Collusion allegations in Germany; BofA to decamp to Dublin; EU accuses most members of AML inaction; China's LNG appetite jumps; UST 10yr yield at 2.24%; oil lower, gold higher; NZ$1 = 74.6 US¢, TWI-5 = 77.4

Here's my summary of the key events over the weekend that affect New Zealand, with news principally from Europe.

In Germany, the diesel-gate scandal is getting worse, much worse, for their car industry. The latest edition of German news magazine Der Spiegel reported over the weekend that all the major German car makers - Volkswagen, Porsche, Audi, BMW and Daimler, maker of the Mercedes-Benz and Smart brands - have all been engaged in what could be a massive case of industrial collusion. The report shows that the companies have been secretly meeting in various working groups since the 1990s, where they colluded on technologies, costs, suppliers and even how to work on emissions from diesel engines. The companies themselves are denying the allegations.

In banking, the plans are firming up for a move by large banks out of London. First it was Citigroup which will base itself in Frankfurt after Brexit. Now, Bank of America has signaled a plan to move to Dublin.

And in Brussels, pressure is rising on implementing stricter money laundering rules. As many as 17 EU countries may be in breach of their EU AML obligations - and remember there are only 28 countries in the bloc, so that means most of them have issues. Fourteen have done nothing, while three have made inadequate efforts.

In Australia, there seems to be a bi-partisan impetus to adopt a fixed four year term for the national parliament.

And staying in Australia, a new review shows that the big four banks there have slashed their lending to coal mining projects.

And this comes as China reveals that it has greatly increased the volume of LNG imports as it weans itself off coal, both domestically mined and imported. The big beneficiary for the China imports has been fracked gas from the US. But Australia has some enormous capacity to supply. And China itself is ramping up its shale gas capacity. Coal is dead; long live gas.

In New York, the UST 10yr yield ended last week at 2.24%.

The price of oil fell over the weekend and is now at just over US$45.50 a barrel, while the Brent benchmark is now just over US$47.50.

The price of gold has gone the other way, up US$14 to US$1,251/oz.

And the Kiwi dollar is up as well, at 74.6 USc. That is the highest it has been all year; in fact it is the highest in 14 months. On the cross rates we are at 94.2 AU¢, and at 63.9 euro cents. As a result the TWI-5 index will start today at 77.4.

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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36 Comments

and the biggest headline of the day
Government backdown on immigration changes
https://www.stuff.co.nz/national/politics/95031527/government-uturn-on-i...
migrant workers were needed to "build the houses, drive the trucks, make the whole thing work".

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Yes they will backdown as the business models are now dependent on this lower cost labour.

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It really has become a race to the bottom.

I love the line that "we are creating 10,000 jobs per month"
So our employed labour force is growing by a staggering >5% per year, yet our wages are flat and normalised productivity is decreasing?
Headline inflation not spiking.
Cost of living at the lower end of earners increasing.
One trick pony economy, hell bent on selling things to itself.
Huge financial exposure in the housing market.
Auckland Council at debt ceiling.

Those are some pretty scary signs, guys.

Someone get a hold of Edward Glaeser / Joseph Gyourko and see what each of their thoughts are on the situation.

Our wages have increased way ahead of inflation for the lowest paid workers since 2008

Perhaps if you are on minimum wage and paint everyone with the same brush, yes.
If you take the broad median and compare it to average core inflation over that time, they are essentially flat.
i.e. converge to around the 2% mark.

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Pure gold for one W. Peters.

Probably just increasing the baseline knowing they will have to negotiate downwards with WP after the election.

Everyone knows young kiwis are too lazy to work below minimum wage.

If a business has to pay below minimum wage to survive then its a zombie business, propped up by tax payer and immigration of servs. Back in my day we had time and half after 8 hours double time on Sundays and that was for a kitchen hand!

Too right! Those lazy young whippersnappers have no idea how good they've got it, and are simply too lazy to take up sparkling opportunities like the ones in NZ's Kiwifruit industry, e.g.

More than half of Bay of Plenty kiwifruit contractors have been found breaching employment obligations...

In a grossly unfair display of bureaucracy, some of these fine employers were stung with a devastating $1000 fine for run of the mill good business practices such as paying workers less than the minimum wage.

