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US housing stronger; Japan's economy contracts; EU posts modest growth; China ends devaluation; UST 10yr yield 2.16%; oil down; NZ$1 = 65.8 US¢, TWI-5 = 70.4

US housing stronger; Japan's economy contracts; EU posts modest growth; China ends devaluation; UST 10yr yield 2.16%; oil down; NZ$1 = 65.8 US¢, TWI-5 = 70.4

Here's my summary of the key events overnight that affect New Zealand, with news that economic growth seems harder to come by these days.

But first, in the US house builders’ confidence climbed in August to the highest level in almost ten years, while a factory confidence report in the North East surprisingly slumped.

In Japan, their economy contracted in the April-to-June quarter, but managed to perform slightly better than expected. It was down -1.6% in Q2 after the surprising spurt in Q1 of +4.5%. Coming in 'better than expected' will ease many worries in Japan, although the Government is expected to re-focus on its 'Abenomics' program.

In Europe, economic growth in their second quarter was up +1.6% on an annual basis, +1.2% for the more limited eurozone. Growth was led by jumps in Spain, Hungary and Sweden, with drag coming from France, Italy and Finland. (Interestingly, Greece posted average growth of +1.4%.)

In China, the official exchange rate rose marginally yesterday, signaling an end - at present - to their 'devaluation. In fact, it has been a minor adjustment, less than 5% overall. But it sure caused waves internationally. (Part of that is because it came in the northern hemisphere's holiday season where relatively small changes can cause big waves against a backdrop of low market activity. Things will start to get back to 'normal' by the end of next week.)

In New York, the UST 10yr yield benchmark has fallen today, now back at 2.16%.

The oil price is weaker and now under US$42/barrel, and Brent crude is now under US$49/barrel.

The gold price is however a touch higher, now at US$1,118/oz.

The New Zealand dollar starts today slightly higher at 65.8 US¢, at 89.1 AU¢, and at 59.4 euro cents. The TWI-5 is back over 70 at 70.4.

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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41 Comments

Meanwhile:
http://www.cnbc.com/2015/08/17/atlanta-fed-gdpnow-gauge-takes-a-tumble-…

''The drumbeat of disappointment is continuing for the U.S. economy, with the latest numbers showing the third quarter looking a lot like the first quarter. The Atlanta Federal Reserve's GDPNow tracking tool, which has been a pretty reliable rule of thumb lately, indicates third-quarter advancement of just 0.7 percent, with the momentum to the downside. The indicator has dropped 0.3 percentage point just in the past week as the model adjusts for a likely decline in inventory build for the three-month period. '

That lower reading also reflects conditions before the plunge in the Empire State manufacturing index released Monday morning, which showed that activity in the New York region contracted considerably. Peter Boockvar, chief market analyst at The Lindsey Group., called the Empire reading "awful" and said it was the worst for the data point since April 2009.''

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This can't be right. I read the 90 at 9 every morning and I swear for the last five years there is a story about some rebound in the US or better than expected Manufacturing data or an increase in employment.

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Yes, this has perplexed me also.

Almost every morning the US is on the brink of recovery, about to improve, about to raise interest rates etc.... Could it be that things aren't actually going well?

Whoops, I'm being a gloomster. Better paint that smile on and sing some happy songs!

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Perhaps this goes some way towards explaining why this is.

"Yet there is also evidence that many workers are not demanding high wages. Oddly, that may be down to a reform to America’s unemployment-insurance scheme taken at the end of 2013, which slashed the maximum time for which Americans could draw unemployment benefits. About 1.3m Americans were affected immediately. With nothing to fall back on, the wage expectations for many unemployed people fell. In economic parlance their "reservation wage"—or the threshold pay rate needed to coax them into and keep them in employment—declined precipitously. To take advantage of the growing pool of cheap workers, employers in certain sectors went on a hiring binge. Indeed, a big chunk of the 3m extra jobs created during 2014 were in low-wage sectors.

