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OECD sees slower growth; China slams sugar imports; Portugal out of sick bay; new Aussie bank tax lighter than 'feared'; UST 10yr yield 2.25%; oil up, gold unchanged; NZ$1 = 69.9 US¢, TWI-5 = 74.1; bitcoin price frenzy

OECD sees slower growth; China slams sugar imports; Portugal out of sick bay; new Aussie bank tax lighter than 'feared'; UST 10yr yield 2.25%; oil up, gold unchanged; NZ$1 = 69.9 US¢, TWI-5 = 74.1; bitcoin price frenzy

Here's my summary of the key events from overnight that affect New Zealand, with news the price of bitcoin has taken off in the past week, accelerating up in the past 24 hours.

But first (in the real world), the OECD is reporting that growth in their seven core economies slowed in the first quarter of 2017. But year-on-year the composite growth is holding at +2% pa.

In China, another area of strong growth is lottery sales. They now exceed NZ$10 bln per month and are growing at +10% per year. Sports lotteries are rising +15% per year.

And in a sign of a strong protectionist preference for its domestic industry, China is nearly doubling its tax on imported sugar. Saying that an investigation had found that imports have seriously damaged China’s sugar industry, it said the tax on imports beyond the first 1.95 mln tons a year will be raised to 95% from the current 50%, effective immediately The Belt and Road initiative is for pushing China's products out to the world, not so much the other way, it seems.

In Europe, Portugal has become the latest bailed-out euro zone country to receive a clean bill of health from the European Commission after its budget deficit fell to -2% of GDP last year. This brings it well below the EU limit of -3% and allows it to exit the Commission's excessive debt procedure.

In Australia, now two banks have estimated the tax impact on them of the new penalty on their five big banks. Firstly, Westpac said it would cost them AU$280 mln in the first year. Now CBA says it will likely cost them AU$220 mln. These estimates are not likely to impress the Aussie treasurer who was planning to raise over AU$6 bln from this tax on their five largest banks. And yesterday S&P cut the ratings of 23 Aussie financial companies, but spared the big banks, perhaps another signal that the new tax won't shake their profitability materially.

In New York, the UST 10yr yield is marginally higher today at 2.25%. The yield inversion (5-10) in China got even steeper overnight going from -3 to -7 bps. That is a quick move. It is just as pronounced on the 2-10 curve.

The price of oil is slightly firmer today. The US crude benchmark is now just over US$50.50 a barrel, while the Brent benchmark is just over US$53.50.

Gold is unchanged however at US$1,252/oz.

Meanwhile, the Kiwi dollar is a higher again and is now at 69.9 USc. On the cross rates the Kiwi is at 93.5 AU¢, and 62.2 euro cents. The TWI-5 index is at 74.1, a ten day high.

And bitcoin broke up through the US$2,000 for the first time overnight, taking its month-to-date gain to +55%. In fact, the price right now is over US$2,200. The rise-and-rise can partially be explained by high demand in China, and that Japan recently allowed it to be legal tender there. Being up +10% on the day is just a way of saying it is in a bubble frenzy.

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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26 Comments

Is Bitcoin the clue that we will all see in hindsight as to what was to come? The problem is, owning them/it will not help!

There has been no instance in history when too much debt didn’t eventually have to be dealt with..... As of 2014, total global debt had risen to $199 trillion, growing some $57 trillion in just the previous seven years....Since that 2014 report was published, global debt rose by $17 trillion through 3Q 2016. In fact, in
the first nine months of 2016 global debt rose $11 trillion!.... This is a global problem, but it
will be felt most acutely in the developed world and China. The developing and frontier markets
will be radically affected as well, but mostly by fallout from the impacts on the developed world.

http://ggc-mauldin-images.s3.amazonaws.com/uploads/pdf/170519_TFTF.pdf

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Despite being pilloried and it's price manipulated, gold could again assume a standout role as the collateral of last resort for those in need of liquidity.

