Here's my summary of the key events overnight that affect New Zealand with news of renewed efforts to get the Trans Pacific Partnership ratified again.
At the upcoming APEC meeting in Vietnam, Japan and Australia are making a new push at getting the TPPA over the line, without the US. New Zealand has defaulted its influence at this meeting, but if the effort is successful, we stand to benefit greatly. And don't forget, the General-Secretary of APEC is Alan Bollard. And it is instructive that the US President left Japan for the meeting empty-handed on trade. The chances of a TPPA-11? Probably better than 50/50. The chances of the new Government signing up anyway are high.
The head of the New York Fed has 'cautioned' Congress and the White House on the dangers of rolling back financial sector regulations that were put in place to shore up the banking sector after the GFC. But, as if to acknowledge they won't listen, he also announced he is quitting the post. It's an unexpected, unexplained early retirement.
China announced that it had a current account surplus of +US$37 bln in the September quarter, taking its total 2017 current account surplus to +US106 bln. But in its Capital account the 2017 surplus was just +US$1.8 bln. These numbers are far, far less than its good trade surplus because China runs large services deficits, and large capital account deficits. Some strident Western politicians have risen to power misrepresenting this data. Populism allows shouters to ignore inconvenient facts.
And staying in China, reports are emerging that the major Western credit rating agencies are now close to approval to operate and rate domestic Chinese corporate bonds. The Chinese system has failed with almost half of all such issuance now rated AAA by local ratings agencies. The situation has zero credibility and the Chinese know it. And they know the situation is dangerous for them. A change of policy has been signaled by the PBoC and it will be a huge coup for S&P, Moody's and Fitch. But it will come with intense pressures from Beijing. We will know how they handle that pressure with how they rate Chinese sovereign bonds (currently they are rated A+ with a negative outlook).
The recently-released Paradise Papers show that HSBC threatened to sue ANZ for allegedly handing over customer details to the Australian Tax Office without telling their tax-cheating clients first.
In New York, the UST 10yr yield is down -1 bp today at 2.32%.
The price of crude oil has jumped by more than +$1.50 today and is now just over US$57 / barrel, while the Brent benchmark is just under US$64. An insider 'coup' of sorts in Saudi Arabia, plus instability in Venezuela are both adding risk premiums to crude oil.
The price of gold is unchanged at US$1,269 oz. The bitcoin price is now at US$7,093, down -4% on the day.
The Kiwi dollar is little changed again today. We are now at just under 69.1 US¢. And on the cross rates we are at 90 AU¢, and against the euro at 59.6 euro cents. That puts the TWI-5 index still at 72.5.
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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46 Comments
A bit like recruiting coal miners from Newcastle. Anyone who has visited a UK construction site in last decade will know all the workers are from Eastern Europe.
http://www.telegraph.co.uk/business/2017/11/02/new-zealand-looks-woo-th…
Isn't there a rort of sorts whereby a Polish company can employ Polish workers on construction sites in Britain, and pay them Polish wages? Hmm...now where was that link?
No wonder the well paid financial classes wanted to remain in Europe and the productive classes think it's rubbish.
NorthernLights... Agree re globalism.
Encapsulated in this meme;
At the upcoming APEC meeting in Vietnam, Japan and Australia are making a new push at getting the TPPA over the line, without the US. New Zealand has defaulted its influence at this meeting, but if the effort is successful, we stand to benefit greatly.
Hmmmm....
Any credible updates on this TPP-12 claim:
NZ’s economy is estimated to benefit by at least $2.7 billion a year by 2030. Read more
If not, hardly seems worthwhile and more lucrative, pragmatic endeavours should be pursued.
yes- the US has corn for Africa which needs to go somewhere ... so its piling into increasing milk production.
Surplus everywhere and a shortage of buyers.
Its a race to the bottom for commodities as producers chase volume to stay viable which raises the surplus etc
Andrew
NZ Dairy continues it’s predominantly bulk dried milk powder export paradigm
Selling bulk product leaves NZ open to commodity forces
Quality branded & marketed pre packaged ready for the supermarket shelf dairy products gain a price premium over mere bulk bags of dairy powder
You know this and so does NZ Dairy
https://www.stuff.co.nz/business/farming/98605414/fonterra-invests-in-u…
Northern Lights, sometimes it is better to be different. ;-) Supermarket shelves are already crowded with dairy. As a farmer I am happy to have an increased milk price and lower dividend. The more they make on value add, the less I get as a milk price.
Fonterra can be damned if it does and damned if it doesn't. e.g. A2 milk. It can start producing that quite easily but the overall market is small. If it ramped up its production and caused a price collapse to more 'normal' milk prices, and caused A2 Milk company grief, imagine the cries of big guy forcing the little guy out.
The head of the New York Fed has 'cautioned' Congress and the White House on the dangers of rolling back financial sector regulations that were put in place to shore up the banking sector after the GFC. But, as if to acknowledge they won't listen, he also announced he is quitting the post. It's an unexpected, unexplained early retirement.
Like rats abandoning a sinking ship?
