Here's my summary of the key events overnight that affect New Zealand, with news of an America doing well in spite of itself - lawmakers paralysed in internecine squabbling, but their economy is improving nicely.
On the economy front, there was a slew of US data released today, and most of it was positive for them. Firstly their June advance durable goods report shows new orders up a very strong +6.5%, although that comes after two months of slight weakness. Strong transportation equipment activity boosted the result, mainly for airplanes.
And after hitting a 50 year low in the March quarter, their home ownership rate jumped strongly in June, up to 63.7%. That ends a long downward track. (The New Zealand home ownership rate is 63.0% as at March and is still falling.)
The American trade balance in goods eased to a deficit of -US$63.9 bln in June, an improvement because exports were up and imports lower. Interestingly, trade with Mexico is booming - US imports from there rose +11.5% from the same period a year ago and US exports to its southern neighbour rose +9.5%. The goods trade is virtually in balance with a +US$63 mln advantage to Mexico, tiny when you realise the two-way trade in just one month amounts to more than $71 bln. The US trade disadvantage is barely a rounding error. And in related news overnight, the US Congress has given up on the Trump plan to institute a "border adjustment tax" which was proposed at the rate of 20%. The idea is dead, for now.
Tomorrow, the first estimate of their June quarter GDP will be announced. Markets are expecting an improvement from the March quarter, up to +2.6% growth.
It does appear that a do-nothing President and Congress is not hurting their economy.
In Russia, they are reported to be disillusioned by the new round of tough sanctions being adopted by the Americans, one policy area that is getting progressed in Washington with bipartisan support. A fresh start in relations between the two superpowers seems unlikely, and there are growing calls for retaliation by Moscow. And the Europeans, especially the Germans, are alarmed by this. The alarm is most keenly felt by German energy companies. The Germans are starting to talk about counter-sanctions against the Americans.
In China, the talk is all about ramping up their supply-side reforms. (Remember those here in the 1990s ? They had a huge, lasting impact on structure of the New Zealand economy, dragging us in to the modern world. But it wasn't without collateral stress.)
In New York, the UST 10yr yield is up a little today at 2.31%.
The price of oil rose again overnight and is now at just over US$49 a barrel, while the Brent benchmark is now just under US$51.50.
The price of gold is slightly higher as well, up US$2 to US$1,249/oz.
The Kiwi dollar is just marginally weaker, now at 74.9 USc after yesterday's run-up on the weakening greenback. On the cross rates we marginally higher at 94 AU¢, and at 64.1 euro cents. As a result the TWI-5 index will start today at 77.6.
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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“There is a long history of bank failure, but for those banks that failed, we’ve never seen a covered bond fail,” says Jane Soldera, a vice-president at Moody’s, the rating agency.
She adds that this means the precedents for such a failure are unclear from an administrative perspective. The unlikelihood of investor losses aside, covered bonds in euros and dollars are an important source of capital flows into the country’s housing market.
Covered bonds in all currencies now finance nearly 10 per cent of the entire Canadian mortgage market, which is close to C$1.4tn in size, according to the Canada Mortgage and Housing Corporation. That proportion was 5 per cent in early 2013 and almost nothing in 2007.
Jerry Marlatt, a lawyer at Morrison Foerster in New York, says Canadian banks’ move for funding in international markets has been helped by the very existence of the euro market.
“Obviously if you can fund mortgage loans with foreign money you free up deposits to be used for other things,” he says. “If you did not have covered bonds, banks would either have to issue more senior debt or take in more deposits, and that’s difficult in Canada”. Read more
What could go wrong?
Cant argue with the facts but as covered bonds effectively pledge some the Banks best assets, in the event of a failure that leaves depositors at greater risk and loss without actually knowing the amount of risk they are exposed to and if the return is commensurate with the actual risk as opposed to the risk they can see or perceive??
The problem is not that modern economics lacks the tools needed to understand the economy. Just as with firefighting, the basics have been well known for a long time. The problem is with the behavior and the incentive structure of the practitioners. There is overwhelming pressure to produce work that supports the status quo (for example, redistributing to the rich), that doesn’t question authority, and that is needlessly complex.
The result is a discipline in which much of the work is of little use, except to legitimate the existing power structure. In terms of the poor quality of work, it is easy to point to the failure to recognize the size and risks posed by the housing bubble in the last decade. This failure has been unbelievably costly to the US and the rest of the world.
If we compare the most recent estimates of the potential GDP of the US economy from the Congressional Budget Office (CBO) with the projections made in 2008, before the severity of the crash was recognized, the difference is $1.8tn. This is an annual figure; it implies a loss of $18tn over the course of the decade. This amount averages out to more than $54,000 for every person in the country. Other countries have seen even larger losses. Read more
US hitting its straps in energy production. Cheap energy a threat to Russia, and German manufacturing so no wonder they are squealing.
" In 2018, EIA expects crude oil production to reach an average of 9.9 million b/d, which would surpass the previous record of 9.6 million b/d set in 1970."
"Coal exports for the first quarter of 2017 were 58% higher than in the same quarter last year"
"The United States – the world’s largest gas consumer and producer – will account for 40% of the world’s extra gas production to 2022 thanks to the remarkable growth in its domestic shale industry. By 2022, the IEA estimates that the United States will be on course to challenge Australia and Qatar for global leadership among LNG exporters. "
https://www.iea.org/newsroom/news/2017/july/iea-sees-global-gas-demand-…
https://www.eia.gov/todayinenergy/detail.php?id=32092
https://www.eia.gov/todayinenergy/detail.php?id=32192#
That is a bit of a worry in a world facing catastrophic disruption due to fossil fuel induced climate change while everybody is running round confidently assuring themselves and the world in general that they will meet their reduced green house gas generation targets. More hot air? The last thing we need.
Don't worry too much about warming and rising sea-levels Chris.
NASA confirms: Sea levels have been FALLING across the planet for two years … media SILENT
http://climatealarmism.news/2017-07-26-nasa-confirms-sea-levels-have-be…
And
We might be in for global cooling rather than warming:
Heartbeat of the Sun from Principal Component Analysis and prediction of solar activity on a millenium timescale
Solar activity is manifested in sunspot occurrence on the solar surface characterized by the smoothed sunspot numbers, which were selected as a proxy of solar activity (see, for example, the top plot in http://solarscience.msfc.nasa.gov/images/bfly.gif). The sunspot numbers show quasi-regular maxima and minima of solar activity changing approximately every 11 years, with changing leading magnetic polarity in a given hemisphere (or 22 years for sunspots with the same polarity) reflecting changing magnetic activity of the Sun
https://www.nature.com/articles/srep15689
And that is what does worry me as it's far more likely than warming.
Thousands of people died in Europe alone during that cooling period.
Here a graph of the temps from 1200AD onwards and the projection into the future:
https://www.nature.com/articles/srep15689/figures/3
Only in America ...
.... a lady leaned too far over the fence at a zoo , and fell down into the lion enclosure ... her screams of " HELP " were heard by a brave young Marine .... by the time he'd leapt into the pit , the lion had the lady's head firmly in its jaws .... the Marine gave the lion an almighty punch on the snout ... whereupon it released the lady , and the guy carried her to safety ....
... a journalist saw the whole episode , and told the Marine how it was the bravest thing he'd ever witnessed ...
" Ah well " drawled the Marine , " shucks , tweren't nothing ... I do it for the honour of the Marine Corps .... and 'cos I'm loyal to our Commander in Chief , the honourable Donald Trump ! "
... the next day , the newspaper's front page bore the journalist's story of the event : " US Marine assaults immigrant , and steals it's lunch ! " ...
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