Here's my summary of the key events over the weekend that affect New Zealand, with news markets are reacting to continuing gains in China.
Firstly in Jackson Hole, Wyoming, Janet Yellen defended the series of regulatory responses to the GFC, facing off a White House and Republican calls to water down the Dodd-Frank banking reforms. She said these reforms have made the financial system safer.
And Mario Draghi, the ECB boss, is emphasising multilateral co-operation and regulatory co-ordination. The last thing he wants is the US taking an insular approach to reforms. He is calling for patience with the current approaches.
In Germany, their federal budget surplus hit a record €18.3 bln for the first half of 2017 thanks to a solid economic performance and rising tax revenue. This figure takes into account the budgets of the central, state and local governments in addition to the various social security funds. This result came even though the overall economy slipped back a gear in the second quarter after good gains in domestic demand failed to offset slightly weaker trade.
In the US, markets shrugged off a big fall (but not a big miss) in the July advance durable goods report. Over the past two months, the result was flat. Still, it is one data item that is seeing market enthusiasm for future prospects wane, and there are reports smart money is moving out of equities. The long expansion is ageing; the clouds over the consequences of a disheveled US Congress and White House are growing.
In China, they are still reporting fast-rising industrial profits. From January to July, industrial companies with annual revenue over NZ$4 mln reported profits up +21% from the same period in 2016. That is similar to the growth in the same period a year ago. So that makes it almost a +50% gain in two years.
In India, millions of businesses have not paid their tax for July as the country’s new system struggles to cope with the weight of demand from companies trying to use it for the first time. There are reports of a range of problems with the online platform for the country’s national GST system, including poor connectivity, insufficient space to file invoices and payments not being registered. The complaints are the latest set of teething problems with the system, which was rolled out in July after a decade of political debate but with just three months of detailed planning. Their new GST system has replaced local levies and taxes, turning India into a single market for the first time.
In New York, the UST 10yr yield slipped on Friday, and is now at 2.17%. Market jitters over the fast encroaching debt limit are rising, especially with the unusual situation of the White House playing politics with the issue. (Usually it is Congress.)
The price of oil is marginally firmer and now just under US$48 a barrel, while the Brent benchmark is just under US$52.50.
The price of gold is also higher, up +US$7 to US$1,283/oz. And we should note that the price of copper in NZ currency is now at its highest since 2013 (highest in US dollars since 2014). The price of copper is often said to be a bellwether indicator for the industrial sector. Aluminium prices have also shot up, and now at their highest levels since 2011. China demand is driving both of these semi-precious metals.
The Kiwi dollar however is basically unchanged today at 72.4 US. On the cross rates we are also stable at 91.3 AU¢, but a little weaker at 60.7 euro cents. As a result the TWI-5 index starts at 74.7.
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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10 Comments
The long expansion is ageing; the clouds over the consequences of a disheveled US Congress and White House are growing.
Hmmmm....
Excluding transportation, new orders for durable goods rose at about the same rate as the past few months, +6.9% year-over-year (NSA). Shipments were up in similar fashion, +6.1%. These growth rates are insufficient to count as a rebound, as in both shipments and new orders, capital goods as well as durable goods overall, activity in this part of the manufacturing sector remains still less than at the prior peak ten years ago.
Nothing so far this year suggests that will change. Seasonally-adjusted, durable goods orders (ex transportation) rose to $154.8 billion in July. That’s still $11.6 billion less than in June 2008 nine years ago. Peak to peak that works out to an annual rate of -0.8% compounded “growth” for this “recovery.” Read more
Firstly in Jackson Hole, Wyoming, Janet Yellen defended the series of regulatory responses to the GFC, facing off a White House and Republican calls to water down the Dodd-Frank banking reforms. She said these reforms have made the financial system safer.
But not better.
The idea behind reform and re-regulation (Dodd-Frank and other rules) was to make the financial system “resilient” in order to foster growth. If banks and institutions were confident about this new system arising from the ashes of the old, then recovery would happen; at least that was the assumption.
Now–a decade from the onset of the crisis and nearly seven years since the passage of the Dodd-Frank Act and international agreement on the key banking reforms–a new question is being asked: Have reforms gone too far, resulting in a financial system that is too burdened to support prudent risk-taking and economic growth?
People are only asking the question because there is every reason to suspect that “something” just ain’t right. Ten years is more than enough time (and five years of “transitory” doesn’t really convince anyone anymore). I don’t mean regulation specifically, but instead the monetary system. Yellen and her comrades are being pushed closer to the truth. It won’t surprise you that she believes the answer to her question is “no”, but the mere fact that she feels compelled to address the matter shows (as always) that she is worried that maybe there is something holding it all back, and that this something is within her area of bureaucracy.
Why is the Fed seeking to “raise rates?” Because what else are they going to do? They surely suspect by now that in the end it doesn’t matter either way. Things happen whether they do or they don’t; the “rising dollar” amply proving that point for the third time since 2007. When you don’t know what to do or why, you do what comes naturally or what you were trained to do. Read more
Mission accomplished - Well I never knew that
At the 6' 45" mark of last nights TVNZ news Bill English stated Christchurch is "substantially" rebuilt
Could'a fooled me. Have to admire the audacity of that one
Gotta be Fake
Meanwhile Ardern chucks $300 million extra at Christchurch to help them get on with it
In Germany, their federal budget surplus hit a record €18.3 bln for the first half of 2017 thanks to a solid economic performance and rising tax revenue. Lets hope they pay off some of their Debt, it sits at % of GDP
68.63%. China has Debt as % of GDP 42.09%, both reasonably acceptable but the United States of America trumps them both with a whopping Debt as % of GDP 106.31%
Little old NZ sits at Debt as % of GDP 33.49%, lets hope spending post election doesn't balloon this and we actually try and reduce this debt for the sake of long term stability.
If paying off the debt is your true concern, don't forget to vote Labour, because they're the only party historically that seems to care about paying off the national debt. National only care about running up the national debt to give massive tax cuts to their wealthy mates, both here in NZ and overseas.
If you pay off most (or even 25%) of the NZ Govt debt, conservative KiwiSaver funds will either need to be wound down, or transfer their investment to Aussie or other foreign govt debt. And the problem won't just be for KiwiSaver funds (which probably hold about $5 bln now and climbing). Other conservative fund mandated to hold local risk-free investments will also end up in trouble.
The problem is that there are heaps of such mandates (other than the K/S ones) and they already have trouble with this issue. An ageing population looks for risk-free investment places for their funds. Paying down NZ Govt debt undermines their position and puts trustees in an impossible position. If they invest in anything else and it goes awry, they become personally liable. Going overseas adds exchange risk that far outweighs the returns on offer. To hedge means these funds effectively get zero return.
So the bottom line for those advocating paying down Govt debt is to consign aged savers who can't afford to risk their capital to either taking risk that could potentially cripple them or getting zero return - or even a capital loss.
The amount of NZ Govt debt is currently too low for the demand currently required by risk-averse savers. What are the other local AAA rated options ?
We have amnesia (or willful blindness) about this effect when the Govt last tried this paydown strategy. It was done for politics, and completely undermined NZ capital markets.
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