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IMF adds yuan to SDR basket; Fed bows to Congress; US house sales underwhelms, retail impresses; Japan makes appeal; UST 10yr yield 2.22%; oil unchanged, gold rises; NZ$1 = 65.8 US¢, TWI-5 = 71.6

IMF adds yuan to SDR basket; Fed bows to Congress; US house sales underwhelms, retail impresses; Japan makes appeal; UST 10yr yield 2.22%; oil unchanged, gold rises; NZ$1 = 65.8 US¢, TWI-5 = 71.6

Here's my summary of the key events overnight that affect New Zealand, with news of global money system rule changes.

Firstly, the IMF has announced that China's currency, the yuan, will join the Fund's basket of reserve currencies. It will have an 11% weighting starting in 2016. This is important news because it heralds some major fund buying to rebalance portfolios, and it downgrades the weightings of the euro and the UK pound especially reducing the combination from 49% to 39% to accommodate the yuan, with a smaller reduction for the yen. The US dollar's position is unaffected. So not everyone thinks it is a good or justified move however.

And the US Fed adopted a new rule today restricting its ability to lend money to financial institutions in a crisis. It is a direct effort to ease concerns in Congress about the central bank’s free power to pump money into the financial system.

Meanwhile, American house sales, the ones for previously owned homes, rose far less than expected in October, the latest sign that their housing market is losing momentum after strong start to the year. This sector is losing out to the newly built sector which is still showing strong gains. Americans are buying 'new' rather than 'used'.

And a fall in two regional purchasing manager surveys won't help sentiment either.

But retail has started the holiday season stronger than many feared. US holiday shopping is on track for a modest +4% rise this year after strong turnout during the Thanksgiving and Black Friday weekend and thanks to strong online sales, according to the National Retail Federation.

We are heading to two sharply contrasting policy decisions this month, reflecting how the world's two largest economies have moved from the Great Recession to the Great Divide. The US seems to be going from strength-to-strength while Europe (and Japan) are struggling to lift from their separate funks. Japan today urged it large companies help it lift the deflation weight that has hung over it for decades.

And China is adopting electricity market reforms that are starting to sound very much like New Zealand's.

In New York, the UST 10yr yield benchmark is unchanged at 2.22%.

The US benchmark oil price is also unchanged at US$42/barrel, while the Brent benchmark is at US$45/barrel.

But the gold price has had a small bounce after its weekend fall, now at US$1,063/oz.

The New Zealand dollar starts today at 65.8 US¢, at 90.9 AU¢, and at 62.3 euro cents. The TWI-5 is at 71.6 and its highest level in a month.

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 ». And don't forget to vote in the Flag Referendum

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11 Comments

Where is the NZD heading against the AUD?
Is the market pricing a rate cut for NZ, and a hold on rate cuts in Aus?

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NZD seems to be inching higher against the AUD. Markets not pricing in much of a rate cut for either AU or NZ. It is only bank economists that see (want) a cut. Stevens and Wheeler will get the same effect when the Fed raises rates on December 17. Personally, I doubt we will see any more official rate cuts in this cycle.

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Interesting.
Seems that rate cuts are no longer having much effect on stimulus or inflating inflation anyway.

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So you are saying on record that the effect of the Fed raising effectively lowers our OCR and the NZRB will need to do nothing to see the CPI climb back to 2%+ by itself?

What do you mean by "cycle" you think this is the bottom and we will recover? is this your new year prediction?

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Quite apart from the fact our NZ$ is a high yielder , there is no justification based on economic fundamentals for its strength .

Our economy , while growing , is still a tough place to make a buck, and not everyone is doing well .

We are somewhat a victim of our success as a nation , we are a democracy with all sorts of rights and freedoms , we have a robust system of Governance, separation of powers of Govt and judiciary , an independent Reserve Bank etc (strong institutions ) , rule of law , freedom of the press , freedom of association (except for people joining ISIS ) a non -intrusive government ,low levels of corruption , to name a few .

We have a free market economy , floating exchange rate with no restrictions an capital movement , a simple, easy to understand , and stable tax system .

Unlike most , we export more than we import , and we run a trade surplus with China

We are the best destination for investors seeking stability.

The Kiwi $ is benefitting from all of this .

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" US Fed adopted a new rule" Dear Fed, we at congress would like to give you a "get out of jail for free" card dumping the responsibility for a Depression where it belongs, on Congress.

Love it....sort of.

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fingers crossed for the GDT event later today/tomorrow - wondering what the G is for

however thinking of things cross, still getting our heads round the Beingmate infant JV (or at least Fonterra share of the Oz infant powder plant) being used to process non Fonterra milk to go to a non Fonterra infant formula brand.

More over the brand seems controlled by a virtual or totally outsourced company, with shares having bolted 10 times this year (unlike the beloved units)
http://www.asx.com.au/asx/research/company.do#!/BAL
- think financial strength to support the production contract.

strategy and co-op principles aside, how does toll processing support the funding (debt i and p repayments of the Beingmate share purchase) and turn a profit. (Whose balance sheet is financing this fine supply chain, and is the value chain similar?) - Does this mean milk brokers are alive and well in OZ

http://www.smh.com.au/business/bellamys-strikes-partnership-with-fonter…
http://www.stuff.co.nz/business/farming/74578715/fonterra-sign-deal-to-…
http://www.asx.com.au/asxpdf/20151130/pdf/433dymb4gg801w.pdf

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As the man said, however, you ain’t seen nothin’ yet.
Instead, the iron ore implosion is symptomatic of a much deeper and more destructive malady. Namely, it reflects the monumental malinvestment generated by two decades of rampant credit expansion and falsification of debt and equity prices by the world’s convoy of money printing central banks.

Since 1994 the aggregate balance sheet of the world’s central banks has expanded by 10X—— rising from $2.1 trillion to $21 trillion over the period. This rise does not measure any kind of ordinary trend which temporarily got out of hand; it represents an outbreak of monetary insanity that is something totally new under the sun.

What it means is that the Fed, ECB, BOJ, People’s Bank of China (PBOC) and the manifold lesser central banks purchased $19 trillion of government bonds, corporate debt, ETFs and even individual equities and paid for it by hitting the electronic “print” button on their respective financial ledgers.

This central bank balance sheet expansion, in fact, represented 70% of the world’s entire GDP as of the time the print-fest began in 1994. Yet as an accounting matter this monumental expansion was inherently suspect .

That’s because the asset side was mushroomed by the acquisition of already existing assets——-financial claims which had originally funded the purchase of real goods and services.

By contrast, the equal and opposite liability side expansion consisted of newly bottled monetary credit conjured from thin air; it represented nothing of tangible value, and most especially not savings obtained from the prior production of real economic output.

http://davidstockmanscontracorner.com/the-lull-before-the-storm-an-idea…

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WTH? How on earth can a managed currency be in the IMF Mix ?

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What, like the Yen?

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The Yen is mostly a free floating currency , with lots of tinkering by the BOJ

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