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Wall Street sets records; planemakers fill order books; air travel booming; China car sales climb; Abe wins with youth; IMF sees eurozone risks; UST 10yr yield at 1.42%; oil and gold lower; NZ$1 = 72.2 US¢, TWI-5 = 75

Wall Street sets records; planemakers fill order books; air travel booming; China car sales climb; Abe wins with youth; IMF sees eurozone risks; UST 10yr yield at 1.42%; oil and gold lower; NZ$1 = 72.2 US¢, TWI-5 = 75

Here's my summary of the key events overnight that affect New Zealand, with news there is optimism in the air again and it is overwhelming boomer angst.

On Wall Street today, the S&P 500 has has pushed on higher breaking yesterday's record as investors are more optimistic about the American economy with lingering concerns about global growth in the background. Other stock markets are pushing higher as well.

That optimism is flowing though to airlines and the major planemakers who have raised their long-term forecasts for new aircraft demand, betting that rising wealth in Asia would continue to boost air travel and offset any short-term hits to the global economy. The immediate data shows a +4.6% growth in passenger traffic in the year to May. Global airfreight growth was pretty modest in May however.

In China, industry data out overnight showed that they produced and sold a tad over 2 mln vehicles in June, which is up almost +15% on the same month a year ago, although that was marginally less than in May. This is the sort of data that goes a long way to reassuring investors that China is not coming unstuck and the transition to a more consumer-oriented economy is happening.

Perhaps part of the reason things "aren't as bad" is that power, the media, and the news narrative is run older people. This age group is nowhere near as optimistic as others; it is the young who are more positive about their future and their spending habits reflect that - on cars, on travel - and these habits continue to drive the world economy. This seems true in the US and Europe, as it is in China.

Even in Japan, the optimism of youth has handed prime minister Abe a decisive election win. Japanese in their teens and 20s backed has ruling coalition in Sunday’s parliamentary voting, a sign that Japan's hawkish security policy and the improved job market were well-received.

Meanwhile, the older heads at the IMF still see trouble and their latest gaze has turned to the EU and eurozone. They see the euro area in recovery but also see the medium-term outlook weak. They want to see further integration including a common deposit insurance level, and improvements to bank balance sheets.

Back in New York, UST 10yr yields rose sharply today and are now at 1.42%.

On the other hand, the US benchmark oil price has slipped, now just under US$45/barrel and the Brent benchmark is just over US$46/barrel.

The gold price is also marginally lower, now at US$1,355/oz.

The NZ dollar starts today almost ½c lower against the greenback at 72.2 US¢, is at 95.8 AU¢, and at 66.3 euro cents. The TWI-5 index is at 75.

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 ».

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6 Comments

Even in Japan, the optimism of youth has handed prime minister Abe a decisive election win. Japanese in their teens and 20s backed has ruling coalition in Sunday’s parliamentary voting, a sign that Japan's hawkish security policy and the improved job market were well-received.

Hmmmm...

Tightening Workforce Could Compel Healthy Japanese to Toil to 80

The Japanese bond market forecasts negative economic prospects out to 30 years. View yields

It seems that markets (really “markets”) are extrapolating from the electoral victory more heavy “stimulus” – and once again without any accounting for all the past “stimulus” and why and more importantly how new introductions of it will or even can be any different from them. That may be why the reaction in JPY is really quite muted. For all the seeming euphoria elsewhere, today’s trading only reverses yen back to where it was last Tuesday. In comparison, it’s significantly less than the NIRP announcement. Read more

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Money magic or something completely different? Causal explanations welcomed.

The two-year JGB that yields negative 0.36 percent earns 1.4 percent if dollar funds are used to borrow yen. That's 80 basis points more than the yield on U.S. Treasuries of similar maturity. Their perverse attractiveness could pull more foreign money into Japan's negative-yielding notes, pushing their already elevated price even higher. Read more

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In the years since 2008, U.S. lenders have opened the commercial real estate (CRE) credit spigots, lending money underpinned by properties including hotels, multifamily rental units, and industrial compounds. Banks' total share of the CRE market has subsequently jumped to a record 52 percent of loan originations compared to just 35 percent as recently as two years ago, according to Morgan Stanley data.

Now the concern is that banks won't be able to fund the $400 billion worth of CRE loans that need to be refinanced in 2017 alone as financial regulators step up their scrutiny of the sector. That worry has grown more acute as sales of commercial mortgage-backed securities (CMBS) have fallen to levels not seen in more than a decade. Read more

A bigger than ever commercial real estate bubble struggling to securitise it's funding liabilities spells trouble.

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Gee DC. Quit the ageist stuff. But lets join in.
I have been mowing down some big pine trees and that activity makes you reflect on the fragility of life. When I expressed some concerns to my mate he said. "the young might move quicker than us but we have a major advantage over them" I asked what that was "we have fear" he said.
When you are sawing into a swaying pine tree you need to live in the moment and fear is helpful.

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I like your tree felling analogy. The trick with fear is understanding it is your friend, provided you manage it correctly. Many people treat it as a signal to run. And sometimes that’s the right thing to do. But it can just as often be a signal to plunge in headlong - provided you can live with the odd sleepless night. Investment market fear has delivered me some handsome financial gains.

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Is ignorance the same as fear though? The young have no knowledge let alone experience of economic disruptions. They are completely enamoured by technology, entertainment and gadgets that any wider awareness of self and others, of bigger issues, is almost non existent. Today's youth appear to me to be the most self interested generation. They are being led by example though so I don't blame them.

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