There seems to be an intense if at times acrimonious debate raging inside the Federal Reserve right now. The differences go down to its very core philosophies. Just over a week ago, Vice Chairman Stanley Fischer abruptly resigned from the Board of Governors even though many believed he was a possible candidate to replace Chairman Yellen at the end of her term next year. His letter of resignation only cited “personal reasons.”
It may be that was the real reason, for Fischer was no spring chicken. But even in public there is a noticeable and growing rift on the topic of inflation. For some policymakers, there is every reason to suspect the Fed has it all wrong. Others figure that something may be off, but that it won’t be off forever.
The latter category includes influential members like current FRBNY President Bill Dudley. The former head of the Open Market Desk, the Fed’s monetary frontier, is holding fast to “transitory.” Read more
Stephen
I think Michael Reddell over at https://croakingcassandra.com/ needs your help - it's your area of expertise - he is trying to understand why NZ government long paper (and short paper) is "consistently" priced lower than other advanced countries - as a significant player you will be able to put him straight or at least help him get in touch with the "Flipper" or a whale or two
I don't wish to engage in a discussion of the causes of differential cheapness for various regional sovereign bond offerings, other than to say the UST 10yr note price is not considerably richer than the NZGS 10yr benchmark given the illiquidity discount that applies to NZ prices. Moreover, US repo fails and hoarding in the gigantic US market support relative UST price richness.
I still struggle with inexplicable IR swap prices trading negative to their same tenor Treasury benchmark. A stack of semi annual bond equivalent interbank FRAs cannot be inherently less risky than same term government obligations.
Stock markets have gone too far ( like the Auckland property market , except the stock markets have well and truly OD'd on steroids ) and a correction is way way way overdue.
Right now investors are like buffalo at the drinking pond at sunset , danger lurks , and some of the herd are going to get killed and eaten. Most of the herd are doing what herds do............. following the rest of the herd.
Maybe they are oblivious, or maybe they just need to drink , maybe they dont think they will get eaten
The lion in the grass (or elephant in the room) is the ridiculously high PE ratios on stock markets.
Cheap money has been chasing yields for years , so they yields have fallen , pushing up prices and those prices no longer relate to the fundamentals. And its not just stock markets but also property markets and Bond markets which have got out-of-whack with fundamentals .
Near zero borrowing costs and massive pension fund flows coming from corporates and citizens have become a headache for Fund and Asset managers , who frankly dont know where to put the money , so they are becoming more blase , even ballsy if you like .
Some would even say reckless.
My stockbroker has recommended cash , he earns no fees whatsoever for this tip, and he has looked after us pretty well so far .
I trust his judgement and thank him for his honesty
I am by nature a Bearish person when it comes to markets , so I look out for danger signals , and I see danger signals and I dont want to get eaten , so I am taking precautions .
I have disinvested 100% from the NZX and ASX in the past year , and now sitting with a cash pile waiting for what must be a major correction .
It could be a week , a month , or even a year , but I reckon we are in for a market correction akin to a major weather event .
The world has not yet recovered from Ben Bernancke's QE experiment , the EU remains mired in debt.
Emerging markets are only for the real gamblers ..........they are the muddy almost dry little pond where there are crocodiles and bilharzia in the water , and lions, hyenas , wild dogs , leapords , cheetahs and snakes in the grass waiting to eat anything that is not alert .
A look at indexes tells you the story
The LSE index is flying , but the UK economy is not in a good space . How is this even possible?
The Hang Seng index is as high as it was in 2007 and the Straights Times is almost as high as it was in January 2008 . Seriously ?
These markets now look like the Papakura TAB on a Saturday morning
China indexes are a nightmare , China has been cheating and lying so we dont actually know what the hell is going on there, but I dont believe the official line . I have lived in a Communist run country, and you can never trust what the Government says or tells you. I would pick that China is hiding some serious cracks in its economy .
Even the tiny Zimbabwe stock exchange index has gone up ............. by an eye watering 70% this year since January
However you look at it , there are warning signs , something quite benign could trigger at least a correction , or at worst a recession .
So continuing the pond analogy .
If you are going down to the pond today ,
youd better not go alone '........
for there will be bears there ,
but there will not be a teddy bears picnic.
It may be a bloodbath .
The problem is "Right now investors are like buffalo at the drinking pond at sunset , danger lurks , and some of the herd are going to get killed and eaten. Most of the herd are doing what herds do."
"at worst a recession" it is not a minor event on the cards but another 1929 IMHO. So its more like who are the some who wont get eaten.
What amazes me is most of the large / serious / professional players in this game are not stupid by any stretch of he imagination, it is indeed "herd" like but worse. Yet these same players continue to gamble heavily despite having more money than they will ever need. I liken it to the emperor and his new clothes, no one is prepared to stand out and say anything because of a) the ugly / vitriolic consequences of doing so, b) no one wants the musical chairs of easy, unearned money to end.
Shares scared everyone so they went to property, that is now scaring people so they are going back to shares.
Some are scared of both so go to Cash.
Others are scared of Cash so buy Commodities.
Some even go for Crypto.
The Diversified ones have a dollar each way.
In the end it is all a Gamble though (No matter what the experts say).
You place your money down, then hope for a favourable outcome.
