Here's my summary of the key events overnight that affect New Zealand with news HNA is under some rising stress in debt markets.
But first, on Wall Street today, the S&P500 index is lower as investors assess the long-awaited tax-cut proposals unveiled by Republicans amid deep skepticism around the passing of the bill. Consumers will lose their mortgage interest deduction, companies will get a big tax break. In fact, if passed, companies will pay the lowest share of US federal taxes in 17 years, and individuals will pay the greatest share ever. In the 1960s when the US was truly 'great', individuals paid a 35% share and companies paid a 20% share. What is proposed is is 42% and 10% respectively.
And staying on Wall Street, HNA Group tapped the short-term debt markets for the second time in a week, having to pay 8.875% interest on a new US$300 mln bond issue that matures in a year. That is nearly 3% more than what the same company agreed to pay on debt it sold in May, which had a 6% coupon. Markets are marking up the risk in this company dramatically, one that is also trying to close a deal with ANZ to buy UDC, and also probably with borrowed money.
Earlier, data released shows American worker productivity increased by +3.0% pa in the September quarter, its fastest pace in three years. But the trend remained moderate, suggesting that the recent uptick in economic growth was unlikely to be sustained.
Global air travel rose +5.7% in the year to September, but was down noticeably in the US due to the impact of hurricanes there. However in the Asia/Pacific region it grew +8.7%, the fastest in any global region. But interestingly, Australian domestic air travel actually fell -1.2% in the same period.
We should also note that Air New Zealand was won the global Airline of the Year award for 2018. Again.
In China, a new study shows that their consumers pay the most of any global market for infant formula. Pricing is at such a level, it probably can't be sustained. Any fallback will affect the New Zealand dairy industry. We may be affected by a fallback, but New Zealand brands are not the major ones there.
And as expected, the English central bank upped its policy rate by +25 bps to 0.50% overnight. It's their first rise in 10 years.
In New York, the UST 10yr yield is lower today at 2.35%. Across the Pacific, Chinese Govt bond yields are holding with their 10 yr now now at 3.89% - and their 5 year is now now at 3.93%, both up +1 bp.
The price of crude oil is fractionally higher today, now just under US$54.50 / barrel, while the Brent benchmark is just over US$60.50. China announced it will raise the price of petrol there, its ninth rise this year. .
The price of gold is unchanged at US$1,274 oz.
The Kiwi dollar is a little higher this morning. We are now at just over 69.2 US¢. And on the cross rates we are at 89.7 AU¢, and against the euro at 59.4 euro cents. That puts the TWI-5 index just on 72.4.
And finally we should note tulip-mania continues in bitcoin markets with the price up to US$6.943 and yet another new record high. A little earlier, it broke through US$7,000. The local benchmark of NZ$10,000 is also breached. We are witnessing an economic history lesson here.
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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11 Comments
"And finally we should note tulip-mania continues" Indeed....
The cult of inflation targeting began in New Zealand in the late Eighties. We may date its demise to a remarkable ideological pivot in the same country thirty years later, and with it the end of central bank ascendancy across the world.
Let us at least hope that the great monetary misadventure has burned itself out. In the wrong circumstances, such a doctrine is a formula for asset bubbles and deranged financial cycles, and that is precisely what events have conspired to produce.
http://www.telegraph.co.uk/business/2017/11/01/apostasy-new-zealand-spe…
New Zealand has had enough. Jacinda Ardern, the new Leftist premier, is to push for a change in the famous mandate of the country’s reserve bank. In the future it will target jobs as well as consumer prices. Her gripe is that “capitalism has failed”. I would rephrase that as a critique of central bank orthodoxy.
It is actually public policy that has failed. The US Federal Reserve, the European Central Bank, and the Bank of Japan, inter alia, have created a structure over the last quarter century that has pushed lenders, pension funds, life insurers, and investors into extreme risk. Hyper-globalisation and unrestricted capital flows have done the rest.
