Here's our summary of key events overnight that affect New Zealand, with news we should keep an eye on the world's third largest economy because new data shows it can still impress.
But first, updated estimates suggest the American economy is expanding at a +3.6% annualised rate in the third quarter. This is a retreat of -½% from the Q2-2018 rate. This update follows the release of August data on domestic consumption and income. Wall Street is closing with a small loss on the day, and a small loss on the week.
In Canada, a small slip was expected in their July economic growth rate, but it didn't occur, coming it at +2.4% pa, the same as for June. That probably sets the stage for another Bank of Canada rate hike.
In Japan, and in somewhat of a market surprise, retail sales there turned up strongly in August. Factory output data came in positive as well. Their unemployment rate fell to 2.4%, and new data shows that 70% of Japanese women of working age are now employed, a new high. All these positives has seen the Tokyo stock market roar higher, up +1.6%. Oh, and by the way, Japanese housing starts in August rose much more than was anticipated. All up, this suggests Japan is the other large economy that is helping drive world economic growth at the moment.
In Europe, inflation rose above +2% in September, and above the ECB target. A sharp rise in fuels costs was the key driver, but food costs also contributed.
In China, there is growing evidence authorities there are censoring their economic data, sanitising out the signs of stress. One thing that is obvious however, outbound investment fell in August for the first time ever. Mostly, that was a sharp pullback from investing in the US, but there is a redirection towards the EU. The pressure to only deliver good news is so intense, it reaches into core research and now their military is wary.
The Shanghai stock exchange was up another +1% yesterday, but you do have to wonder if the markets there are operating with all relevant information.
In India, updated data shows that their external debt is falling and that their exposure to the sorts of pressures other emerging economies are facing is actually very low. And their foreign exchange reserves to total debt is an impressive 80%. For all their issues, they are in a strong position.
In Australia, their banks have been shamed for their sales culture which bred 'greed' according to the interim report from their Royal Commission into financial services. But the long-running inquiry stopped short of recommending any penalties, sending bank shares rallying. A report summary is here. The main sectors in the Hayne crosshairs are advisers and brokers, as well as insurers.
The UST 10yr yield is softer today at just on 3.06%. Their 2-10 curve is just under +24 bps now, -2 bps lower in the week. The Aussie Govt 10yr is at 2.67% (down -1 bp overnight), the China Govt 10yr is at 3.65% and down a chunky -6 bps, while the NZ Govt 10 yr is at 2.64%, also down -6 bps. New Zealand swap rates have been flat over the past week, only slipping slightly at the long end.
The VIX is still its average over the past year of 12. And the Fear & Greed index has moved sharply back to neutral, a quick face away from the heavy 'greed' position of last week..
Gold however is up from yesterday by +US$7, now just on US$1,191/oz in New York, but -US$5 lower from this time last week..
US oil prices are up sharply today from yesterday by almost +US$1.50 and now just under US$73.50/bbl. The Brent benchmark is now just over US$82.50/bbl. The US rig count was unchanged this week.
The Kiwi dollar is ending the week unchanged at 66.3 USc, but down +½c in the past seven days. On the cross rates we are little changed at 91.8 AUc, but up strongly at 57.1 euro cents - in fact that is the highest we have been in a month. That puts the TWI-5 at 70.3, the same as last week and almost at its average over the past 3 months.
Bitcoin is now at US$6,693 and that is a net gain of +3.2% over the past week. This rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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24 Comments
What is economic growth? This isn’t an easy question to answer. Most people might respond with a reference to GDP. That wouldn’t necessarily be an incorrect one, but it may not be exactly on point, either. GDP was developed in order to try and assess economic growth, and over the years has simply become a stand-in for it.
That’s true of many economic statistics. If the numbers are positive, without further contemplation we take that as growth. All these figures and estimates were developed with those same assumptions – that if a broad survey of them all kept up positive numbers that would be consistent with growth. GDP was intended to capture the widest possible view.
This is one of the biggest problems over the last eleven years. You didn’t have to argue with people about late 2008 and early 2009 – everyone knew what the economy was doing. The fact that GDP or another statistic like Industrial Production was collapsing (didn’t matter in which country) simply matched perceptions.
https://www.alhambrapartners.com/2018/09/28/the-numbers-in-japan/
More like a fable - Candide and a quote - "" 'Let us work without reasoning,' said Martin; 'it is the only way to make life endurable.' "" So I did garden - just popped inside for a breather.
