EU, Japan and China build new trade deals; US tourism suffers; Brazil suffers tainted meat scandals; ASIC calls for larger penalties; UST 10yr yield at 2.48%; oil lower, gold unchanged; NZ$1 = 70.5 US¢, TWI-5 = 75.5

Here's my summary of the key events overnight that affect New Zealand, with news the world is actually moving quite quickly to work around Washington.

Firstly, moves by large trading countries to work without the US are gathering steam. Japan and the EU (Germany) are working on a big deal. The EU and China are as well. These moves come as China ramps up its 'leadership' to strike large multilateral trade arrangements. Without the US involved, these deals may take less time to negotiate. There may not actually be any 'America First' deals, only 'without America' deals.

Politics is also hurting the world's number one tourism market. The US ranks number one in the world in terms of the sector’s contribution to GDP, twice the size of the nearest competitor, China. That was in 2016. In 2017 American border control uncertainty is diminishing the appeal quickly. Global tourism is booming, so while American destinations suffer, others will get a growth boost. And given the size of the diversion, the boost could be significant.

An example of the explosive growth of travel is the +17.6% rise in China in 2016, led by international travel growth.

The growing scandals surrounding the supply of tainted meat are hurting Brazil - and will create short-term opportunities for New Zealand beef, especially in China where a temporary ban on importing the Brazilian versions has been put in place.

In Australia, the head of ASIC has called for the power to impose larger penalties on financial institutions, at least a multiple of the damage they cause. He is concerned that the current penalty limits allows only a token censure. For example, the rate rigging scandal brought the maximum A$3 mln fine for a billion dollar scandal.

And staying in Australia, concerns about the potential damage a housing bubble bursting could cause now has the attention of the Federal Treasurer. Regulators will be emboldened to impose tougher standards, especially on 'investors'/speculators.

In New York, the UST 10yr yield has slipped -2 bps to start the week and is now at 2.48%.

Oil prices are softer today at just over US$48 for the US benchmark, while the Brent benchmark is under US$52 a barrel.

The gold price however is unchanged at US$1,231/oz.

And the New Zealand dollar starts today just a little bit higher again at 70.5 USc. On the cross rates the Kiwi dollar is at 91.2 AU¢, and against the euro is at 65.6 euro cents. The NZ TWI-5 index will open at 75.5.

If you want to catch up with all the 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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32 Comments

History has consistently shown that under an isolationist policy, countries' economic development and growth suffer. Trump is rapidly moving the US in this direction through economic and immigration policies.
Although the US currently remains the largest economy, in a few decades time the Trump era will be perceived as the start of the US decline as the world's leading economy .

Do you really think they are implementing these policies because they are ill advised or are unaware of this?
The pie is getting smaller - world growth is dead and they recognise that. They are manoeuvring to set up a form of manufactured conflict and then move to protect their own interests only.
Trump is only a mouth piece at the front.

It is really hard to predict the future - all the traditional media had trump as toast. Only time will tell if the US becomes more "powerful" by building internal consumption through more walls - today mexico, tomorrow canada, the day after - the sea. Ha ha

Interesting Q. The only way they can protect their interests is militarily (or things like the TPPA which in effect is a US tax on foreign countries GDP) ) and I cant see the US voter accepting 100ks of US military permanently stationed in OPEC countries like Iraq etc to keep the oil flowing they think they do not need.

Hence if they cant do it easily militarily, they need to look elsewhere (mind you I think they will try). Lets go back to the likes of the TPPA as a "solution". Trump was dead against it, but now he's taken on advisers who are pro it. Being "Pro it" is very much an "[rich] america[ns] first" position IMHO, you get corporates to in effect leech off other countries bringing in income that is then lightly taxed.

Personally I think the pie has gotten hollowed out rather than smaller, ie we have the illusion of GDP going up but I think its empty.

That is a very poor representation of the mechanics of the TPPA.
Being "pro TPPA" is very much an enrich all parties involved stance. Anti TPPA is the stance of, I'd rather be relatively worse off economically.

"you get corporates to in effect leech off other countries bringing in income that is then lightly taxed"
What does that even mean in the context of the TPPA?

the US has something like 700 military bases spread far and wide ... not for nothing. They are the strongarm of corporate capitalism ... get us some there resources ... the american dream must live on ... so perhaps they are being deliberately belligerent so that they can tell the american public someone else is kicking up the sand in their face

Here’s a good article about the cold logic behind the Iraq wars = stable energy supply
https://www.google.com/amp/s/amp.theguardian.com/environment/earth-insig...

Not to argue the central point, but regarding manufacturing, history is also replete with examples of governments nurturing and protecting heavy industries to grow them to the point they can compete on an open world stage. E.g. heavy industry and manufacturing in Japan and South Korea (including vehicles). Compared to the unforced free market of the Philippines, where the magnates never got around to investing in industry and contented themselves - as South Korea's families had before having their hands forced - with malls, restaurants and hotels, entirely consumption-based industry.

