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OPEC claims output cut agreement; big German bank to cut jobs and dividends; China money costs rise; US home sales fall; Aussie job market improves; UST 10yr yield at 1.56%; oil up, gold down; NZ$1 = 72.7 US¢, TWI-5 = 75.8

OPEC claims output cut agreement; big German bank to cut jobs and dividends; China money costs rise; US home sales fall; Aussie job market improves; UST 10yr yield at 1.56%; oil up, gold down; NZ$1 = 72.7 US¢, TWI-5 = 75.8

Here's my summary of the key events overnight that affect New Zealand, with news of strong labour market gains in Australia.

But first, OPEC has agreed to cut crude oil production and that has sent oil prices sharply higher. It is a 'win' for American frackers and reverses OPEC's policy of holding prices low to drive them out of business. But in the end, low prices only hurt OPEC more and if anything made the surviving frackers more resilient and a stronger threat. However, some see this agreement to restrain output as a 'last gasp' roll-of-the dice for OPEC.

Germany is beset with big bank troubles. Yesterday it was Deutsche Bank, now its second largest bank, Commerzbank, is to cut 9,600 people from its workforce and end dividend payments to shareholders as it struggles to maintain its capital. This is the second large German bank on struggle street. The job cuts represent about 20% of its workforce, (which is about the same size as Australia's CBA). It is also a recent first for a bank to draw shareholders into the restructuring pain.

It is Golden Week in China next week and essentially the country will be closed. It is also a time when there are cash liquidity strains. Right on cue, China’s benchmark money-market rate climbed to a 14-month high yesterday as the central bank pulled funds from the financial system and commercial lenders stocked up on cash to meet quarter-end requirements. The seven-day repurchase rate, the benchmark gauge of funding availability in the financial system, rose 12 basis points to 2.75%. That’s the most expensive since July 2015, eclipsing the Golden week spike last year.

In the US, pending home sales volumes slipped in August from July, but are still up +4% from the same month a year ago, and that is higher than analysts were expecting.

On the US labour market front, initial jobless claims on a seasonally adjusted basis rose marginally last week, although on an 'actual' basis there was a sharp fall in benefit claims.

And in Australia, there are signs their job market is improving. Job vacancies there jumped by nearly +5% in the three months to August to hit the highest level since mid-2012. Total job vacancies rose to almost 180,000 in the June-August quarter, up from 164,000 in the three months to May, data released yesterday showed.

In New York the UST 10yr yield was higher today, up to 1.59% at one point, but has fallen away and is now down to 1.56%

The US benchmark oil price is up sharply, and is now just under US$48 a barrel, while the Brent benchmark is now just over US$49 a barrel. They would have risen more, but there is widespread scepticism about whether the OPEC agreement will actually hold.

The gold price has slipped slightly again, now at US$1,323/oz.

The New Zealand dollar is a little higher today than at this time yesterday, now at 72.7 US¢, and on the cross rates it is at 95 AU¢, and 64.9 euro cents. The TWI-5 index is now at 75.8.

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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30 Comments

Deutsche bank close to collapsing. Cannot wait for GFC part 2 and watching the Auckland market collapse

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DB to big to fail, the german government will step in.
if they don't it will be GFC2
but that's ok because NZ property prices will not fall, so I am told daily

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too big to be rescued also

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to interlinked with other banks to let fail
Nice graph showing the banks from different countries that will be affected, Australian banks would be on the next level down as they all interact with these banks

http://www.cnbc.com/2016/09/29/the-deutsche-bank-crisis-how-we-got-here…

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For the German Govt/EU to step in they have to disregard several EU laws that oppose private bail-outs.

One will definitely fail, question is what one?

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Job situation is improving in Aus. Does this spell the end of the immigration boom?

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No, JK will just bring in more. ..

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Lol. Yeah probably.