Federated Farmers have had a word in Joyce's ear

US banks reported sharp losses in their mortgage divisions, with smaller regional lenders exposed to greater risks, despite the losses in big Wall Street banks being larger in scale, meaning only a pickup in disposable incomes will change the situation for the better. Read more

A recession is brewing with consumers under pressure from rising prices and falling wages, a leading forecaster has warned.

Respected consultancy Fathom Macro-economics said it is now more likely than not that there will be a recession - defined as a fall in economic output for two successive quarters.

Economic growth has been weakening because the collapse in the pound has been stoking inflation, which experts believe is still on an upward trend despite a slight fall last month. Real wages – earnings once inflation is taken into account – are now falling. Read more

I guess NZ will fall prey to the perils of the former but not the later woe at this juncture.

Deutsche Bank’s latest quarterly fixed-income revenue to be down more than 30 per cent compared with the same period last year...public data shows us that it is basically one of the worst ever volatility environments for rates we’ve ever seen. It’s the same for foreign exchange...

https://www.ft.com/content/2c9e63d4-6e2d-11e7-bfeb-33fe0c5b7eaa

This is what happens when market cannot discover their own levels. If ever there was a sign that a recession is coming, it's an inverted yield curve, and political/Central Banking meddling has obscured that crucial signal. All looks good....but it aint....

Most diesels in NZ either don't have an oxygen rich fuel to air ratio (to limit the cancer causing soot) or don't have Adblue injection to reduce the toxic nitrogen oxide exhaust fumes.

All the new ones have diesel particulate filters, some have Adblue
Older diesels are just plain disgusting; I do not see why I should have to sniff the filth coming out of all those ancient Toyotas and Nissans etc; which were terrible new and simply shocking after 10-30 years on the road.
15% of lung cancer is now considered to be pollution related, up from 5% in the 70's.
Exhaust emission testing should be compulsory for all road diesels.Would get a lot of the rubbish off the road.

Japan knew that they were polluting/ cancer causing. They must have been laughing when NZ actually paid money to get them out of Japan.

Diesel Gate Scandal
I always thought that the blame for this lay at the top of the companies and not with the engineers. Doing something this blatantly wrong is totally contrary to the whole ethos and DNA of German Engineers and for that matter those of most other developed countries. The whole issue has the sticky finger prints of the senior management/accounting/PR and marketing realms.

Agree, the folk with zero understanding of issues in play who content themselves with blustering "this needs to happen now".

"What does?"

"Err...this...that...you over there, explain what it is. Okay, that's what I meant. That! That needs to happen now!"

What has been surprising is that it has taken this long to get to this point on diesel gate and by the looks of by pure luck.

Mr Trump will suddenly become 'climate' aware' and all these foreign cars banned. Got to do something to avoid the looming carmaggedon in the US of A.

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Does anybody know the total for remittances ,sent back to the Philippines , India, etc.
Should this not be part of the analysis -when discussing the financial merits of immigrant workers.
Are we not knee capping ourselves for short term 'gains'.
The National governments polices do not address anything beyond the life expectancy of its senior ministers.

The remittances are HUGE

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.... one of the Philippines greatest export earners is it's citizens working in other countries around the world ... just behind its copra earnings , but well ahead of banana remittances ....

And they do work hard .... who wouldn't , when you can easily pick up 10 to 25 times what you can earn at home !

... yes ... NZ is knee capping itself for short term gains .... further enriching the dairy farmers and kiwifruit orchardists .... but keeping wages suppressed at the lower levels .... there is absolutely no bargaining power for Kiwi workers , nor any incentive to improve productivity when we can import 72 305 immigrants annually to do the tough , gnarly jobs for us ...

This is actually what's been found with cases such as oil industrialisation in parts of the USA too. Giving away concessions etc. hasn't greatly benefited the local economy because jobs delivered to locals are few and leakage of revenue is incredibly high. Worker camps are built next to plants, workers imported, and most of the workers' wages are remitted overseas - so local businesses hardly benefit either.

... I decided that the smart thing was to jump on board the Filippino express ... why fight it ... my current deal is to buy a 46 000 sq metre block of cacao land in Mindanao , for just $NZ 33 500 .... and it's next to a sealed highway .... just minutes out of a village of 2 million people ....

