ADB to stop funding Chinese projects; Japan's inflation rises; eyes on Jackson Hole; eyes on US corn crop; beef and lamb prices rise to records as carbon price rises
Kia ora,
Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.
I'm David Chaston and this is the International edition from Interest.co.nz.
Today we lead with news the drive to 'fix farming', especially livestock farming, might be igniting a new and potentially dangerous round of food price increases, dangerous especially for the poor.
But first, the western-backed Asian Development Bank has been funding projects in China, even though China has built its own 'development bank', the Asian Infrastructure Investment Bank which has delivered funding for emerging economies along its Belt & Road projects, in its own interests. The ADB plans to provide China with up to US$7.5 bln in financing from 2021 to 2025, down from US$9 bln between 2016 and 2020. But now the ADB is saying time is up on these projects and is moving to end what has become a charade by China. China's Belt & Road projects now top US$1 bln in 'investment'.
China is claiming a big increase in foreign investment in July. But there are reasons to be sceptical. Markets are. They expect a -10 bps trimming of both their 1yr and 5yr Prime Loan Rates when they are reviewed later today. It says a lot if China is cutting rates while the rest of the world is raising them. The Chinese Government 10yr bond yield is near its 20 year low (excepting the brief pandemic low).
Also low is the flow in the Yangtze River and that is now critical. It seems it will be at least a month yet before any relief is likely. The implications for some regions and cities are rather grim.
Japan's inflation rate rose to 2.6% in July from 2.4% in the prior month. This was the 11th straight month of increase in consumer prices and the fastest pace since April 2014, amid surging fuel and food cost following Russia's invasion of Ukraine, as well as a sharply weakening yen.
In the US, in the heart of their summer holidays, all eyes are turning to the central bank shindig at Jackson Hole, WY, and especially the Powell speech upcoming on Sunday August 29 NZT. It is likely that a contingent from our RBNZ will be there, but no word yet on who.
The US dollar has resumed its rally and yields on US Treasury bonds have risen as markets come to realise they can't beat the Fed and that interest rates will keep on rising until inflation is beaten - even if that means enduring a recession. This makes the Powell signals all that more interesting.
It does raise the question of whether any sort of 'soft landing' can be achieved through this process.
Across the US and Canada, assessors are out this coming week looking at the corn and soybean crops. Yield is the one thing satellite imagery can't assess, so the results of these annual 'tours' are crucial in working out how much grain is about to come to market.
North of the border, Canadian retail sales fell by -2% in July from June, preliminary estimates showed. That is a back-track from June, when retail sales rose +1.1% from May, and May was upwardly revised.
In Australia we should note that at the end of last week, energy from renewables were the largest feed into their electricity networks nationwide, for the first time ever.
We should also note that cattle prices have hit all-time highs in New Zealand recently. Not only are schedule prices up (especially in the South Island), but saleyard prices are too. However some saleyard activity will be constrained by wet weather, which may boost prices further. What is unusual is that this record is coming three months earlier than the usual October seasonal rise. Lamb prices are rising too, and out of season as well, but they aren't yet at record levels even if very close.
Meanwhile, carbon prices are on the rise again, after having flatlined for the past six months. At NZ$85.50/NZU they are matching their February 2022 high. The EU carbon price is also rising again, up to €96/tonne (NZ$155) and also matching their February 2022 high. It is hard to escape the sense that these prices are just getting started. One consequence will be that livestock and grain prices are about to follow them sharply higher as land is converted from food production to 'forests'. Only the wealthy will be able to keep up, sadly.
And speaking or carbon taxes, Indonesia has confirmed it will impose these on its nickel exports soon, almost certainly before the end of 2022 and probably announced at the upcoming G20 meeting to be held there in Bali (which is also the epicenter of their FMD outbreak). Indonesia is home to almost a quarter of global nickel reserves, and the metal is one of its major exports, along with coal and palm oil.
The UST 10yr yield starts today at 2.97% and up +9 bps from this time on Friday and up +15 bps from this time last week.
The price of gold will open today at US$1748/oz which is up +US$3/oz from this time Saturday but down -US$54 for the week.
And oil prices start today at just on US$89.50/bbl in the US, while the international Brent price is now just under US$95.50/bbl. These levels are little-changed.
The Kiwi dollar will open today at 61.7 USc which is almost -1c lower than this time on Friday. A week ago it was at 64.5, so a weekly devaluation of -4.3%. Against the Australian dollar we are also lower at 89.8 AUc. Against the euro we have fallen to 61.5 euro cents and also a -½c drop. That all means our TWI-5 starts today at 70.8.
The bitcoin price is now at US$21,446 and very little-changed from this time Saturday. A week ago it was US$24,076, so an -11% fall from then. Volatility over the past 24 hours has been modest at just on +/- 1.9%.
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.