Here's my summary of the key events over the weekend that affect New Zealand, with news of a huge Chinese debt distortion that worries policy makers.
But first, American consumer sentiment is a little lower in June, but not because of their own individual situation. According to a survey out over the weekend, they rated their current financial situation at the best levels since the 2007 cyclical peak, largely due to wage gains. Prospects for gains in inflation-adjusted incomes in the year ahead were also the most favorable since the 2007 peak, because pay is rising at +2.5% at a time of low inflation. But they seem to be losing a little confidence in the future. Most now do not think the American economy is as strong as it was last year nor do they anticipate their economy will enjoy the same financial health in the year ahead as they anticipated a year ago.
In fact, lower corporate profitability raised the US Federal Government deficit in May. But the shift is minor and won't really change the -2.8% of GDP level it is currently running at, a level easily accommodated.
In China, shifts there are not minor. The IMF has issued a stark warning about the risks of their corporate debt. The IMF wants to see immediate steps to tackle rising corporate debt or they will face worrying “dangerous detours” during the country’s transition to a consumption-oriented economy. Others have pointed out that as much as US$1.3 tln in loans extended to borrowers don’t have sufficient income to cover interest payments. China has accumulated debt faster than any country over the past decade, climbing to almost two and a half times their annual GDP.
But that debt binge is helping many Chinese feel better about their economy and their own prospects. And it is helping many Australian mining companies feel better about the immediate prospects too.
Today is a public holiday in Australia. And locally we are expecting the REINZ house price data for May to be released sometime today. But later in the week there will be some important economic data released. There is another dairy auction, New Zealand Q1 Balance of Payments data followed by Q1 GDP, and on Thursday Janet Yellen and the US Fed will be reviewing their policy rate.
In New York, the benchmark UST 10yr yield fell again on Friday and is now down at 1.64%.
The oil price is little changed. The US benchmark is marginally lower, now just over US$49/barrel and the Brent benchmark just over US$50/barrel.
The gold price is marginally higher at US$1,273/oz.
And finally, the NZ dollar starts today a little lower at 70.6 US¢, at 95.6 AU¢, and at 60.7 euro cents. The TWI-5 index is now at 74.2.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
12 Comments
It's high time you guys did some background reading on modern agriculture. Pick the latest Econmist Tech Q for a start. "Extending to the smallholders and subsistence farmers of Africa and Asia the best of today’s agricultural practices, in such simple matters as how much fertiliser to apply and when, would get humanity quite a long way towards a requisite 70% increase in output. So would things like better roads, to allow for the carriage of surpluses to markets. This would encourage productivity growth and reduce waste.
Indeed, government policy to reduce waste more generally would make a huge difference. The FAO says that about a third of food is lost during or after harvest. In rich countries a lot of that is thrown away by consumers. In poor ones it does not reach consumers in the first place. Bad harvesting practices, poor storage and slow transport mean that food is damaged, spoiled or lost to pests. Changing that, which is mostly a question of building things like better, pest-proof grain silos and monitoring their contents properly, would take another big bite out of the 70% increase.
The neo-Malthusians may throw up their hands in despair, but consider this: despite all the apparent obstacles, from yield plateaus to climate change, in the six years following the FAO analysis cereal production rose by 11%. If growth like that continues it should not only be possible to feed the 10 billion, but to feed them well."
While humans may be able to increase production - at what cost to the planet. There will be a limit at which diminishing returns apply. My father who was a farmer understocked his farm and yet it was more profitable, simply because the sheep and cattle he sold were good quality. Humans can't destroy the planet but they can make it uninhabitable.
plenty of seasoned investors have been talking about the Chinese debt for awhile, george is buying gold as he sees a black swan.
http://www.bloomberg.com/news/articles/2016-04-20/soros-says-china-s-de…
http://www.cnbc.com/2016/06/09/carl-icahn-i-might-consider-getting-back…
Thursday Janet Yellen and the US Fed will be reviewing their policy rate.
Hmmm.
The reason why we still have a fed funds (FF) market is because Basel III does not apply to a small corner of the U.S. banking system – the Federal Home Loan Banks (FHLBs). The FHLBs are the only banks left in the system that still have an incentive to lend to other banks on an unsecured basis on scale. On the flipside, the only banks that borrow from the FHLBs are highly rated foreign banks with an aim to arbitrage the FF-IOER rate pair and subject to a version of Basel III lighter than that that which applies to U.S. banks.
Scrapping the FF rate as the Fed’s policy target won’t be a choice but a necessity, in our view. Read more
China is a real worry , that we are all ignoring . Their debt levels are so astronomical , they are simply unprecedented in modern human history , and no one could model what the effects would be if the whole thing goes pear shaped .
The whole planet has out-sourced its manufacturing to China , so everyone is now dependant on them to keep doing so . What if they were to ever default on international debt payments ?
What we do know , is the more streetwise citizens are getting their money out while the going is good .
Lets hope the Status Quo can be maintained
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.