Question is, if it all goes Belly Up - will anyone be able to pay the winner?
pin3cone....I dunno.... I don't feel wealthy...I certainly don't spend anything (apart from on the kids)... Worked my butt off in healthcare (mainly NHS) for 15 years, renovated a house from a shell (couldn't afford anything better), taught myself to brick-lay, plaster, basic carpentry....all while being on maternity leave...and also studying post graduate, never had a lick of financial support from family (was a foster kid). I think i've worked hard enough to warrant some mild hysteria if all that turns to absolute manure... . plus i have two kids who I don't want to discover an utterly screwed world economy when they grow up. Saying that though, I do also grow my own food and have rainwater filtering plans afoot ;-)
The biggest threat to your kids is likely the hollowing out of the middle class due to growth mainly going across borders (outside the local country), rather than into wages of everyday folk. That, and automation used by the same companies, affecting their employment.
There's going to have to be some deep thinking about how to ensure there can still be a middle class to consume stuff.
I was curiously surprised to see the CEO of Microsoft mention in passing the concept of universal income being looked at in future - during an interview in the USA. Such things are discussed in Scandanavia and even in New Zealand, but for it to be mentioned by a CEO in the USA I found quite remarkable, albeit it was only a passing mention. Then again, he's leading the charge on AI to augment human enterprise, so seems well aware of its potential downsides.
I recommend his new book 'Hit Refresh' too. Well worth a read.
Boatman
You talk utter sense
I agree completely
Strangely when I suggested what you’ve said to a prominent NZ financial guy who writes in the Heral I was told I was a doomsdayer and shouldn’t invest in the market
I think the guy will have egg on his face
Bet he’ll retire
In which case he probably gave sound advice....if only by accident.
"retire" of course, the newspaper sells on good vibes and news, ergo anything that talks the market down will see vitriolic replies and denials so isnt wanted on the pages.
What gets me is the Math is simple, we are on a finite planet and paper money ultimately is under-written by physical assets, does not compute.........
The Hang Seng index is as high as it was in 2007 and the Straights Times is almost as high as it was in January 2008 . Seriously ?
The Hang Seng index had a bit of a wobble yesterday.
Hong Kong stock trading opened deep in the red last night, the Hang Seng share index falling by as much as 1.6% before rallying. We’ve seen this behavior before, notably in 2015 and early 2016. Hong Kong is supposed to be an island of stability amidst stalwart attempts near the city to mimic its results if not its methods. Thus, most kinds of turmoil are noticeable. Most. Read more
Yes i was thinking the same.
Given everything is being manipulated to prevent a crash (central bankers are doing everything possible to devalue cash and get people spending) you can argue the "sensible" option is to put everything into the sharemarket and enjoy the illusory gains as long as it spins....
Because once it tumbles, the old rules wont necessarily apply.
Chris-M
Exactly right There’s no protection on NZ bank deposits
Another reason why cash went into over valued property
There will be no safe haven for anything
Maybe Trump will start another Korean War which will blow up into WW3 ?
In which case anything could happen
Boatman,
An interesting summary and I can agree with many of the points you make,Where we differ markedly is that while you have liquidated your NZX and ASX holdings,I have only trimmed them. Since early last year,I have more than doubled my cash holdings,but much of my capital remains in what i regard as good quality,dividend paying stocks.
I am been involved in stockmarkets for over 40 years and seen several major corrections. I expect(hope) to survive the next one. I have met many stockbrokers in my time,but never one who recommended selling everything.
I think your approach is inherently riskier than mine,but time will tell.
Linklater01
Interestingly your approach of remaining invested while holding more cash is exactly what the guy who told me I was a doomsdayer is doing. His funds are loaded with cash but he must make money for his clients so remains albeit partially invested.
So although he calls me a doomsdayer he himself is preparing for a doomsday ! I call him a hypocrite
Re The Paradise Papers
Not surprising to see that Lord Aschroft of Belize featuring prominently in the list of high powered tax dodgers.
On the 9th of April 2015, I saw his personal jet land at the airport of a small Pacific island. Later that evening I sat beside his table at the hotel. It was interesting to see who he was dinning with. What was really interesting was who he was rumoured to have meet with in New Zealand before he flew there. Not who you would have expected. Pity that I have nothing but rumours.
Absolutely right. It took me a while to realise that the pittance that I paid in transaction fees was not the reason for their attentiveness. The hourly rate of what they made was trivial. Their real interest is manoeuvring you into deals that suit their large clients. That is where they make their real money.
this is another nice piece (& comments) on Tim Morgan's site
https://surplusenergyeconomics.wordpress.com/2017/10/27/111-a-spike-to-…
The best insight here is the comment ... "All this debt has masked the true cost of production."
This applies to all commodities. Which is why a reset is difficult to entertain.
Regarding the HSBC story , why is it that when any nefarious activity comes to light , HSBC is up to its eyeballs in it ?
I must declare my bias , I worked for an opposition Bank in developing markets at Standard Chartered Bank in Central Africa in the 1980's .
Even back then HSBC had a reputation for pushing boundaries in Africa, the middle east and SE Asia .
Methinks of Leopards and spots
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