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China to ease rules for foreign investors; China to bail-out zombie SOEs, EU allows Deutsche Bank a special advantage; Moody's warns on AU property; UST 10yr yield at 1.72%; oil and gold up; NZ$1 = 71.3 US¢, TWI-5 = 75

China to ease rules for foreign investors; China to bail-out zombie SOEs, EU allows Deutsche Bank a special advantage; Moody's warns on AU property; UST 10yr yield at 1.72%; oil and gold up; NZ$1 = 71.3 US¢, TWI-5 = 75

Here's my summary of the key events overnight that affect New Zealand, with news China is to do debt-to-equity swaps to rescue some zombie SOEs.

Firstly, remember today is a public holiday on Wall Street, so data flows will be thin. Japan is on holiday too.

China says it will ease rules for overseas investors in a bid to boost its slowing economy, but foreign firms operating in China say the changes may not go far enough.

And China has announced a new rescue process for highly leveraged SOEs and their banks. They are about to do wholesale debt-to-equity swaps, a process to be administered by a new 'bad bank/bad loan' authority in Beijing. This will certainly help their banks but if they are serious about earning a return on their capital, it is just a bookkeeping exercise to keep struggling firms alive. If they are not serious about earning a return in their SOEs, it is just corporate welfare. Without shutdowns, it is more of the Chinese equivalent of can-kicking.

Speaking of can-kicking, the EU allowed a special advantage for Deutsche Bank when it was subject to stress testing in July. It seems they were allowed to assume their deal with 2015 Hua Xia was completed. It wasn't, and it still isn't. It would have passed either way, but fudging like this undermines the whole process.

In Australia, Moody's is drawing attention to risks in their property markets. They cite high office vacancy rates in Perth and Brisbane and growing settlement risks from an oversupply of new apartments in Sydney, Melbourne and Brisbane as a risk to the banks that have funded the developments.

In New York, the UST 10yr yield is unchanged at 1.72%.

The US benchmark oil price is a little higher, now just over US$51 a barrel, while the Brent benchmark is now just over US$53 a barrel. Russia has said it will join OPEC if it decides to cap output to force a price rise.

The gold price is higher as well, up US$4 and now at US$1,257/oz.

The New Zealand dollar is lower against the US dollar from this time yesterday. It is at 71.3 US¢, and on the cross rates it is a lot lower against the Aussie at just 93.7 AU¢ which is its weakest level in 60 days, and it's at 64 euro cents. The NZ TWI-5 index is now at 75. And the Chinese are "letting" their currency slide again; it is now at a six year low against the US dollar.

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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3 Comments

Thanks political class and green cry babies for foisting an extra $24 billion on our airline tickets. Never mind that joe public, and people who can do math, clearly don't want CO2 taxes. Let me guess our $24 billion brokers all fly business and first.

"The scheme will be phased in over several years from the early 2020s and cost the aviation industry as much as $24bn by 2035, according to estimates from the UN agency." Stated like the aviation industry won't pass on the cost. Yeah right.

" 88 per cent of people said no thanks to paying less than $2 to offset carbon from their Jetstar flight. When buying a ticket on a Qantas plane, only 8 per cent of online flyers consciously ticked the "yes, offset flights" button to pay $1.82. By May this year, that figure had dropped to 7 per cent."

https://www.ft.com/content/2a9c7f14-8bd7-11e6-8aa5-f79f5696c731

http://www.theaustralian.com.au/national-affairs/opinion/mind-the-gap-o…

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88% said no thanks to paying a voluntary tax, surprise surprise? Shall we make alcohol tax voluntary and see how many are keen to pay it? Probably find carbon offsetting is far more popular than alcohol tax. Tax is about changing behaviour for societies overall benefit. Voluntary taxes fail due to the tragedy of the commons.

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I know imagine living in a country like France, Italy or Spain where they don't tax wine and barely any/no tax beer. The horror.

Alcohol has somewhat quantifiable costs and benefits a tad different to a computer model hypothesis. This stuff is just virtue signally BS paid for by joe taxpayer. Surely you can see the difference? Airlines work day and night to improve fuel efficiency anyway - siphoning money to wind farm boon doggles isn't going to achieve anything for aviation or change the weather in 2100. Alcohol tax on the other hand actual does some good.

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