Maybe the US could argue they want to foster some manufacturing again and that to do so requires some level of protection till the industry is ready to compete on the world stage, just as in these earlier cases.

Would it work? Hmmm....conditions may be too different for that now, methinks.

Possibly, but the US is 25% of world consumer demand ... do they really care about exporting anything but US$$? i interpret it more as a shift from the periphery back to the core ...

printer8; I think you are 100% right, there's no need to be complicated about it, I don't understand other comments disagreeing with you.

interesting article, if ASIC chairman Greg Medcraft is correct NZ houses prices have a long way to correct,
as for aussie, they have the same issues, credit to easy to get, low interest rates and the big plum of tax advantages around investors for rental housing which the government will not address

In the same article he is quoted as saying, "I was talking to a bunch of young people recently and they said, 'even though we're not sure that we can afford our mortgage, you know what really excites us is when we get the mortgage approval because it means the bank actually thinks we can repay it',"

Scary stuff and probably not too dissimilar to here!

The only thing the banks salesperson thinks is "can they pay long enough for me to get my bonus"? After that not his/her problem.

Re: Auckland Property Trade Me Listings -
Trade me had 1745 listings for 'Auckland City' area last year, this exact day.
Today trade me has 2408 listings for 'Auckland City' area.
Listings for the Auckland City area are therefore up 38% on last year.
There is a massive surge of sellers.

Surge of sellers, or dearth of buyers?

It would be nice to see total sales numbers for a better understanding.

Increasing inventory, especially in the busiest buy/sell season, generally precedes a reduction in price. Time will tell in regards to the magnitude. I'm expecting 20-30%, but what do I know? I've been lucky several times in market timing, guess it may be time for a reversion to the mean... :)

There were 1,661 sales in February 2017 in Auckland. (1,936 in February 2016.)

That sounds correct. I believe B&T sales are down 18% YoY.
So there is both an increase in supply (sellers) and a reduction in demand (buyers).

I decline to decline your mortgage, because I can offer you free money, borrowed into servitude for you and your erstwhile clients to pay, for ever and ever...Ah MAN....

Well actually your always willing rental clients and your very willing taxpayer...subsidies. (ie...Suckers..one and all)..

Fill yer boots, ...and yer back seats, garages...etc..cannot lose mate...we is sub-side sidized.

(The MPs have our backs....as they own property too.......will fix any blip in the rort..with bank collusion).

Cheap dates, ..one and all.

Decline from 2008...when interest rates forced down sharply. (See graph).

http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates

Did you enjoy your smoke Alter Ego ?

The FBI investigation re Trumps election campaign and Russian involvement is gaining steam. This guy us surely on borrowed time.

They just keep repeating it again and again but no new evidence has been presented. It is also going to be very difficult as the CIA has accidentally revealed they can make a hack look like it comes from Russia.

https://www.kyero.com/en/property/4107672-country-house-for-sale-alcala-...

Just been talking to my Spanish located friends....Cheap at half the bleedin price...

@Alter Ego ........249,000 euros = 380,848 NZD .....really makes you wonder who the "mugs" really are ....we pay far too much money, for a roof over your head, in this faraway little country ....

BTW ....where are the B&T auction results for last Wednesday 15th on this site ??? ....spoke to someone who was there and they said the results were abysmal.... my theory is they would rather the "sheeple" don't know, than tell them the bad news .....

Ah...you just wanted a roof over your head...I can do even better.

https://www.kyero.com/en/jaen-province-property-for-sale-0l23?max_price=...

Friends Rent a nice place for 300 euro a month...Now who are the mugs....? do ya think.

@Andrewj ...nothing wrong with California, but I am in Maryland (8 miles from the centre of DC) and find the ROI great here, while in general not as highly taxed as CA.

The thing I have found about any city in the US (or anywhere for that matter) is that each street, zip code, county. suburb etc is just so different .....like the home in your Sacramento Zillow link was $287,500 but right next to it was a similar sized home for $1.5 mil.

that's NZD 460 per month or wait for it ......... $106 NZ PER WEEK ! ...sad part is the administration of this country, New Zealand really don't give a stuff how high house prices or rents go .....as who cares, as I AM ALL RIGHT JACK !!!

Thanks Andrew.. I know the Spanish have been in the Doldrums...picking up a bit...after the crash..I am told...now.

The comparisons are quite worrying...is this the way we are heading...or what.?

They seem to have stopped selling entire Spanish villages, sadly. Missed my chance there...

You may get the chance in Eketahuna

Spinoff reporting that Nicky Hagar's latest book will be launched later today. The day before John Key's valedictory speech. Coincidental... or significant... or smokescreen?