Here's my summary of the key events from over the weekend that affect New Zealand, with news that countries committed to international trade are making news this weekend.
But firstly in the US, their consumer-price index rose a seasonally adjusted +0.2% in April from the prior month. Although that was what markets were expecting for the overall index, excluding the often volatile categories of food and energy, so-called core prices rose just 0.1% from March and lower than expected.
April retail sales, especially for those not online, also came in below expectations with a month-on-month rise of +0.4% when markets were expecting +0.6%. Consumer confidence held steady in a respected survey.
And in a direct rebuff to President Trump, one of America's - and the world's - largest companies, GE, praised Mexico as a big part of its future and said the company is "very supportive" of the North American Free Trade Agreement - one Trump has vowed to tear up.
And more on the trade front, China and the US also agreed a 'new' trade deal. However by any measure it is a timid affair, selectively ticking off only a few items and favouring only a few companies or industries on either side. The list of issues not covered is long, and no high-profile election campaign promises have been included.
And China has been touting its One Belt, One Road initiative this weekend. This is one where it is building a controlling network of trade routes through Asia, Africa and Europe, with China at the centre. It is a money-talks initiative that comes at a fortuitous time for it while the US retreats into protectionism.
Germany's economy is firing on all cylinders. Exports are rising faster than imports. Investment and consumption drove first-quarter GDP growth which was up +0.6%, faster than the October-to December 2016. Year-on-year, that is growth at a +2.9% pace. Household and state spending were strong, while firms invested money in construction and equipment.
In Australia, the Federal budget change (see page 30) where residential property investors will no longer be able to claim depreciation deductions on a formula basis, especially on chattels, is likely to have a very sudden change to investor behaviour.
In New York, the UST 10yr yield is very much lower today at 2.33%. An unstable US president is raising the political risk, and bond markets are pricing in heightened concerns. That uncertainty is flowing into consumer retail buying habits, and in turn the ability of companies to raise prices.
China's ten year government bond yield is at 3.67% while their 5 year has slipped marginally to 3.66%.
The price of oil is unchanged. The US crude benchmark is still just over US$47.50 a barrel, while the Brent benchmark is just over US$50.50. The US rig count rose again; that is now a rise in 49 of the past 52 consecutive weeks and the highest level in just on two years. Rig counts outside the US are now at their lowest levels of the year.
Gold is a little higher at US$1,227/oz.
The New Zealand dollar is holding at its lower level 68.6 USc. On the cross rates the Kiwi is at 92.9 AU¢, and 62.8 euro cents. The TWI-5 index is at 73.6.
If you want to catch up with all the 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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13 Comments
In New York, the UST 10yr yield is very much lower today at 2.33%. An unstable US president is raising the political risk, and bond markets are pricing in heightened concerns.
Please be serious - UST 10's visited ~1.36% in the middle of last year when Clinton was the only realistic presidential contender.
I believe lower sovereign bond yields reveal a liquidity preference, given there is no opportunity to place funds elsewhere to obtain higher risk adjusted returns normally associated with expanding economic growth.
However much you may claim total monetary fealty to the Federal Reserve as a bank, after experiencing 2008 it can never be again total. Thus, if the Fed has to add more bank reserves, what does that tell you about further conditions? This was always the major if hidden problem with multiple QE’s, because if you have to do a second the first one didn’t work, and if the first didn’t work what does that say about prospects for the second?
We know the answer by the banking system’s response to the events of 2011. Adding reserves became contractionary, alright, especially after QE3, because banks realized that if the Fed felt it was warranted to add more than the reason they felt it was warranted was far more important than what was added. Read more
And yet the Bank of Japan and the ECB remain stoically committed to the same unwavering repetitive path.
Ah, yes, but...
The ECB seem determined to enlarge Germany's current account surplus which presumably feeds through London into current account deficit nations like corn down the gullet of a goose destined for pate de foie gras (ie NZ, if you haven't made the connection yet). Whilst the ECB is deluded by dreams of remaking the Roman Empire or at the very least the empire of Karl de Gros (aka Charlesmagne) and are in danger of ending up strung from lamposts, the Japanese are another matter entirely.
