Real world economy gets bumpy as Wall Street is on vacation

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 northern hemisphere markets may in holiday mode with very thin trading (and bouncing around as a consequence) but in the real world there are some big things happening (and not just in Kabul).

Global supply chains are facing fresh challenges from the pandemic as the delta variant spreads. It is a world-wide threat, particularly tough in south east Asia but exemplified in China.

Workers at a major part of the world's third-largest container port just south of Shanghai have tested positive and some services have been shut down. This closure cuts a quarter of the overall port capacity, and will likely disrupt supply chains significantly - and add to problems shifting goods ahead of the key Christmas shopping season. More here.

China has reported that electricity consumption hit a new record high of 775.8 billion kWh in July, rising +13% from a year earlier and growing +16% from the same month in 2019.

Much of that electricity is being generated by coal, and coal prices are rising fast in China, up +20% in the past two weeks alone. China seems to have abandoned its carbon promises just a few months after it made them.

China reported its July FDI over the weekend and it isn't very impressive. But it is a gain, but basically back to July 2019 levels. It was +US$104 mln in the month, up sharply from the pandemic-affected 2020 month, but barely higher than for the same month in 2019. This data is consistent with a slowdown in China and a hesitation by investors after their aggressive regulatory moves against their tech industry.

In the US, the widely-watched University of Michigan sentiment survey has delivered a shock result, reporting "a stunning loss of confidence in the first half of August". With their labour market now improving rapidly and the stock market at a record high it is a clear sign the latest surge in virus cases is weighing on sentiment, despite roughly 60% of all American adults now being fully vaccinated. A notable part of the reasons for the change of heart is the realisation that renewed inflation is going to hurt.

It is a result that knocked the bond and currency markets - but not the equity markets which closed the week at a record high.

The price of nickel has risen to record levels, a key component in stainless steel and EV batteries. Similarly, tin prices are at record highs. But not all metals are rising in price.

Some key food prices are though, especially wheat - and coffee.

We reported on the rises and rise of shipping container freight costs on Friday, and the leasing costs of ships is rising too. The Baltic Dry Index surged about +2% to 3,566 on Friday, its highest level in more than a decade, helped by improving demand, the congestion in Chinese ports, along with weather concerns in the Pacific.

In Australia, a bank offering insurance, the Bank of Queensland, has lost a court case that will have broad consequences around fair-dealing on insurance customers. Unfair contract term protections now apply to insurance contracts for consumers and small business in Australia. There will be echoes in New Zealand. This is a second bloody nose for Aussie insurers - in the 2020 pandemic they botched the management of business interruption policies with outdated product disclosure statements and definitions. The regulator ASIC seems to have had enough and is pushing ahead with a review of all insurers and the oppressive terms their contracts have with their customers who have had zero ability to resist. Aussie insurers control most of the New Zealand insurance market.

The UST 10yr yield starts today at 1.28%. 

The price of gold has risen +US$2 from this time Saturday to US$1780/oz. For the past week it is up +US12/oz

Oil prices are -US$1 softer from this time Saturday, so in the US they are just under US$68/bbl, while the international Brent price is just on US$70/bbl.

The Kiwi dollar opens today at just under 70.4 USc. Against the Australian dollar we are at 95.5 AUc. Against the euro we are at 59.7 euro cents. That means our TWI-5 starts today at 73.4, marginally firmer in a week and still in the narrow range of between 72 and 74 we have been in for ten months now.

The bitcoin price has weakened slightly today and is now at US$46,048 and is down -1.1% from this time yesterday. Volatility in the past 24 hours has been low at just under +/- 2.0% but for the week it has been extreme +/- 5.8%.

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 on Monday.