90 seconds at 9 am: China retaliates with Aussie meat ban

US Fed to cut bond holdings 'relatively soon'; drive for yield suppresses spreads; US new home sales jump; China toys with Aussie meat exports; UST 10yr yield at 2.29%; oil up and gold down; NZ$1 = 75.1 US¢, TWI-5 = 77.7

27th Jul 17, 7:36am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of a Chinese retaliatory ban on Aussie meat exports.

But first, the US Federal Reserve kept interest rates unchanged in today's review and said it expected to start winding down its massive holdings of bonds "relatively soon". Markets have taken that as a sign of confidence in the US economy. American stock indexes touched fresh intraday records today, boosted by the latest batch of corporate earnings and higher commodities prices.

And part of that relates to a new drive for yield by investors. Investors are piling in to corporate debt harder, driving down the spread to benchmark government bonds to a level we haven't seen since before the GFC. The spread on US dollar corporate bonds - the extra yield investors demand versus Treasury debt - has fallen to within two basis points of its post-crisis low for investment-grade securities. The 108 bps spread recorded yesterday compares with 130 bps at the start of the year. It got to over 600 bps in the GFC. Current junk bond spreads of 355 bps are down from 422 bps at the beginning of January to just 20 points above their 2014 low. The basis for ignoring current bond risk is hard to fathom, but even CDS spreads are at their post GFC lows.

Meanwhile, sales of newly built single-family homes - albeit a narrow slice of all American home sales - increased in June to an annual rate of 610,000 which is more than +9% above the same month a year ago. The median price of a new American home is now US$310,800 (NZ$415,500).

And just how large some American companies really are is highlighted in an announcement from Amazon: They want to fill 50,000 new domestic positions and are having a giant job fair next week. It will be held in a dozen locations around the country including 10 of its warehouses and is part of its drive to hire 130,000 full- and part-time positions this year.

In Australia, six of their meat companies have been banned by the Chinese from shipping any product because labels "did not comply" with Chinese regulations. It is a serious blow to their AU$0.75 bln trade. But this ban may be based on retaliation for an Australian ~~Chinese~~ decision to ban all imports of fresh and cooked prawns from China. It is a cautionary tale about how heavyweight trade partners can abuse their dominance in a way that a smaller one can't. We are swimming with sharks.

In New York, the UST 10yr yield has slipped sharply today following the US Fed review and is now down to 2.29%.

The price of oil rose again overnight and is now at just over US$48.50 a barrel, while the Brent benchmark is now just under US$51.

The price of gold is however slightly lower, down US$4 to US$1,247/oz.

The Kiwi dollar is up sharply on a weakening greenback, now at 75.1 USc and that is its highest in 27 months. On the cross rates we are up as well at 93.9 AU¢, and at 64 euro cents. As a result the TWI-5 index will start today at 77.7.

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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25 Comments

by sharetrader | 27th Jul 17, 7:56am 1501098970

France and the UK to go electric and hydrogen cars by 2040
Iceland already converting away.
maybe the greens will be proven correct and we should be a leader in the new technologies not a follower.
will be interesting in 20 to 30 years to see what value and income our power companies create or whether people invest in solar and batteries to power themselves with only need for top ups

http://www.cnbc.com/2017/07/26/uk-plans-ban-on-new-diesel-and-petrol-ve…
http://edition.cnn.com/2007/TECH/science/09/18/driving.iceland/

by ham n eggs | 27th Jul 17, 8:42am 1501101727

"..power themselves with only need for top ups"

The economics of this dont work. Maintain a whole grid so that you can use it only just when you need to ?
Doesnt add up .

And as previously pointed out - the electric car is not green ... it requires pretty much all the same components of a gasoline-powered car: the body, the glass, the foam and polyester seats, the plastic “cabin”, the tires.. the roadways ... basically its 100% dependent on our oil-based infrastructure for manufacture and transport.
Green means horse.

by Chris-M | 27th Jul 17, 9:03am 1501103038

Anatomically the horse is a pretty inefficient beasty. Compared with other creatures they need an inordinate amount of food; their poos are pretty nutrient rich. I think I remember that when we relied on them for transport, agriculture and armies; they occupied about half of the farmland. Quite a few people would go hungry if we had to rely on horses. Deer on the other hand are quite efficient feed converters, so may be Santa has got the answer? I still think that there would be quite a few hungry people however.