The biggest reason for sluggish wages, however, remains what it has been for most of recent history: America’s sickly labour market. Unemployment is low, but other measures of labour-market “slack” paint a much bleaker picture. The number of workers who work part-time but would rather be full-time (so-called “part-time for economic reasons”) is still much higher than before the recession hit. This is important: a recent paper from the Federal Reserve Bank of Chicago found that even after accounting for other measures of unemployment, the number of workers counted as “part-time for economic reasons” exerts a very strong effect on wage growth. (That is probably because such workers would rather push their employers for more hours than for higher pay)."
http://www.economist.com/blogs/economist-explains/2015/04/economist-exp…

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You just have to scratch below the surface and the explanation of just why the headlines do not deliver starts to form up.

The interesting thing is Jeb Bush is promising 4% growth and another GOP candidate? 6%, one wonders just how you do that.

The only "conventional" ways I can think of is,

a) throw/print money into main street to make ppl spend, so declare a Debt jubilee and give every American $100KUSD.
b) Next reduce the cost of oil to $20USD a barrel and keep it there, this means invading Iran, Iraq as a minimum and simply taking the oil at the price you want to pay, ie $20 and prevent anyone else buying it.

With Donald Trump happy to bomb the oil fields (and by extension anyone and any where else) back to bare earth you have to wonder how unlikely b) is.

god help us......

and so c)?

The thing is we see desperate ppl and desperate ppl will vote for anyone promising salvation.

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There's always people with predatory tendencies who are happy to take the opportunity provided by a period of wide spread economic distress, to intensify the exploitation of their fellows.

"It's easy to see why: 1099 workers cost a lot less to hire, which lets cash-strapped startups funnel funds into things like app and site development rather than employee benefits. And being an independent contractor can offer up certain perks -- you can work part-time while holding down other jobs, or simply to get extra spending money if you're a student or a stay-at-home mom. For some, it offers the flexibility to set your own hours and work remotely...Still, this "gig economy" doesn't sit well with everyone. If you're a full-time 1099 worker, that leaves you without a safety net that all W2 employees have. This is especially a problem if a full-time employee is misclassified as a contractor and is thus stripped of important benefits that include overtime, unemployment insurance, worker's compensation, retirement funds, maternity leave and more perks that many of us take for granted. Recently, a few workers have filed lawsuits against some of the aforementioned startups (Uber, Washio and Postmates are among them), alleging that they should be classified as employees rather than contractors."
http://www.engadget.com/2015/07/16/clinton-uber-and-the-political-impac…

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To use the parlance of the website's publisher - you are both being whiners. Which, by the way, makes me your king.

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All hail the king! ;-)

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if you dont start happy singing I'll arrange daily beating to improve your moral.

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Government now talking to Landcorp about its debt levels (yep its all about over-extending into dairy, AGAIN):
http://www.nbr.co.nz/article/landcorp-board-talks-ministers-over-debt-l…

Losing one SOE on your watch might just about be portrayed as mere carelessness, but losing a second...

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I would imagine their costs have run away,just like the rest of us but worse.

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Contrast the Landcorp CE's "no need to panic" approach to this one from MyFarm;

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…

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Thanks, a very interesting link. The thing is what is the impact longer term? ie the assumption is an ever growing world population will demand and pay ever increasing prices so having high cost inputs made "sense" if you had a large profit margin, but going forward? Another of these costs is of course oil and fertilizer so within a decade these could be cripplingly expensive and not economic to do as ppl wont pay the price needed.

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A failure of perception perhaps on Lancorp's behalf?

Nonetheless: - “The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” – James Grant Read more

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I like that saying. It rings very true, and the Great Depression was a lesson it. However it seems we more than forgot about that lesson but actually took steps to de-regulate the safeties(laws) put in place to prevent its reoccurance as it hampered the 'free market"

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Interesting

By reducing output, variable costs can be reduced by $0.50 per kg/ms

That says while dairy payout is at elevated levels it is worth incurring increased variable "unit" costs to chase the additional marginal revenue. Where second shift variable costs are higher than first shift variable costs.

