90 seconds at 9 am: Turning points?

China adjusts yuan down again; US suspicious of 'currency war'; US labour market strong; RBA warns on house prices; UST 10yr yield 2.09%; oil and gold higher; NZ$1 = 66.1 US¢, TWI-5 = 70.6

13th Aug 15, 7:29am by David Chaston

Here's my summary of the key events over night that affect New Zealand, with news of another day of Chinese currency devaluation.

China's currency fell to a four-year low against the US dollar yesterday, after a second day of deliberate policy devaluation. Further cuts are expected as Beijing tries to aid its exporters.

These are signs of panic as it is becoming clear the Chinese economy is slowing too fast for the liking of its policy makers. Against the Kiwi dollar however the move is very modest, only back to the level it was in June. But Americans are fearing a 'currency war', suspicious of China's motives and ability to control their economy.

Bets are now rising that the US Fed will hold fire on its interest rate hike in September because of the China uncertainties. And these China currency moves couldn't come at a worse time for many other Asian economies.

In the US, the number of job openings fell slightly in June, though the overall level suggests demand for workers remains strong.

In Australia, the RBA noted overnight that Australians' obsession with property won't make their nation better off as a whole, and warned that the current sharp run-up in property prices is in effect a wealth transfer from the young to the old, something they don't welcome either.

In New York, the UST 10yr yield benchmark continues to take its cues from the uncertainty over the China devaluations and is now down further to 2.09%. Our local 10yr swap rate is now at its lowest level in three years.

On Wall Street, stock market operators have noticed that the short term moving average for the Dow has now moved below its long term moving average - something known as a 'death cross' because it is supposed to signal a new long-term downtrend. Equity markets are nervous.

The oil price has stopped falling however and is now back up to just under US$44/barrel, and Brent crude is now back to almost US$50/barrel. The IEA has noted that demand for oil is now growing at its fastest pace in five years.

And the gold price is again much higher on all this uncertainty, now up at US$1,123/oz.

And locally, ratings agency Fitch says that the low dairy prices are a headwind for New Zealand, but do not risk its sovereign credit rating.

The New Zealand dollar starts today a little higher having separated itself somewhat from the China devaluations, now at 66.1 US¢, at 89.8 AU¢, and at 59.2 euro cents. The TWI-5 is now at 70.6.

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

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

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18 Comments

by Boatman | 13th Aug 15, 10:34am 1439418870

So Aussies see property price increases are a transfer of wealth from young to old .

I never thought of it that way , but , we have fed , clothed , and taken care of each of them for almost 20 years , and paid a huge sum in tax for their education and healthcare .

Maybe its the natural order of things that we get something back , sort of "what - goes - around - comes - around" ?

by DFTBA | 13th Aug 15, 10:37am 1439419070

From where I'm sitting, the boomer generation seems to be the ones that had he wealth when they were young, and have been hanging on to it ever since.
Scraping more and more towards them as they get older.
I suppose that's what happens when you have strength in numbers.

by notaneconomist | 13th Aug 15, 11:19am 1439421550

Maybe view the history then DFTBA.....BB'ers inherited the debts of the Great Depression and WW2.....how many of them left school at very young ages? Then look at the infrastructure that has been created across NZ - I'd say they are a generation who just got the heck on with things !!

by DFTBA | 13th Aug 15, 11:36am 1439422577

Yes, they inherited debt, but nicely kicked it down the line...that infrastructure that got created wasn't paid for by them.
.
They voted themselves a nice welfare state (and good on them), but didn't pay for it.
Free education (well, gen X is now paying for that, aren't they? Underfunding of education system, nice one)
Superannuation (superfund - comes out of current tax take....)
Gold card (again, current tax take)
..
Maybe you're the one who's viewing history through quite a biased and narrow set of specs, notaneconomist....

by notaneconomist | 13th Aug 15, 12:43pm 1439426638

What a load of bollocks you're sounding like a spoiled I want everything now!!

You seem to forget that NZ is not a very old country...For example it is the 175th Anniversary of the French landing at Akaroa on the 19th of August 1840........look up the dates of other landing days at other destinations......these pioneers and there families started the works with pick and shovels....hard physical work......had to grow all their own food to boot.....and they still educated their children, they built the school houses themselves....head off to the likes of Waikouaiti to Matanaka farm where the original old school buildings still stand........most of those kids only got schooled until 12 years of age and still they had a better education than most nowadays with their degrees.....many could at least speak the Queens language correctly and they could all hand write beautifully.....and they knew how to spell and and use correct grammar by 12 years of age!!!!