Japan has successfully held their society intact without mass unemployment or civil war following the biggest property and finance bust to date. This is an extraordinary achievement. Richard Koo is right. They allowed their government debt to expand in order to spread and soften the destructive effects of the debt collapse. So, their massive government debt was due entirely to the past boom, not incompetent current management as the plundering Yankee bankers would have us believe. The BOJ is now well on the way to hoovering up all the excess government debt and thus effectively extinguishing it. Government debt is effectively written off when it is bought by another branch of government, the ledger entry can be left hanging as it allows the debt to be reissued should need arise.
Now the US has thankfully dropped out of the TTP, it is Japan that is becoming the lead nation in Asia in setting up an Asian trade bloc to counter China's intent to dominate the region. All very interesting.
I wonder how much of the renewed construction and investment activity is owed to US banks and other financial institutions charting Frankfurt as their preferred post-Brexit European destination. There have been several segments on FT and Bloomberg on rapid commercial expansion in the CBD area of the city.
A civil engineer consultant I previously worked with, currently based out of Dublin, has also witnessed a similar surge in service demand since last year. Good times ahead for mainland Europe.
Where was the money going? To Germany with full employment, or to Southern Europe with 50% youth unemployment? If Germany continues to draft in cheap workers from the Middle East they stoke the fires of civil war when things turn down. There is massive resentment without a voice. France is already in a state of low level civil war, at least according to their interioir ministry.
http://www.dailymail.co.uk/news/article-3685561/France-verge-civil-war-…
Breaking the global dominance of the United States is an unspoken theme of the "Belt Road" project and the agricultural cooperation initiative. The document identifies the global financial crisis in 2008-09 and market fluctuations due to financial speculation as responsible for the complex global economic situation, without blaming the United States by name. While the United States is never mentioned, the "multipolar world" subtext suggests that the world needs a magnanimous, sharing, wise China to create an alternative to the U.S.-dominated agricultural trade and multilateral organizations.
This is rich, coming from a country that keeps grain reserves a "state secret," hides soil contamination problems, arrests people for reporting facts published in newspapers, routinely responds to questions about its policies at the WTO with one-word answers, and has a decades-old policy of turning agricultural imports and exports on and off like a faucet to "balance" domestic supply and demand.
http://dimsums.blogspot.co.nz/2017/05/chinas-agricultural-new-world-ord…
Andrew Little has found some gonads:
http://www.newshub.co.nz/home/politics/2017/05/property-investors-to-qu…
TPG & the Ontario Teachers Pension Plan have raised their joint bid for Fairfax Australia ( including it's NZ subsidiary ) to $A 1.20 per share ... a total price of a tick under $A 2.8 billion ...
... you'd think that teachers ought to know better .... wouldn't you .... mugs !
... yes ... I do remember that , Gareth ... you'd think you'd be bloody lucky if just once in your lifetime the world's silliest rich clan would come to your door , offering to pay a King's ransom for the old family rubbish you'd been thinking of burning & burying .... and then ...
KNOCK KNOCK ... KNOCKITY KNOCK .... callooo callay ... they're back again ... oh frabjous day !!!!
Thank you, Stanley, and good afternoon, everyone.
So, what do the Sydney international airport, New Zealand Yellow Pages, Serta
mattresses, the Toronto Maple Leafs, Kabel Deutchland, Easton hockey sticks, the Staten
Island marine container port, and a Chilean water treatment company all have in
common?
The 271,000 active and retired teachers of Ontario, that’s what . . . Because they’re all
part of the Ontario Teachers’ Pension Plan private investment portfolio.
Is America really being that protectionist ?
Their international trade figures are actually show they continue to import more that they export
If seeking to minimize unemployment and create a better life for middle America is protectionist , then they are doing what any other country does , put citizens first .
And on the score of protectionism , I recall when I worked for Stanchart in Central Africa 35 years ago , the EU restricted the sale of Bananas to Europe , for reasons that elude me to this day .
The EU had no banana producers .
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