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US incomes rise, consumer spending falls; global factories busy, except Australia; China lowers sights; eyes on RBA; UST 10yr up to 2.05%; NZ$1 = 75.1 USc, TWI = 79

US incomes rise, consumer spending falls; global factories busy, except Australia; China lowers sights; eyes on RBA; UST 10yr up to 2.05%; NZ$1 = 75.1 USc, TWI = 79

Here's my summary of the key issues from overnight that affect New Zealand, with news of lowered expectations in China.

But first, American consumer spending fell for a second straight month in January, down -0.2%, as households continued to cut back on purchases, opting to save much of the massive windfall from cheaper gasoline. In contrast, personal incomes rose +0.3% from the prior month. In 'real' terms, American disposable personal incomes rose +0.9%, and that seems to be picking up, which will impress the Fed.

The global manufacturing sector seems to be in better shape than recent chatter suggests. According to comprehensive data out overnight, factories expanded for the 27th consecutive month in February. The rate of output growth accelerated to a six-month high, as companies scaled up production to meet rising levels of new work and new export orders. The US was the main driver, and there was expansion in Europe too, but Australia is being left behind.

Back in the US, construction spending rose +1.8% in January on the same month a year ago, but this was seen as 'disappointing' because it was less than for December.

Things are getting tougher in China. State media is reporting that their economy is expected to slow to an annual 7% in the first quarter of this year, a sign policymakers will have to roll out more stimulus to support faltering growth. That also means they want less public criticism of their pollution problem.

Also falling is eurozone prices, which were down -0.3% in February on an annual basis. But without the suddenly cheaper energy costs, they would have been up +0.6% pa. The eurozone unemployment rate for January was also out overnight, their jobless rate 'falling' to 11.2% from 11.3% in December. Their rigid labour markets keep millions out of work.

In India, following their go-for-growth budget, their government has set up a new monetary policy framework that will make managing inflation the key determinant in the central bank’s policy decisions.

Later today the RBA will review their policy rate and it is a close-run thing whether a rate cut will be made again. The markets are pricing one, but a cut will exacerbate their housing bubble, especially in Sydney, making the possibility of a painful correction greater. Rates in Australia are already too low. They need macro-prudential responses, not rate cuts.

The UST 10yr yields rose in New York earlier today and are now at 2.05% as it becomes clearer the Fed will raise rates in a few months.

The crude oil price rose to just over US$50/barrel but the Brent crude price has fallen to US$60/barrel. Prospects for a nuclear deal with Iran brings the likelihood more supply will come on to markets.

The gold price fell and is now at US$1,208oz.

The New Zealand dollar starts today at 75.1 USc, 96.7 AUc and the TWI is back up to 79.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk is by following our Economic Calendar here »

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5 Comments

Is this what OBR will look like? 

 

Not "contained." Just six short months ago, the 2Y bonds of Austria's bank bank - HETA Asset Resolution AG - were trading well above par as the world and his mom reached for yield (~6%) in all the wrong places. Today, following the "spectacular development" over the weekend that the bank will be wound down due to the discovery of an $8.5bn "hole" in its balance sheet, the 2Y HETA bonds are trading below 50c on the dollar (at a yield of 54%). This is indeed Austria's "Lehman" moment as for the first time in the new European 'bail-in' era, senior debt is getting a massive haircut. Read more

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and what a cycle it is...

These conditions, especially low rates forcing a big part of the population into riskier products, corrupt investors’ sense of risk. Rising prices amid a wave of buying reinforces the behaviour of investors and their brokers who believe their thesis is correct.

http://cuffelinks.com.au/bubbles-corruption-sense-risk/

 

Roger Montgomery, of Montgomery Investment Management, believes asset bubbles are likely to pop in the near future and that "there is a real chance that Baby Boomer retirement plans may sink, thanks to their inability to avoid repeating the investment mistakes of their past".

Read more: http://www.smh.com.au/business/markets/the-boom-is-about-to-go-bust-20150302-13s8ua.html#ixzz3TGWyy8kO

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It does not add up !

I dont understand the Chinese 7% annual GDP growth , and am pretty sure that the measurement they use is somewhat different to ours .

Compounding 7% annual growth would imply  its economy  doubles in under 10 years .

It suggests that the production of almost everything would double in tandem and in unison , from public infrastructure to housing and everything else

New Zealand could never achieve this , we dont have enough people , the workforce woud need to double if our economy doubled in 10 years .

I simply dont see the Chinese economy doubling in size , scale and scope every every 10 years on an ongoing and sustained basis .

I reckon its physically impossible , do they have enough skilled or semi skilled people to do the work,  and  is the world big enough to absorb all those manufactures and stuff they will produce by 2025 ?

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damn how many consumers can spend that much?  Where would I keep my old iPhones?  A new router every 6months not 1 a year....

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