That tells us that intensification plus supplementary feeding is only profitable while the additional per unit revenue exceeds the increased variable per unit costs at higher rates

The instant the farmgate unit price falls below the increased (second shift) unit variable costs it is imperative to cut back production to what I call "single shift" levels

While I have seen this alluded to in several articles over the past month I have never seen it stated as bluntly as this

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Anyone contemplating buying a farm and paying a price based on double-shift production is dumb - expect farm prices to scale back significantly in the near future

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Kate, the problem is that outfits like my farm really have no where to go. Eventually they take a hit to their equity, or should I say investors get taken out behind the woodshed to get the good news.
Landcorp get their land for free,still manage to rack up debts and face financial trouble( problem with high cost, low return business model.). Equity partners will get shafted.
That is what I've been trying to push for years, in a high cost system, when it hits the fan where the hell do you go? Options available in the past are no longer viable solutions, all the answers have consequences, that are unpalatable to investors and bankers.
Build your business on sand (tax free asset speculation) and eventually a day of reckoning will arrive.
In the UK farm Diesel is just over 30p a liter and there is no diesel tax, just a simple example of where we have gone wrong and why we are losing our 'edge'.

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Build your business on sand (tax free asset speculation) and eventually a day of reckoning will arrive.

So true. But even the existing high input costs would be (to a degree) manageable if there wasn't the interest payments and debt.

It then becomes a matter of who will put these indebted operations into receivership?

I'd have thought that government (both central and local) wouldn't want to be seen to be the ones putting our local farmers under - whereas the Aussie banks won't hesitate.

Therefore it might be useful for dairy farmers to collectively stop payment to IRD and their local councils - as opposed to take on Fonterra's offer of interest free debt.

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What makes you think that Local government will remain solvent? A local government model that manages to increase costs to its captives at multiples of the CPI, isn't a sustainable model any more than moving to Mars is, or trying to decend El Capitan's 3000 ft face with a 2000 ft rope thinking you will think of a solution on the way down :-)

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Well that's a good point but LG borrows directly offshore - so if they collectively go broke (they guarantee each others debt) I'm guessing it isn't local communities that take the losses;

http://www.lgfa.co.nz/

Unless there is something in the fine print that suggests local assets would have to be sold - I don't think so though.

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Why on earth would you pay use of money interest, plus penalties to IRD when you could get that money free of interest/penalties from Fonterra,or borrow it from the bank at a much reduced rate, Kate??

Likewise why would you pay 10% penalty to LG when your interest is around 5% or so from the bank or again free of interest from Fonterra? Caveat would be - depends on what's in the fine print of the Fonterra loan.

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Just another example of National's lazy and inept reliance on "miracle" economics. Unfortunately they possess that unbridled belief that it is the citizen's duty to socialise the losses. I guess the nation will need more apartments in New York to shelter those that are deemed responsible in their new endeavours at a UN quango?

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but, but that is the free market in acton! ie run to the next profitable market and flood it as fast as possible to make $s. With it seems no thought on an exit strategy when the inevitable collapse happens.

BTW, labour is any better?

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BTW, labour is any better?

Irrelevant - they are a diminished part of the opposition.

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In New York, the UST 10yr yield benchmark has fallen today, now back at 2.16%.

The demand for margin call collateral arises yet again.

Again, it has to be unnerving within the corporate bubble to see irregular pricing regardless, which has the same effect in dark leverage of rising VaR and volatility bands. That is, as has been since October 15, an effective monetary “tightening” to which the world remains ensnared. Read more

Even investment grade credit spreads are widening.

According to the BofA corporate bond index, the gap between yields on investment-grade corporate bonds and US government bonds has moved to 164 basis points. This takes the difference between credit spreads per point of equity volatility to 10.26bp, BofA calculates, its highest level in more than seven years. Read more

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Read Fonterra's submission to the current DIRA review here:
http://www.fonterra.com/global/en/Financial/Industry+Regulations

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DO NOT TRUST CHINA'S PLATITUDES .

They did not expect the massive reaction to their devaluation and the things they are saying is simply to calm things down .

Its like letting off a massive fireworks the size of an explosion and when you realise you have over-done it , you tell the neighbours not to worry , its all over and no one got hurt .

