Weekend briefing; Australian electoral uncertainties fuel local instability
Here’s our recap of the major overnight economic events affecting New Zealand with news that Australia in electoral mode could undermine New Zealand’s skilled workforce.
But first, American consumer price inflation reached 6.8% year-on-year in November, up from 6.2% in October. Their level of core inflation did not surprise either with a rate of 4.9% against 4.6% in October. The main driver was energy costs, and the impact of these may fade as soon as crude oil gains appear to have stabilized. But other items are also growing faster with food prices up around 6.1%, clothing and apparel up 5.0%, rents up 3.8% and household costs. new cars up 11%. Oddly enough, the costs of medical care have changed only slightly over the past year.
Americans have not experienced inflation like this over two generations (since 1982) so there is bound to be unease, and probably largely partisan. Forgotten will be that average weekly wage rose + 5.6% in the year to November, more than the core CPI increase and less than the overall rate. “Real incomes” will have declined, but there is more than enough room for consumers to make small adjustments to overcome these changes. And of course, most will.
But the inflationary “shock” will be real, especially those who did not see it coming and others on the margins. However, so far there is no real evidence that there is widespread anxiety, with the University of Michigan Consumer Sentiment Survey becoming more bullish than analysts had expected and broadly stable over the past four months. So far, Americans seem to be managing rising inflation with maturity.
Meanwhile, the US budget deficit is now declining, although progress is poor. It stood at less than US $ 2.7 billion through November, or -12.5% of GDP. The increase in tax revenue resulting from increased activity is helpful. For the first two months of their new fiscal year (October and November), federal tax revenues were + 23% higher than the same period in 2020. If this continues (and it is perhaps unlikely), they will quickly reduce their deficits. U.S. Federal Tax Levels are very low by international standards; in 2020, they represented 16.5% of US GDP, 25.5% for all taxes (not just federal) while the OECD average was 33.5%. In New Zealand it was 32.2% and in Australia 27.7%.
In China, Beijing’s top leaders are increasingly concerned about stability as their economic activity slows. In one declaration after their three days in camera Central Economic Work Conference they said: “Ensuring stability is the top priority for the economy next year.
The Chinese real estate market is cooling rapidly. Inventories of unsold new homes hit their highest level since August 2016. In some areas, panic is growing as owners face heavy losses. You can see why “stability” is now the watchword.
In Japan, producer prices rose more than expected in November, adding to global background costs. Annual increase of 9.0%, and a monthly increase of + 1.4%, which puts them at a high for 40 years, and a very uncomfortable position for their manufacturers.
Germany too reported very high consumer price inflation in November, up 5.2% and the highest since 1992 (and up + 6.0% on a harmonized basis to compare with how other countries report it) . Energy costs are the main culprit there, but food prices rose 4.5%.
Brazil also reported CPI inflation overnight – and theirs was 10.7%. (All of these high CPI rates put 4.9% of New Zealand in perspective and makes 3.0% of Australia looks very modest. Inflation is sure to persist as long as the pressures on the supply chain persist, regardless of the price of oil.)
We should also note that coffee price are now at their highest for ten years and have risen sharply since April.
india industrial production disappointed for October, up + 3.1% and much less than expected. The RBI’s continued accommodative monetary policies in an attempt to boost the Indian economy makes sense with these data.
In Australia, they are in full electoral mode again, with the government ‘forecast‘a rapid increase in business investment and a rapid return to government surpluses. This playbook was rolled out in the last elections in 2016 and 2019, and of course, nothing like that actually happened. However, to ensure they have a chance, the Morrison government will steadily increase permanent migration to around + 160,000 per year “to boost economic growth and address skills shortages.” If they actually do, it could have a vacuum effect on New Zealand’s skilled workforce.
the The Morrison government is the underdog in this electoral race, and will surely try increasingly risky strategies.
Stay in Australia, pandemic case in victoria jumped to 1203 reported yesterday. There are now 11,145 active cases in the state – and there were 2 more deaths yesterday. In NSW there was another 516 new community cases reported another jump yesterday, with 3,683 locally acquired active cases and no deaths. Queensland is report 9 new cases, especially on the Gold Coast. ACT has 6 new cases. Overall in Australia, just under 89% of eligible Australians are fully vaccinated, and just over 4% have only received a single injection so far.
The 10-year UST rate opened today at 1.49% and fell -1bp overnight. The UST 2-10 yield curve starts off little change today at +82 bps. Their 1-5 curve is little changed at +99 bps, while their 3m-10 year curve is slightly flatter at +144 bps. The benchmark ten-year Australian government rate fell -2 basis points to 1.64%. The Chinese ten-year government bond was also down -2 basis points (2.86%). The ten-year New Zealand government is down -2 basis points to 2.43%.
On Wall Street, the S & P500 began its Friday session up + 0.6% and on its way to a good weekly gain of + 3.2%. Overnight, European markets all fell around -0.2%, so Frankfurt ended the week with a gain of + 2.0%, Paris rose + 2.7% and London +2. , 4%. Yesterday, Tokyo fell -1.0% on the day to be up 1.3% net for the week. Hong Kong was down -1.1% on Friday to end the week up + 3.2%. And Shanghai closed down -0.2% for a weekly gain of + 1.4%. The ASX200 closed down -0.4% to be up + 1.6% for the week while the NZX50 rose + 0.6% yesterday to be up + 1.4% for the week. the week.
The price of gold will start today at US $ 1,785 / oz and up to + US $ 8 overnight.
And oil prices were little changed at just over US $ 71 / bbl in the United States, while the international price of Brent is still just above US $ 74.50 / bbl.
The Kiwi dollar today opened slightly firmer at 68 USc. Against the Australian dollar, however, we are down to 94.7 AUc. Against the euro, we remain unchanged at 60.1 euro cents. Let our TWI-5 start lower today at 72.3. It’s also worth noting that the Chinese yuan has hit a new 3-year high against the US dollar as the Chinese central bank has stopped intervening in that market – for now at least.
The price of bitcoin has fallen to US $ 47,519 and is still down -2.2% from yesterday. Volatility over the past 24 hours has remained subdued at just over +/- 2.9%.
The easiest way to stay on top of the risks of events today is to follow our Economic calendar here ».