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Not probably. He will for sure, needs to keep the Ponzi going and to protect the equity that these owners have deserved

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Indeed, DB is the focus at the moment.
In US trading shares have bounced off 10.01 Euros but still down just under 7% with the FT reporting hedge funds pulling cash out of it.

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Major Dollar Shortage Exposed In Europe As Deutsche Bank Contagion Spreads Read more

General Collateral Rate Surges To Highest Level In 7 Years Read more

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Interesting that they dropped to 10.01. I can only wonder who's bidding to keep it above the psychologically important level of 10. I suspect once that's broken there will be a mighty fast rush for the exits..

Banking runs on confidence and that can evaporate at a much higher multiple than it is formed. Same goes for property bubbles.

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This has the potential to take Fed rate rise off the table. It's going to be interesting to see the counterparty composition if DB turns completely sour. Those holding default swaps will be hoping Wolfgang and Angela are coming to the rescue.

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..throw this issue in the pot as well (though seesm to be flying under the radar at the moment))..

"The kingdom maintains an arsenal of tools to retaliate with, including curtailing official contacts, pulling billions of dollars from the US economy, and persuading its close allies in the Gulf Cooperation Council [GCC] to scale back counterterrorism cooperation, investments and US access to important regional air bases."

http://www.breitbart.com/national-security/2016/09/28/saudis-allies-war…

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I paid a rare visit to talkback radio the other day and heard Don Brash going on about Hobsons Pledge. So I just googled around a bit to see what I could find.

Seems for all Don's wrath at the privilege of Maori he struggles actually know what a Maori is. I mean he couldn't even find one to put on the main promotional image for his site. Actually it seems he couldn't find any Pakeha either :-P

http://thespinoff.co.nz/featured/28-09-2016/hobsons-pledge-just-a-bunch…

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..floggin a dead horse. I'd suggest many 'pakeha' NZ have another issue on their mind ..... which involves a real time colonisation.

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Talking out of turn or just confused?

WASHINGTON—Federal Reserve Vice Chairman Stanley Fischer on Tuesday expressed frustration with ultralow interest rates, saying they should rise over time.

“It bothers me, it really bothers me,” he said when asked about low rates at an event for economics students at Howard University in Washington…….I don’t like it, but I don’t want to raise the interest rate too much. I think we should at some point. I don’t know when,” he said. “The interest rate I believe is not at zero at a normal level and it should be [normal] at some point, not immediately.”

“I think there’s also a problem in going to a zero interest rate in the sense that it says that capital isn’t very productive, there’s not much going on in the economy,” Mr. Fischer said, adding that “we would be better off if there was a price for using money.” Read more

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The media still continues to blame DB’s woes on the assumed $14 billion DOJ settlement related to RMBS of the housing bubble era. While that is undoubtedly a good part of what might be unsettling some folks, it is but the symptom not the cause. It was reported on CNBC (via The Guardian) that,

“When you look at what’s going on in the Deutsche Bank options, you’re seeing a lot of puts being bought,” said Daniel Deming, managing director at KKM Financial. “So you’re getting some concerns that this could turn into something bigger.”

From the outside that seems almost overstated because “something” bigger isn’t ever reported. In unbiased reality, this “something” has been building for weeks, perhaps months. If I had to guess, it is being transmuted by pressure aimed squarely at Asia, alternating at times between Japan and China. In China, “it” has forced a total reorientation of immediate liquidity priorities. That cannot be overstated. Read more

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It's all those claims in the Euro periphery which are turning out to be duds, that's the real issue.

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London mayor Sadiq Khan is to launch the UK’s most comprehensive inquiry into the impact of foreign investment flooding London’s housing market, amid growing fears about the scale of gentrification and rising housing costs in the capital.

Khan said there are “real concerns” about the surge in the number of homes being bought by overseas investors, adding that the inquiry would map the scale of the problem for the first time.
https://www.theguardian.com/cities/2016/sep/29/london-mayor-sadiq-khan-…

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Excellent news from Sadiq Khan. - Could this be Goff's 1st major act?