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The Public Servants at MBIE must be very busy (or something)?

It is now 18 August, and I’m still waiting for MBIE’s response to my 28 May request for copies of advice on the economic impact of immigration and the permanent residence approval target. The Act provides a basic response time for agencies of no more than 20 working days.

http://croakingcassandra.com/2015/08/18/skills-based-immigration-who-ha…
I'm sure the journalists will be very interested (or something)?

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That really is an extraordinary article, which deserves widespread coverage.

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What a crock - you can be absolutely certain that those coming in under "chef" and "cafe or restaurant manager" are another name for "fast-food worker".

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no. What they do is come up a "buy a specific skill license" name.
The family commits to paying the guys at home for their employment wages+fee, the staff get "hired" for their "specialty skills" but don't actually have to do much. They get "paid wages", get naturalised, rinse repeat. They only have to have a paper job for the duration. It's also why a lot of wages "get sent back home"...so the family can pay the people at that end.

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Will be surprised but pleased if it does

I have posted several comments over the past 2 or 3 years on that very topic including links to the official data. It simply disappears into the ether

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JH .....THANKS FOR THE LINK , this is absolutely appalling news and if the figures are correct we should be outraged !

I have suspected this was the case for years now , how on earth can a COOK and a CHEF be on the critically skills shortage list ?

Where on earth is there such a shortage of Chefs?

We need real-skills , everything from aircraft fitters , aneathetists , engineers ( real ones) , to Zoologists not cooks masquerading as Chefs .

I need to talk a walk , this is outrageous and heads should roll

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Thanks JH. First class.
Pretty much what I suspected, what a friggen joke - skills based immigration? Pick up the employment section of the newspaper or online and you will see what is going on. The restaurant and ethnic foods takeaways advertising for staff must be experienced in some obscure (Northern Thai or something) cooking AND Hindi speaking or whatever. Anyway the general intention is to make sure that no Kiwi is likely to qualify and they can bring in the cussies. Even saw one last week for a builders labourer - must be mandarin speaking. WTF

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Here's an analysis on the US-equivalent of our immigration policy;

http://www.zerohedge.com/news/2015-08-16/they-have-go-trump-vows-deport…

As a result, it may well be, that the surprise answer why America's labor productivity (which recently posted its worst 6 month stretch in 22 years) has plummeted in recent years and certainly months, confounding economists who are unable to explain why "solid" labor growth does not translate into just as solid GDP growth...

... and why wage growth has gone precisely nowhere, is because the vast majority of all jobs since December 2007, or 75% to be specific, have gone to foreign-born workers, a verifiable fact.

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Every person who enters New Zealand on a skills visa should be data-matched with IRD for each year since arrival for 5 years to verify their earnings that in fact they have received wages subject to PAYE or Tax-Paid Business Income (commensurate with their Visa) for each of those years to prove that they have added to GDP (gross) and GDP-per-capita

In other words - did they fulfil their bargain

Not hard - but won't be done - that would be a bigger job than one-off recording comprehensive details of 40,000 Auckland property transactions each year

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.....it gets worse. Check out how hard it is to get a nurse job now. One ward had 40 personal visits for one job from non registered nurse foreign student graduates. ie they come her train as nurses and then compete for your childrens jobs. They have filled the rest homes, once a platform for a nurse to get a start while aawaiting a hospital job. I'm sure other industries are also experiencing such madness.

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Thinking about it, he'll likely wait an awfully long time for that MBIE response - given when you look at it, the economic impact of our immigration policy must serve to suppress wages. MBIE are obviously stumped to find any other effect.

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Wow 8,000 new chefs? No wonder my town's main street is full of fast food joints and restaurants.

Bugger all retail left nowadays though. I'm not sure how the nearly 4,000 retail managers & supervisors occupy their time.

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Retail managers? That'll be the $2 shop type of outfit - chocka with absolute junk that you buy one day and is in the landfill the next.
It beggars belief that we have allowed ourselves to become a dumping ground for third world economic refugees AND their useless tat. Skills based immigration my arse.

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