to ban all crypto trading, mining, or holding. Volatility over the past 24 hours has been extreme at just over +/- 5.4%.
The easiest way to stay on top of the risks of events today is to follow our Economic calendar here ».