If you bother to travel around NZ you will find remnants of our early history everywhere.....at the bottom of the Merton Hill near what is now called Hawkesbury Village I think the put an (e) in the spelling of Hawksbury nowadays) there is an historic watering trough from the days horse and cart travel.....there are a few of these around the country......you seem to forget that cars, highways, motorways etc are a reasonably new world phenomena, along with the enormous advances in healthcare and surgeries......

I could go go on about the historic sites and advances across the country but those ones are just off the top of my head.....and offered to make a point.......

Much of the back country didn't get electricity until the 1970's and later....phones if you were lucky to have one was a party-line.....and surprise surprise the residents often paid for the lines themselves!!

Your generation might start space travel and large space stations.....what sort of debt will be incurred in meeting that kind of demand?? So what do you think following generations are going to say about YOU and your generation???

I agree NZ has a problem with welfare state.....but it is not average Jo Bloggs who depends on the Welfare State it is the Politicians and bureaucrats/public servants.......the system is there so they can get paid a living....the people only get a small flow over effect in health, education and retirement!!

by frazz | 13th Aug 15, 1:17pm 1439428655

I wonder how many Boomers would want to become Millennials?

by Boatman | 13th Aug 15, 11:37am 1439422647

Thank you for that remark notaneconomist , I could not have articulated it better .....

by DFTBA | 13th Aug 15, 11:41am 1439422890

indeed.

by cowboy | 13th Aug 15, 12:02pm 1439424179

try leaving school at that age now and "just get the heck on with things".
With minimum wage continually rising... and now I hear the living wage is over $20 (already, I wonder why it is rising so fast, when we just put up minimum wage a bunch of times in last three years)

Good luck getting capital backing. Good luck rubbing elbows with people who will give you capital backing without stealing your ideas... heck good luck even affording the lawyers for the NDA (and defending it)

** Part of the modern problem is if there is low hanging fruit the government either certifies it for their profit, or does it through public funds "because these a community need" .... Of course there's a f...ing community need, that's called "a market". How are people suppose to get small business off the ground if the public funded organisations swamp the market???

by frazz | 13th Aug 15, 10:42am 1439419370

"paid a huge sum in tax for their education and healthcare" ??? Really I think they are a paying for their own education and healthcare, when I last checked it was still covered by the State unless you go private.

by Guido | 13th Aug 15, 10:57am 1439420222

Looking at it another way, you have loaded them up with unprecedented student debt, and the most unaffordable housing in history. And they will still have to pay a huge sum in tax and user pays for services. Well... if the Aussies can figure it out, there is hope for everybody.

by Boatman | 13th Aug 15, 10:56am 1439420200

It seems everyone has an opinion about the dairy commodity price .

Here's mine :-

We cannot say we were not warned or did not see it coming

The problem with us , is we think we are far away and issues elsewhere wont affect us , we never seem to learn. They ALWAYS effect us

We cannot feign surprise at the crisis we now face , it was on this very website that I first read that the Eurozone was lifting or removing the Quotas holding back production by European Dairy farmers.

I think I even commented on this site at the time

Basically European famers were paid to produce less milk ( really dumb when you think about it ) and this restriction was removed one way or another .

Futures traders would have had a field day shorting milk futures on the back of this Eurozone policy shift , and that's when we should have read the bells tolling for us

It was always going to be a game changer .

Secondly the writing has been on the ( great) wall of a Chinese slowdown.......its no secret . What did we think ? It would not affect us ? Get real

Thirdlly, the Russians retributive knee jerk response to Eurozone sanctions was never going to end well . Its come as a bit of a surprise , but its worth remembering for every action there is a reaction , often with a few stings in the tail ............ called unintended consequences .

Where is the good in all this?

Well Fonterra will be leaner after this and probably more efficient and more prudent with farmers money, instead of throwing it around like drunken sailors , into dubious investments in China

Secondly ,the gravy train for overpaid executives has run out of steam and that's a good thing .

Thirdly , maybe fresh milk prices for us hapless consumers will actually come down, to at least Australian levels .

by Triple | 13th Aug 15, 11:11am 1439421099

...and fourthly, house prices will likely decline which is great for FHB's and young families.

BTW - at the B&T auctions yesterday morning, total sales under the hammer (including houses sold prior) was 39%. That is abysmal. A few weeks ago it was closer to 75%. It looks like the slowdown/correction has begun.

by J.C. | 13th Aug 15, 11:43am 1439423001

That's a rather Hosking-esque delivery of a similaly world view

by cowboy | 13th Aug 15, 12:07pm 1439424423

Here's mine :- Stop saying "we".