Thursday I tried the Pinces of Yen Youtube video - managed only the 1st hour but had trouble grasping what was going on; will need to watch it a second time. It is just so very difficult to believe the most brilliant minds in Japan and the top economists worldwide could be so blind/ignorant.
Richard Werner: Today’s Source of Money Creation
https://www.youtube.com/watch?time_continue=164&v=IzE038REw2k
Hi Roger,
I hope you watched 'Princes of the Yen'
https://www.youtube.com/watch?v=p5Ac7ap_MAY&feature=youtu.be
Watched that yesterday. Fascinating! particularly the section at 32.58 on capital outflows. Seems that what happened with Japan from 1980-86 is repeating with China today. Japan went from a net capital inflow of 2 billion in 1980 to a net capital outflow of 132 billion in 1986. I remember an old guy at work telling me the Japanese were buying everything in Auckland in the 1980's. Richard Werner and Steve Keen seem to be singing from the same hymn sheet.
Useful link
The key question to answer in NZ in respect of credit creation in the last 10 -15 years.
What percentage of total loans by the banks in NZ have been for non GDP producing purposes?
Just had a look at RBNZ data on bank loans. Total growth in total loans since Dec 2016 (earliest data) is 34bn.
Of this amount:
1) 65.8% is for housing - either owner occupied or investor
2) 10.5% is for commercial property investment.
Not sure how much is for new construction (one time GDP producing) vs non GDP producing purposes.
Can't reverse out of this corporate subsidy;
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Yup. We ought to ask James Cameron and Sir Peter Jackson to be prime minister and minister of finance - they are way sharper than John Key and Bill English and almost certainly ahead of who we have now. A highlight quote: "I'm somewhat surprised that the prior government agreed to an uncapped liability for that - particularly when they didn't budget for it,"
I remember Jon key being wisked off to Hollywood to sign this deal. James Cameron must have been giggling when he left.... no need to worry about budgets NZ tax payer will foot the bill. Also let's make 10 more movies. Key really sold NZ down the road...keen to hear from his fans defend this decision?
I
Hi Andrewj, that's been happening all year I think the first halt in Unicredit was around April time and from memory there were a few halts in August as well.
As I know you are aware already the ECB appear to be the only purchaser of Italian Government bonds at present so it's likely to be a bit of cat and mouse about whether the purse strings will remain open or not to keep funding their government debt purchases. At some point a member state will decide to leave the Euro and that's when it will get exciting.
The Wizard of Draghi
https://www.alhambrapartners.com/2018/09/28/the-wizard-of-draghi/
The 30-year fixed-rate mortgage rose for the fifth consecutive week to 4.72%, a high not seen since April 28, 2011 when it was 4.78%. The average 15-year rate rose to 4.16% from 4.11%, Freddie Mac said in a said in a statement on Thursday.
According to nationalized company, among the reasons listed for the continued rise in rates are: the robust economy, rising Treasury yields and the anticipation of more short-term rate hikes caused mortgage rates to move up.
https://www.zerohedge.com/news/2018-09-27/us-home-mortgage-rates-hit-se…
I had always commented that any reference to Chinese statistics should be in quotes: Chinese "statistics" or "data".
Can I suggest that that become part of Interest's House Style.
To treat it as though it's gospel - perhaps a bad comparison but it's resonant - is to fall into the neatly laid trap of all propaganda/fake news/disinformation/economical troothiness. The long history of disinformation on the part of Marxist-inspired regimes, now having had over a century to hone that fine craft, should be enough to make anyone release the safety catch on their Char(34).....
Straight talk: high and still rising oil prices and also increasing interest rates in a world saturated with debt will lead to people spending less on consumables which will lead to a downturn (recession).
I stand by my call that the Fed will be forced to cut their rates again from Q4 2019 or Q1 2020
I'm sure the Americans have enough Chinese living in America already and will be glad of the current fall in visitor numbers. The down side is that they'll probably turn up down here at some point. As for the figures from the Far East, all to be taken with a pinch of salt or a splash or two of fish sauce, should you prefer.
Enjoyed the Princes of the Yen, but as always, there's many angles to every story.
I like the gardening suggestion. Thinking time.
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