Back in July 2010, the Wall Street Journal caused some commotion when it happened to notice in the annual report for the Bank for International Settlements the sudden appearance of gold swap operations to the tune of 346 tons. Subsequent investigation by media outlets, including the Financial Times, reported that the BIS had indeed swapped in 346 tons of gold holdings from ten European commercial banks. That was highly unusual in that gold swaps are typically conducted between and among central banks. Read more and more

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I remember the first time bitcoin went to new heights and the exchange (MTGOX) had been manipulating the price up and was insolvent. That former peak was $800/bitcoin and no one could get their money or bitcoins back. Ah the joys of irreversible transactions and an endless stream of fraud.

Remember that when trading in bitcoin you are helping child pornographers and large scale drug dealers convert their trade into cash.

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Ah come on Dictator, that's sloppy logic through overgeneralisation. You might as well say "remember when trading in USD/NZD/AUD/GBP/EUR you are helping child pornographers and large scale drug dealers convert their trade into cash". You can't blame the tool for the user's actions. It's BitCoin, not SleazeballCoin (only bona fide sleazeballs allowed to trade).

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Something that is always lacking in Bitcoin discussions is the actual risks and high rate of fraud. SleazeballCoin would be a great replacement name as the community around Bitcoin is very toxic and either criminal or insane.

You are correct in that other currencies allow trade in numerous illegal activities to occur and were essential to enable large scale slavery.

If you won't let me blame the tool for the users actions then maybe we should focus on what a shitty tool it is. Bitcoin mining is extremely inefficient and burns a huge amount of power. It is peak environmental destruction. It isn't suitable for high volume transactions due to the block size limit. People wanted change and tried to split the blockchain. The blockchain is highly vulnerable to attack by large scale processing providing 51% of the calculations. Bitcoin can be double spent so that by the time 3 confirmations occur (roughly 30 minutes) a store owner will discover that he's been ripped off by another Bitcoin jerk. Transactions are irreversible so fraudulent transactions cannot be reversed, the system requires trust where most of the players are crooks.

A great list of flaws and in the event that it losses popularity there's the Frisbee on the roof scenario. Where the next block isn't processed in a timely manner or never gets processed meaning that transactions never occur or take forever. The rate of change of block difficulty may mean that all the bitcoins end up abandoned.

Then there's also all the people who have lost their wallet keys. Large portions of bitcoins are just sitting there stuck with no method of recovery. In one sense they are durable, in another they've effectively disappeared forever.

There are plenty of other ridiculous problems. Most are caused due to bitcoin being an unrefined beta launch that a bunch of freaks decided to run with. I'd say bitcoins are pretty damn stupid and primarily of use for criminal transactions.

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Remember that when trading in cash you are helping child pornographers and large scale drug dealers convert their trade into bitcoin.
Or replace with Gold, Silver, Houses in auckland...

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When housing and immigration crashes and brings down NZ, history will replace child pornographers and large scale drug dealers with investors and foreign buyers and our Mr Asia of this generation could be seen as a recent PM.

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You shouldn't trade houses either as people commit crimes in houses. In fact if you look at this years house insurance forms they no longer cover damage to your house by meth use. What is the world coming to when Tony Alexander's advice on buying meth houses and using BNZ's money to run a meth lab is outlawed?

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The Belt and Road initiative is for pushing China's products out to the world, not so much the other way, it seems.

That is so. Commodities flow in, value-added products go out, China's factories benefit. But the main part is all that juicy infrastructure that is 'required' along the road, along with the loans issued to pay for it. The strategy's foundations came from after 2008 when the leadership got a fright after the slump in factory orders and realised they needed a plan to keep production up as well as a method of exporting skills, machinery, engineering expertise, etc.

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Certainly a case of commodities flowing in.

China’s 1.4 billion people are building up an appetite that is changing the way the world grows and sells food. The Chinese diet is becoming more like that of the average American, forcing companies to scour the planet for everything from bacon to bananas.

But China’s efforts to buy or lease agricultural land in developing nations show that building farms and ranches abroad won’t be enough. Ballooning populations in Asia, Africa and South America will add another 2 billion people within a generation and they too will need more food. Read more

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Yes, belt and road probably is a nasty imperialistic plan to dominate world trade. They are presumably going to copy the path that Holland, then Britain, and later the US followed. At its core is banking - the colonies borrow in your currency and must trade with you in order to get your currency to repay the debts.