The evidence would suggest it would be Key's last act unless he could persuade NZ that putting Smitty in charge of it would produce a true outcome and cover the brief intended.

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No chance, it's well documented that Goff's 'retirement fund' is tied up in rental properties. He's no doubt licking his lips at continued 20% annual returns, such a shrewd investor!

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Dead right. FHBer's are screwed.

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Investment flooding London’s housing market.

Its a flight to quality

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Good work london mayor

http://www.financialpost.com/m/wp/investing/blog.html?b=business.financ…

This was intersting note from the article :

Economists at Bank of America Merrill Lynch have now grouped together Canada, Australia and New Zealand as part of a trio heading for “an unwinding.” They blame the complicated situation on the crash in oil and metal prices, and a surge of money into real estate.

The end result is expected to be a “painful unwinding” in the medium term.

“Canada, Australia and New Zealand have all faced commodity shocks that have hampered growth and left the economy highly dependent on housing activity,” a team of BofAML economists wrote in their report. “Despite mounting financial stability risks, central banks in these regions are stuck with low rates to stimulate growth.”

While all three central banks have warned about hot housing markets in each country, BofAML notes that growth in real estate has been incredibly important for each economy, making up 15-30 per cent of the GDP gains seen in the past two years.

All three countries are also struggling with rising trade deficits and growing foreign capital being pumped into housing. BofAML notes that actual data about foreign buying in all three countries is hard to come by, but anecdotal data suggests the money is there and it’s going into real estate.

“Evidence of a large foreign presence is abundant,” the economists write. “For example, resale house prices fell by 19% mom in Vancouver in August, the first month of a new foreign real estate transaction tax.”

This is what i have been banging on about for MONTHS...TAX THE FOREIGN (STUD, TEMP) INVESTORS
Nice to see others outside nz agree.

"The BofAML economists lean toward taxing foreign buyers to solve the problem, as they note that higher interest rates or changes to bank loans mainly affect domestic borrowers.

“This puts the onus on measures targeting foreign buyers such as foreign real estate taxes,” the economists write

AND THIS IS EXACTLY WHAT TIMID KEY IS DOING

"The final scenario is one where governments are too timid on action, allowing the current real estate bubble to grow even larger. When governments are eventually forced to act because of financial stability risks and populist pushes against growing unaffordability, the result is a much more serious price correction and potential housing crash"

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Interesting. Nonetheless, orthodox conclusions can be subject to revision given further in depth analysis in respect of capital flows.

Working with the wrong accounting classifications can lead to wrong conclusions in any area of economics. But it is especially treacherous in international finance, due to the importance of key currencies and the operations of multinational firms, especially global banks. Much of the analysis in international finance is still conducted under the assumption that the GDP area, decision-making unit and the currency area coincide – the so-called ‘triple coincidence’. This column illustrates the common analytical missteps that can arise by reviewing three examples from the recent past, and argues that a proper analysis of capital flows necessitates paying greater attention to basic accounting building blocks. Read more

New Zealand could certainly benefit from a cease and desist rule imposed upon this type of narrow focussed declaration of symptoms in need of tested solutions based upon evidence.

If Bank of England deputy governor, Minouche Shafik, has her way then interest rates will hover around 0% in perpetuity and other forms of quantitative easing will become the "standard tool of central bankers." Per the Telegraph:

“Deep structural forces have combined to depress the level of interest rates at which the economy would be in equilibrium, obliging us to rely ever more on monetary policies that were once considered unconventional.”

The neutral rate of interest “is closer to zero than it used to be. You can see from charts that historically, interest rates have always been at around 5pc, going back hundreds of years… even in ancient Babylon,” she said.

“Something has changed in the last decade with big forces of demography, global savings and investment, and the neutral rate has fallen and is likely to stay low for a very long time.” Read more

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DB, jobs market in Aus, immigration, London housing.. blame JK

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Good to see you back.
Chairman Moa ----- Classic!

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CM - there is one in your list that he is guilty of.

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