A climate deal only the first world can afford

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 changes are coming as a result of both action and inaction at the COP26. They will all be inflationary, especially for food. Only the well-off will be able to tolerate these changes.

But first in China, this year’s “Double 11” online shopping event saw sales grow at a slower pace amid regulatory tightening, and as China’s overall consumption slows down. But it still hit a new record high of NZ$70 bln on the day (11/11/21), up +8.5% from last year. Almost 1.2 bln packages were sold at an average price of NZ$60. (However most platforms had much larger sales than this because they ran this promotion starting on November 1 through November 11. Over this longer period the two largest platforms sold NZ$200 bln of product. Apple alone sold about $2.5 bln in this 11/11 promotion. Fresh food including dairy products were reported as selling well too.)

However, excavator sales in China plunged -30% in October from the same period last year, their biggest monthly drop this year, as real estate curbs, tighter liquidity, less infrastructure projects and the hike in raw material costs hampered demand. But exports were on the rise as overseas economies make a comeback.

Indian consumer inflation rose to 4.5% in October (+5.0% in cities), a small rise from the prior month. This was higher than anticipated.

Indian industrial production data disappointed however, rising at only a +3.2% annual rate in September when it rose +12% in August. That is a fast and worrying slowdown for the world's sixth largest economy.

In the US, the University of Michigan's consumer sentiment for the US fell to an index of 66.8 in November of 2021 from 71.7 in October and well below market expectations of 72.4. It was the lowest reading since November 2011 due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation. In this survey, inflation expectations for the year-ahead edged up to 4.9% from 4.8% - higher, but actually lower than the actual inflation currently hitting the US at 6.2%.

We should also note that the American IRS has applied automatic income tax rate updates that reflect higher inflation.

US job openings slipped to 10.4 mln in September but well ahead of what was expected. And August's data was revised up. The 'quit' rate rose and more people (4.4 mln) resigned their positions voluntarily to move to another role, than at any other time since this series started 20 years ago.

Like India, EU industrial production in September also disappointed, slipping slightly, although less than was forecast.

The COP26 talk-fest is over now with 'agreements' claimed to be better than expected but less than hoped. Almost immediately, both India and China reneged on the phase out of using coal, rather agreeing to "phase down" its use. They were aided and abetted by Australia. Other parts of the deal will now start to bite and the inflationary aspects could be kind of serious, especially food inflation. This is a deal that only the well-off can afford. The agreement set the rules for trading emissions in bilateral deals and in a global United Nations-supervised marketplace. By some estimates it could be worth/cost US$100 bln.

Australia signed the international request for countries to strengthen 2030 emissions reduction goals by next year. But within hours of agreeing, the Morrison government, facing a 2022 election, told Australians it had no intention of changing its current policies. This is despite global-scale issues at Australia's coal mines.

In Australia, inflation expectations rose to 4.6% in November from 3.6% in October. That is a sharper jump than the actual inflation in September of 3.0%.

The UST 10yr yield opens today at 1.57% and little-changed since this time Saturday but it is +12 bps higher than a week ago. 

The price of gold will start today up +US$1 to US$1865/oz and to a new 5 month high. For the week it has risen +2.8%.

And oil prices are little-changed at just over US$79.50/bbl in the US, while the international Brent price is now just under US$81.50/bbl and little-changed over the weekend.

The Kiwi dollar opens today little-changed at 70.4 USc but that is a -1% depreciation for the week. Against the Australian dollar we are soft at 96.1 AUc. Against the euro we are firmish at 61.6 euro cents. That means our TWI-5 starts today at just on 74.6.

The bitcoin price has firmed slightly since where we left it on Saturday, up +0.6% to US$63,684. Volatility over the past 24 hours has modest at just over +/-1.2%.

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.