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Plenty of willing participants, including ourselves.

While vaudevillian comedy-like shouting matches broke out in the West Wing of the White House between President Donald Trump and his senior advisers and between the White House press secretary and various presidential aides, world leaders gathered in Beijing to discuss the creation of modern-day land and maritime «silk roads» to improve the economic conditions of nations around the world. Nothing more could have illustrated the massive divide between the concerns of many of the nations of the world and those of the United States, which is rapidly descending into second-rate power status, along with its NATO allies Britain, France, and Germany. Read more

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Lending money and then later seizing assets works well for growing an asset base and exerting local economic power. It does more than establish the legitimacy of a currency.

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Another scenario: China pays for its imports in yuan, which can be used to buy gold on the Shanghai Gold Exchange. Once the Shanghai crude oil futures contract launches in H2 2017, big changes will be afoot.

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In New York, the UST 10yr yield is marginally higher today at 2.25%

Hmmmm....

Just one day after Goldman reluctantly cut its 2017 year end forecast on the 10Y yield last Friday from 3.00% to 2.75%, "reflecting some added uncertainty on the US macro outlook" while conceded that "bond bears", i.e., those clients who have listened to it, "have had a difficult 2017" it was JPMorgan's turn, and over the weekend JPM announced it was adjusting its US rate forecast "significantly lower", slashing its year end 10Y yield target to 2.75% from 3%, reflecting “a weaker outlook on core inflation and reduced expectations around tax reform and infrastructure spending.”

In the note by JPM's Jay Barry, the bank also trimmed most other tenor forecasts by 15bp-35bp lower, saying that the inflation outlook “has changed markedly” over past month based on weakness in core CPI in March and April. JPM also said that as for fiscal stimulus, odds are rising that it “gets pushed into FY18.” Read more

Furthermore.

After trading this week, however, the 2s10s is back in shape to where it was before the liquidation, less than even the start of 2016 and nearing the level of the more wretched interpretations from the middle of last year. If we take this as a measure of sentiment rather than recession or not, it’s possibly an important one telling us about the state of “reflation.” Read more

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Breaking news The NZD,USD,YEN etc. have dropped by 50%(against Bitcoin) this year due to rampant money creation.
This just highlights the fallacy of fiat money creation against a finite commodity.

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Uh, you assume then bitcoin is the stable currency when clearly it is not.

"This just highlights the fallacy of fiat money creation against a finite commodity." indeed but same applies to gold, or bit coin as well, ie there is a finite amount of energy available no matter what the currency.

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That's insane, a true modern tulip mania. - 1BTC = $3108 NZD = 1.72 troy ounces of gold. On second thought I wonder when Barfoot will start transacting Auckland houses in bitcoin.

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If the seller is crazy enough to accept it, why not.

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... I wonder what our old truck driving expert in currencies , Iain Parker , would have to say about Bitcoin ...

I last heard that he was living off-shore on a guano encrusted rock lecturing sea gulls on the perils and pitfalls of Sh*tcoin ...

... got a sneaky feeling that's where Bitcoin is gonna wind up one day , too ...

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Iain is still holding the fort for honest money over on facebook. I caught up with him down the Naki a while back, and have met some good people via that connection. A top bloke really, and he could only spare me half an hour at the end of his daily run. Him and I chewing that fat on the side of the road beside is truck in Waitara, priceless.

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People have carried out bitcoin trades for houses.
https://bitcoinmagazine.com/articles/man-accidentally-makes-13-million-…

The legal paperwork is a trainwreck and takes a lot of chargeable hours to the lawyers.

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Can someone explain to me why a rate inversion, like we have in China now between the 5 & 10 year yield, is bad and worrisome. Thanks

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Try this for starters. I also recommend a stint as a proprietary bond trader/market maker.

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This google search link gives a number of useful links with short answers on the yield curve and inversion at the top. Hope this helps.
https://www.google.co.nz/search?q=yield+curve+analysis

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Thanks

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