by ham n eggs | 27th Jul 17, 9:23am 1501104238

Very true - maybe donkeys / oxen are better... but they all suck up more land in maintenance - thats the problem with rewinding the tech/fossil fuel clock when you have already overshot carrying capacities.
Either way it means a lot more hungry people.

by JimboJones | 27th Jul 17, 9:56am 1501106164

The cost charged by Transpower and electricity suppliers will at some stage need to come down to meet the price it costs to generate and store your own electricity (which is decreasing all the time) - otherwise people will indeed just generate and store their own electricity.
Power companies will have to learn how to be truly efficient and how to make returns based on the true value of what they provide, rather than make returns based on their overvalued share price.

by Colin | 27th Jul 17, 11:24am 1501111440

Not to mention the batteries.
wattsupwiththat.com/2017/06/20/tesla-car-battery-production-releases-as-much-co2-as-8-years-of-gasoline-driving.
Nonsense

by Uninterested | 27th Jul 17, 8:56am 1501102618

We will be a follower of electric vehicle (technology) forever given our preference for buying second hand cars from Japan.

by Zachary Smith | 27th Jul 17, 8:53am 1501102406

The Australian prawn is far superior to the Chinese prawn. Consumption should probably be controlled by using public education. Once I found out how Asian prawns were medicated and farmed I stopped eating them.
I actually think we should only eat meat and other animal products produced in our own country so that we are fully aware of how the animals are treated. Animal welfare should be considered as important as citizen welfare.

by David George | 27th Jul 17, 10:20am 1501107607

I ha
ve posted this up before but worth a re-read to show just how dangerous food product from China can be.
The only question I have is why do we allow this toxic rubbish into our country; what are we doing - we send them our beautiful wild caught seafood and, in return import this shit.

"Vials and containers for nine other antibiotics lie around the 20-sow piggery—on shelves, in shopping bags, and atop trash piles. Seven of those drugs have been deemed critically important for human medicine by the World Health Organization.
The overuse of antibiotics has transformed what had been a hypothetical menace into a clear and present one: superbugs, bacteria that are highly resistant to antibiotics. By British government estimates, about 700,000 people die each year from antibiotic-resistant infections worldwide. If trends continue, that number is expected to soar to 10 million a year globally by 2050—more people than currently die from cancer.
In November 2015 scientists reported the discovery of a colistin-resistant gene in China that can turn a dozen or more types of bacteria into superbugs. Since then the gene has been found in patients, food, and environmental samples in more than 20 countries, including at least four patients in the U.S. Food, it now appears, can be a crucial vector. “People eating their shrimp cocktails and paella may be getting more than they bargained for,” says Dr. Martin Blaser, a professor of microbiology and an infectious diseases physician at New York University Langone Medical Center who chairs President Barack Obama’s advisory panel for combating antibiotic-resistant bacteria. “The penetration of antibiotics through the food chain is a big problem.”

Research has found that as much as 90 percent of the antibiotics administered to pigs pass undegraded through their urine and feces. This has a direct impact on farmed seafood. The waste from the pigpens at the Jiangmen farm flowing into the ponds, for example, exposes the fish to almost the same doses of medicine the livestock get—and that’s in addition to the antibiotics added to the water to prevent and treat aquatic disease outbreaks. The fish pond drains into a canal connected to the West River, which eventually empties into the Pearl River estuary, on which sit Guangzhou, Shenzhen, Hong Kong, and Macau. The estuary receives 193 metric tons (213 tons) of antibiotics a year, Chinese scientists estimated in 2013."

https://www.bloomberg.com/news/features/2016-12-15/how-antibiotic-taint…

by two otherguys | 27th Jul 17, 10:39am 1501108771

Yes, and for eons the controllers and lever-pullers have sat on their hands and done nothing about food labelling

Absolutely nothing

by ki | 27th Jul 17, 12:19pm 1501114795

So buy Prawns that are Best Aquaculture Practises Certified...
https://www.bapcertification.org/find-certified-facilities/
Bit far reaching to say 'Asian Prawns are medicated'... there are some good Chinese producers, just as there are some NZ pork producers who use sow crates, and some who don't...
Malaysian prawn producers are typically 1st class.
Buy product certified by an independent 3rd party (such as above)... if you can't find them, ask your supermarket or restaurant 'why not'!

by zorba - old | 27th Jul 17, 9:04am 1501103079

Yes I stopped eating anything sourced from China, a long time ago now. Next time you're in the supermarket, take a look at the colour of their frozen veges - extremely bright in colour, definitely not natural IMO.

