Kia ora,
Welcome to Monday's Economy Watch where we follow the economic events and trends that affect New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news there are new or renewed threats to the global recovery emerging.
But first in China, reports are filtering out that Beijing is detaining and arresting analysts who report on crop yields. This sort of work is very hard to do unless you tour and observe crop regions first hand (which is how it is done is most countries). But independent reports have been snuffed out in China over the past few weeks. It does raise the question about why Beijing needs to be so heavy handed on this arcane, technical corner of market assessments.
China is looking to grow its passenger car market by +10% this year. And a key part of that is an expected nearly +50% surge in sales of new energy vehicles. This rise would put them on track to sell a quarter of all cars as NEVs by 2025. Lithium mining is set for an even bigger boost if this transpires and lithium mining is an especially dirty process at present. If SRI funds aim to avoid polluters, why should they think battery cars are 'green'? At present, Australia is the top lithium miner and China's NEV drive will benefit them most. Although most of the known lithium reserves are in South America.
Despite its drive to control commodity prices, China is still not getting iron ore or coal prices down. Threats against 'speculators' are growing, but so far it seems this latest rise is more a reaction to regulators limiting supply.
As we have reported previously, Australia is challenging the Chinese tariffs on barley aimed at it. Now Australia is doing the same at the WTO against the Chinese for the tariffs the middle kingdom has applied against it for its wine exports. Neither action will be resolved soon and if the decisions go against China they will almost certainly appeal, stringing out the 'illegal' tariffs. But Australia's action won't be impressing Beijing as it ramps up its efforts to stand up to them. Beijing isn't used to being challenged.
They are also annoyed at Japan who have started an action against Chinese tariffs on stainless steel products.
In Australia, an influential economist now says their official cash rate will start rising in 2023.
In Germany, producer prices are zooming higher, with input prices up +7.2% in May from the same month a year ago. That is their steepest annual rise in 13 years.
In virus news, the Delta variant (B.1.617.2) that first emerged in India, is now in a serious surge in Russia and parts of Europe, especially in the UK where it is well established. A key concern is its ease and speed of transmission. This is the strain raging in Fiji now and the one causing concern in Sydney. It is also causing concern in the US.
In the US, a key Federal Reserve official said that he sees the first rate hike by the American central bank coming as early as 2022. This is way earlier than the recent indications from the Fed's own meeting dot-plot. Some people like the new shift. But it is a view that unnerved Wall Street, delivering an almost -1% retreat in its Friday session. Oddly, bond markets reacted by driving down yields, an unexpected shift.
Along the US-Canada border, there are two events to report that affect trade. First, the Americans are unhappy the Canadian government is keeping the border closed to people movements based on the pandemic risks. But perhaps more importantly, the Lake Ontario/St Laurence Waterway levels are now so low they are affecting shipping in one of the world's busiest waterways. This is adding to supply-chain difficulties and adding to shipping costs with echoes internationally.
Canadians took out almost C$18 bln worth of new mortgage debt in April, the fastest monthly increase on record and enough to bring their total housing debt to almost C$2 tln and a +7.8% annual rise.
The UST 10yr yield starts today down -1 bp at 1.44% and giving up all of its gains since mid-June.
The price of gold starts at US$1764 which is down another -US$4 from this time Saturday.
Oil prices are a little softer at just over US$71/bbl in the US, while the international Brent price is just over US$72.50/bbl. The slow pick-up in drilling rigs in operation accelerated last week. In North America, there are now 300 more operating than this time last year, so they have now more than doubled in that time and are back to year-ago levels.
The Kiwi dollar opens today at 69.3 USc and starts this week a full -2c lower than this time last week, its lowest since November 2020. It is really all about a surging greenback. Against the Australian dollar we are little-changed at 92.7 AUc. Against the euro we are unchanged at 58.5 euro cents. That means our TWI-5 starts today at just 72 and a six month low.
The bitcoin price is now at US$34,555 and down another -3.0% from this time Saturday and -11% lower than this time last week. Volatility in the past 24 hours has been very high at +/- 4.2%.
You can find links to the articles mentioned today in our show notes.
And get more news affecting the economy in New Zealand from interest.co.nz.
Kia ora. I'm David Chaston and we’ll do this again tomorrow.
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