You'd be mad to " invest " in Orc Land , when Asia offers up such incredible value for money .... I could buy another 24 blocks for the same total price as just one house in Orc Land .... it's a no brainer when you look at it like that .... and I do specialize in no-brainers ...

Only problem is foreigners cant own land there...

.. yes they can ... but there are some restrictions .... nevertheless ... if you're determined , there are ways and means to own property pretty much wherever you're wanting to live ....

I'll be overseeing a dormitory of 16 nurses ... and checking on the cacao plantations ... chocolate , huh ... well , one does need the extra energy ...

Will be nice and warm in a few decades. Not too close to the conflict zone, I hope?

And do not overlook the likely future costs of corruption that you will face.

Is it illegal to share technology ?

I am sure the Japanese (and possibly the Chinese) do it all the time , and the Koreans certainly do it in their car industry

Is it legal to have meetings with other players in the same sector as you ?

Many of us belong to Industry Associations or Institutes , and I often discuss what we are doing with competitors , including pricing , outsourcing work to India and new technologies like the cloud etc etc .

Fiddling diesel emission readings was just plain stupid , as the truth would eventually come out when someone re-tested the emissions through a Standards Bureau or similar regulatory body

Any large banks relocating to Dublin may give support to Ireland's recovering housing market. Average asking price Dublin since low point 2Q 2012 up 60 percent. Average asking price rest of Ireland since low point 3Q 2013, up 46 percent.

To be sure. "That time when house prices fell 75 percentage points in Dublin" So anyone that bought 10 years ago, 2007, is still 'underwater' to the tune of ~40%..... That's Boom Cities for ya...

http://www.stuff.co.nz/business/property/85960352/blowing-bubbles-that-t...

More likely the move is related to tax dodging opportunities than the Irish housing market...

News: EU pressure rising on implementation of stricter money laundering rules

Why is this news?. You realise it diverts attention away from NZ failure on implementing Tranche 2 of AML rules. How are they going in NZ. Any news on that department. Haven't heard from Ron Pol lately. Is he still re-writing his thesis which he was going to put on-line for us all to read. Hope he hasn't been nobbled

BOLO Ron Pol. Hey Ron - where are you?

FYI, we haven't covered the latest developments todate but I did come across this https://minterellison.co.nz/our-view/select-committee-recommends-phase-two-aml-bill-be-passed

Hi two otherguys, kind of you to remember me. I was away, & Gareth gave me a nudge.

The thesis is with external examiners. (The problem with selecting a world leader as supervisor is that's who he kicks around with, so it's being picked apart by others likewise at a global level).

Haven't heard yet but the university might embargo the thesis. (It contains new methodologies for assessing the involvement of lawyers, accountants, real estate agents facilitating criminal transactions, and detecting, prosecuting and preventing serious crime).

Not been nobbled. Quite the opposite. Been undertaking an interesting study to gauge the extent to which NZ govt agencies are evidence-based and outcome-oriented. [Not exactly the way to win friends and influence people. Consulting 101 says to tell them what they want to hear, and when it fails to achieve intended outcomes, tell them what they want to hear again. Nothing is achieved, but consultants get rich].

The results thus far seem fairly clear on the policy making side. NZ's policy making exercise would make a great case study for a university one day, in what one academic calls "policy-based evidence-making". Even just a quick glance at the papers reveals that any political science class could gainfully deconstruct the policy-making process to reveal a plethora of unsupported leaps of faith and vast gaps. Or a post-grad with ML knowledge could take that a step further. There's probably enough material to write an article something like "How not to catch criminal enterprises using lawyers, accountants and real estate agents to launder criminal proceeds: The New Zealand example."

In the regulatory and enforcement agencies, however, there are actually some indications of interest in evidence-based practices, and trying to achieve better outcomes for New Zealand. Although fair to say I think some of it is challenging to existing assumptions. So, no indications yet whether that will involve leadership that grasps the nettle to actually make a difference in serious crime-detection capability, despite apparent lack of political will on the policy-making side, or if it will revert to the comfort of 'same old'. Time will tell. And maybe another few case-studies for future academics.

When's the next B&T auction results due?