by Yoda | 27th Jul 17, 10:19am 1501107557

It’s pretty hard to know where our food comes from when our food labelling laws allow the disingenuous “made from local and or imported ingredients”. They might as well put “we have something to hide and we don’t want you to know where this food came from” on the packet. Or alternatively, more truthfully, they could put "sourced from the cheapest possible ingredients we could find anywhere on the planet".

by RickStrauss | 27th Jul 17, 10:54am 1501109655

True - check the garlic and its unnatural uniformity of shape and colour compared to garlic from elsewhere. Hope they're not made with melamine for extra protein, like the poisonous baby formula was.

by fat pat | 27th Jul 17, 11:06am 1501110417

I saw canned peaches in PackNSave that were from China. Also remember seeing a doco on their food industry which claimed the water used for canning isn't fit for human consumption being tainted with heavy metals and halogenated organics. Kind of a mind bender isnt it. Food like that ends up here, but we ship premium products overseas along with royalty-free bottled water, and then wealthy investors buy all our houses. Free trade, par for the course.

by Double-GZ | 27th Jul 17, 9:10am 1501103409

I love king prawns but prefer products of New Zealand. Will be tasting some in the South Island hopefully next month. I'm thinking of The Craypot at Jackson Bay again...yummy.

by frazz | 27th Jul 17, 11:12am 1501110760

Your on the wrong site again DG..switch over to your Facebook page and post your little snippets of joy

by Ngrrk | 27th Jul 17, 4:22pm 1501129353

I hope you regale your thoughts around the double grammar zone and Auckland housing with the locals down in Jackson Bay. Do it, it will be such a laugh.

by PocketAces | 27th Jul 17, 3:58pm 1501127880

Closed for the winter

by Ex Expat | 27th Jul 17, 4:32pm 1501129925

They get a steady stream of Grey Nomads in Summer. Maybe we can convince a few Gen Zero types to move down there to spread the demand throughout the year. The new arrivals can live in Caravans towed away from Kohi Beach. Last time I was there the lonely one housing the restaurant needed company.

by Ex Expat | 27th Jul 17, 4:34pm 1501130060

Double G-Z, you'll need to set the Range Rovers suspension to compliant as that road is like a roller coaster.

by Double-GZ | 27th Jul 17, 8:06pm 1501142810

Yeah I know...too many rockfalls along the coast! Pitty it is closed in winter ;-(

by Stephen Hulme | 27th Jul 17, 9:50am 1501105835

In Australia, six of their meat companies have been banned by the Chinese from shipping any product because labels "did not comply" with Chinese regulations. It is a serious blow to their AU$0.75 bln trade

Is China declaring displeasure with the war games that must be aimed at it, given the exclusive nature of the event?

The high-end warfare being practiced by U.S. and Australian forces at a major exercise in Australia has attracted an unwanted visitor in the form of a Chinese intelligence-gathering ship. Read more

by bw | 27th Jul 17, 10:07am 1501106851

... workers suffer from what is known as a “money illusion” – the rise in nominal wages is not equal to the rise in real wages. However as workers come to anticipate higher rates of price inflation over time, they see through the money illusion, and (demand higher wages). Today, the opposite case is present. Monetary restraint is limiting demand and eroding pricing power, causing employers to restrain wages. Once workers realize this restraint is not a cut in real wages, they will continue to supply the same amount of labor ( at the same or lower wages).....Our economic view for 2017 is unchanged and continues to suggest that long-term Treasury bond yields will work irregularly lower. The latest trends in the reserve, monetary and credit aggregates along with the velocity of money point to 2% nominal GDP growth for the full year, down from 3% in 2016. This would be the third consecutive year of decelerating nominal GDP growth and the lowest since the Great Recession. This suggests that the secular low in bond yields remains well in the future.

.
(Dr. Lacy Hunt )

by Cowpat | 27th Jul 17, 10:41am 1501108867

Shanghai Pengxin which is not too dissimilar to HNA , other than in size, appears somewhat desperate in its replies to the Shanghai Stock Exchange . Yesterdays replies to inquiry letters asking how 'little ' shareholders would benefit from acquiring a non functioning flooded South African gold mine , whose license may not be renewed in February,among a myriad of other issues from a convoluted private company structure owned by the controlling shareholders of the public company at 19x the original purchase price is providing more fodder , more questions and ultimately issues regarding the structure and viability of the company given China's willingness to reign in acquisitive (state backed) companies previously happy to buy offshore companies/investments at any price