USD rises in risky mood; Rising retail sales in Canada; China holds the preferential rate; Taiwanese exports are soaring again; the logistical stalemate is spreading; commodity prices fall; 10-year UST 1.26%, oil down but gold companies; NZ $ 1 = 68.3 USc; TWI-5 = 71.9
Here is our recap of the key overnight economic events affecting New Zealand with the news of a stock sell off this week, but a few have noticed.
As the United States nears the heart of its summer vacation (for us marked by the withdrawal of the central bank Jackson Hole), the US dollar is on the rise – and many say it is now above the “fair value”. But its overvaluation is not extreme by historical standards. That probably won’t stop the greenback from rising a bit further over the next 6 to 12 months. When U.S. investors return after their Labor Day weekend, caution is likely to dominate their emotions and a tone of risk aversion persists amid an economic backdrop of slowing U.S. momentum and reversal in the economy. Chinese moose.
More immediately, the Canadiens got their solid rebound in retail sales in June, with them up + 4.2% as foreclosure restrictions were relaxed during the month. From a pre-pandemic base of June 2019, the latest data is almost + 10% higher, so they enter an election period there with a positive economic context. Canada is not under the unequal pressures of its neighbor to the south. (Gini = 0.33.)
Not like China. China has become one of the most unequal major economies with a large gap between the haves and have-nots. Their Gini index is 0.39. The United States is at 0.41 while New Zealand is at 0.36. The higher these coefficients, the more unequal they are. Norway is 0.27 and Sweden 0.29.
Now, an article appeared in a major Chinese media outlet calling for wealth taxes and income redistribution to solve the Chinese problem. Since President Xi himself is a prince of the original CCP hierarchy, this would normally be a courageous and dangerous move. But it was likely sanctioned from above, indicating that Beijing has picked up on social signals that this is a point of tension in modern China. (It may also have advantages in taking out Xi’s rivals.) And it ties into the current campaign to harness a tech industry that runs cavalierly.
Meanwhile, their central bank left the Prime loan rate pending for a 16th consecutive month today at 3.85%. But with China’s economy faltering, it won’t be long before the PBOC guides rates lower. Even so, another round of large-scale, credit-focused stimulus does not appear to be in the pipeline at this time. Another reduction in the reserve rate seems more likely to be their next action.
Over the past two mornings we have noticed the sharp drop in the price of iron ore. Well, during Friday’s trading in China, he plunged into a kind of panic again. It is now at its lowest level of 2021. It will be tough for Australia.
It is not all bad. Taiwanese export orders are still growing strongly in July, up + 20% compared to a year ago and + 37% more than in July 2019. (Buyers completely rule out the risks of an invasion or a Chinese takeover.)
The unrest in Chinese container ports is also causing big problems for destinations. Buyers put in orders, making the problems worse. For example, at the two major ports of Los Angeles, which handle about a third of all U.S. maritime imports, nearly 40 ships are waiting to dock, almost as much as the last logistical stressful period in February. Normally, no ship is waiting to load or unload.
The Baltic drought index is still on the rise, because it cost of moving a container by sea.
But the end of all this pressure is probably in sight as underlying demand has lost momentum in China and the United States. When the current push is over, a sharp reversal is likely.
Chinese steel production is declining. As demand evaporates, the price of iron ore collapsed again yesterday, bringing the four-week drop to -37%. The copper also falls, but not so hard. Tin, nickel and zinc also all peaked after their recent highs
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In Australia, few people realize what to expect with the sudden reversal in mineral prices. They are currently fighting culture wars over blockades, anti-vaxxing protests and wearing masks. This is all very childish and typical of cultural slurs (and led by the pundits in their Murdoch press). But that does not want to reduce the economic consequences of blockages on many. They are tough. But the payback is coming. Budget and monetary support can soften the impact of a sudden change in mixed capitalist economies, but the only advantage is that these types of changes will involve “creative destruction” and a restart with companies able to handle the new economic environment. . It will be messy though. A strange feature of today’s stress is that it is those who generally enjoy “pure capitalism” who are the loudest in their protests when it affects them, and the most dismissive of the need to maintain some sort of social cohesion during these changes. When the heavy pandemic threat has passed (when vaccination rates reach high levels), then Australia will be grappling with the realignment of minerals and their economic consequences.
An injured Australia will directly affect New Zealand.
There was another 642 new community cases in NSW today with 508 others not assigned to known clusters, they are therefore out of control. It has spread widely in the regional NSW. Their confinement has been extended. They are now also under curfew. Victoria is report 55 other new cases today, so it’s starting to increase there too and their lockdown is expanded for another two weeks, also with a curfew. Queensland is report 1 new case in a light spot. ACT has 12 new cases. Overall in Australia, more than 28% of eligible Australians are fully vaccinated, and 22% have now received an injection so far.
Wall Street regained some optimism today and the S & P500 is up + 0.6% in afternoon trading. For the week, however, it is heading for a loss of -0.6%. Overnight, European markets were up + 0.4% in Friday trading. This means that Frankfurt recorded a loss of -0.4 for the week, Paris plunged -3.3% for the week and London recorded a weekly retirement of -1.8%. Yesterday, Tokyo fell -1.0% on the day, bringing the weekly loss to -2.9%. Hong Kong ended its Friday session down -1.8 to bring the weekly drop to -5.8%. Shanghai fell -1.1% yesterday to end the week down -2.5%. In Australia, the ASX200 finished flat on Friday, cementing a weekly decline of -2.2%. However, the NZX50 did its own thing last week, ending Friday without much change but registering a + 1.4% increase for the week. Yes, an increase.
The 10-year UST rate starts today at 1.26% and increases by +1 bp. The US 2-10 yield curve steepened by +2bp today to +104bp. Their 1-5 curve is also a little steeper at +72 bps, and their 3m-10 year curve is little changed at +122 bps. The benchmark Australian government ten-year rate starts today at 1.08% and a firmer +1bp. The 10-year Chinese government bond is at 2.87% and also up -1bp. But the ten-year New Zealand government is now at 1.60% and is down -3 basis points.
Global markets are still in ‘extreme fear’ mode as they were last month. But this is nothing like the “extreme fear” levels of April 2020 at the start of the pandemic.
The price of gold is + US $ 2 firmer from this hour yesterday, and now at US $ 1,782 / oz. For the week, it’s up + US $ 4 / oz.
Oil prices continue to fall and fall again by -1US $ from this hour yesterday, so in the United States they are only at 62 $ US / bbl, while the international price of Brent is less than US $ 65 / b.
The Kiwi dollar opens today unchanged at 68.3 USc and maintains its lowest level. Against the Aussie we are firmer overnight at 95.7 AUc. Against the euro, we are milder at 58.4 euro cents. This means that our TWI-5 is starting today at 71.9 and below the 72-74 range of the past eleven months.
The price of bitcoin rose sharply overnight and now stands at US $ 48,351, up 5.8% from the same time yesterday. However, for a week it has only increased by + 1.5%. But today’s rise carries it above NZ $ 70,000 for the first time since May 2021. Volatility over the past 24 hours has been moderating to just under +/- 2.9%.
The easiest way to stay on top of the risks of events today is to follow our Economic calendar here ».