I did as much as I could [only just] afford.
It can be managed - but clearly business as usual isn't going to cut it.

Do your analysis.
(1) What is the problem(s)?
(1a) what are merely symptoms.

by Boatman | 13th Aug 15, 1:16pm 1439428570

Okay cowboy , I am part of the 'we' , and we have been kidding ourselves ( Like John Key has ) that everything will be right .

The warning signs were there all along , and the milk price has declined steadily over the past months

The problem is we ( as a nation ) rely on a single commodity for a big slug of our income , and that income is about to fall ( or has done ) .

There are causes ( which I though I outlined )

These are not symptoms , the symptoms are the fall in the dairy price and what its doing to rural NZ .

You are right , it can be managed , and we ( as an economy ) will survive , but its going to require some changes and adjustments to the way we ( New Zealanders generally and dairy famers in particular ) do things .

by cowboy | 13th Aug 15, 2:21pm 1439432484

well you've admit to the problem, and claimed party to it. That means you, unlike millions of others are now empowered to do something about it.

Yes, the "Dutch Energy Scenairo" has been a problem. It was a problem for NZ when it the country was living off the sheeps back (wool), and when butter plugged the gap as wool started to fall.
The big fail of Globalisation is what do you do when "our big one product" no longer has a foreign market? (Note the "Keynes walkaway" that occurs when that question is asked of pro-Globalists).

Paying a group of people to make less isn't that stupid. Making too much then have to invest in money and land/equipment to dump it is stupid. Sure we could do a France and make throwing away waste illegal, and give it too those who fail morale hazard - because yeah like I'm going to pay a premium for supermarket produce when I can wait a few days and get it for nothing.
The questions there are: how much to pay them (obvious more than breakeven is silly), and just how much do we need that product (good sustainable food).

Clearly the smart thing is to get the least viable and use that money to direct it into something else, and finance a co-op to process the product. A look at land-use maps and grow requirements for different plants, animals, services, products would be a start. Land like I was in was perfect for dairy, where I grew up wasn't. Where I was dairying land was crap for 90% of other uses. Just like much of the sheep & beef areas aren't much good for other uses. Too make it work the first step is get out of the New Zealander mentality - support the tall poppies already in the field, to develop it more; not asset strip it and load it with parasitical costs. In dairying terms this is the DRI's and LIC and Ballance/Ravensdown and FMG initiatives.

second step: New Zealanders have to wake up that this is an Internet world. Stop telling me how terrible our rivers are. I can Google many countries and get video footage of other countries. Don't BS me about how clean the US want our produce...I can (and do) get their local newspapers. I can see the smog reports in Asian cities. I can look at wonder artwork in Thailand and Vietnam and see their cattle living in the rivers. Yes, we can get a selling point, yes we need to make environmental changes -for us-.

the bloody first thing we have to do is stop selling everything of productive value to foreign profit makers.
If that means less trade-goods in return that's a +_market_opportunity_ for NZ.
As long as we travel down the path of sending profits offshore, and importing inflation we're doomed, because any economic movement forward (ie profit) is going to go offshore. And then even if they do buy from NZ, any profit on the deal just goes back off shore. The whole point of economic activity is to retain some value in the trade.

the single commodity is a symptom. symptom of poor education, of poor understanding of social and capital goals, of dreadful self-serving political machines and drivers.
IRD saying how can we get more tax "to make it fairer" ...having everyone poor might be fair but it's still stupid. In many cases those "dodgers" were the ones making economic growth happen!!

We've got to get more NZers _trying_ business. A startup business contributes hugely to the economy, new wages, new promotions, new service connections, tons of inventory. That spending doesn't go away if they're declared bankrupt. We want more of that. Better high risk, low cost lending to business to get extra staff into part time positions to allow more staff to specialise, to allow businesses to try extra projects, to get young staff experience (while not doing a UN and use economic non-participants to do the work ie unpaid interns living in the streets).
foreign big business is the anti-thesis of that. they use few local specialists, don't grow local businesses, bring much generic product from offshore or from their key services, and only return labour value to the local market...and if that's unpaid labour nothing. How are such people supposed to compete against wealthy foreign "investors". How are the locals supposed to grow financial services market if all they get is stripend labour as income for the majority.

So that leaves few viable options - a locally owner entrenched collective. Ok until the foreigners get to skim the profits.

Ask any established partnership or private company of over 30 years ... ask them about their early equity partner who they're still paying.

by bw | 13th Aug 15, 2:02pm 1439431379

Another 1.1% devaluation by China. What's the target ? 6.5 or 6.75 or....7!