The emperor has no clothes as Central Planning fails on a global scale. Who would have thought?
It seems that Centralisation tends to prevent experimentation and the smaller failures that go with it, but tends to create the conditions for massive failure. This happens even with talented, honest and diligent people running the show. Just as Hayek said.
The most interesting thing about that AEP article is that from a NZ view, it is clear he has no real understanding of what is going on here. In fact, that will now taint my reading of his interpretations about other matters. I think he only 'researched' his keyboard.
Interesting. I thought he was saying that the tide is turning and that NZ, being a small ship, led the way toward relatively independent central banks setting rates without direct cabinet approval; and now NZ is turning back towards more politically sensitive interest rate setting policy.
The "gut the RBNZ" tactic being put forward will be interesting to watch. Sorry, ahem, I mean the "broaden the RBNZ mandate" will be interesting to watch.
The change to inflation targeting in the early nineties seemed like a good thing at the time, but consumer prices were tamed, whereas house price inflation was not (the two used to travel together until about 1994. See Figure 3 here: https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulleti…). So the RBNZ experiment has either been a big success or a massive failure depending which you look at.
Curiously, it is unclear to me whether targeting 0% or 5% would have given a better outcome.
However, to me the current account deficit and corresponding capital account surplus suggests we have just been looking at the wrong issues. The result has been a sort of false success whereby we deluded ourselves we were doing well by adopting a business model of continuously selling new shares in the country to new residents, without the tiresome necessity of actually making a profit. That is, we use the same technique as a a junior miner, continously selling shares to new shareholders and never actually building a mine. In this way excess capital flows into the country and bids up house prices, pushing up the exchange rate and depressing the profitablity of exporters along the way.
Roger, An interesting question is .." Is it beneficial for a country to be as self sufficient as possible".
For me, the question confronts the paradigm of "Globalization" and the flawed ( in my view) idea of comparative advantage, and chronic current acct deficits...etc.
I mention this , because the question is relevant to current acct deficits and Capital acct surpluses.
( especially, because so few economists and politicians consider current acct deficits and Capital acct surpluses as being important )
Ray Dalio has done some research
http://www.zerohedge.com/news/2012-11-03/why-self-sufficiency-matters-o…
Also an interesting article on how countries succeed
https://ep00.epimg.net/descargables/2015/01/24/62c26e2f57230d6f4fe1f3be…
Thanks Roelof,
There are a number of things that are deemed not to matter, such as ownership, debt, money, and, as you point out, self sufficiency. Just shows how messed up the academic world has become (overseas, I mean, not in NZ, of course).
I mentally bang my head against the wall when I hear about "Global Just in Time Systems". Er, what about continuity of supply and fragility?
Powell has backed a policy of gradually raising interest rates; is in favour of winding down the central bank’s $4.5 trillion portfolio and warns against relying too heavily on mathematical rules to guide monetary policy.
But really. Powell?! May as well have left Janet in the chair....
Bitcoin mania indeed. Or is it barely even started? It isn't an exponential curve yet, but one seems to be forming.
I was trying to find numbers last night and volume was different from two different sources. Maybe that was the difference between volume of trades overall, and the volume from one trading playform, I will have to look closer. But at best volume is climbing modestly. Interestest is that it seems JPY accounts for 58% of volume.
Seems there is a rough pattern of Thursdays being the day with the biggest price rises. Sunday and Tuesday more falls than rises. That is I assume related to trading in the main time zones for it.
Unintended consequences afflicting a previous client?
The European Bank for Reconstruction and Development is an international financial institution that uses investments as a tool to build market economies.
MOSCOW (Sputnik) — The board of directors of the European Bank for Reconstruction and Development (EBRD) on Wednesday made a proposal to revise the permissible level of the cost-to-income ratio (CIR) to 50 percent from the current 33 percent, and this may signal a serious deterioration of the bank's financial indicators, according to a source in the Russian government. Read more
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