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Factories expand in West, contract in EMs; Australia calls bottom of minerals cycle; Samsung caught cheating too; China tourism expanding fast; UST 10yr yield 2.03%; NZ$1 = 64 US¢, TWI-5 = 68.8

Factories expand in West, contract in EMs; Australia calls bottom of minerals cycle; Samsung caught cheating too; China tourism expanding fast; UST 10yr yield 2.03%; NZ$1 = 64 US¢, TWI-5 = 68.8

Here's my summary of the key events overnight that affect New Zealand, with news our tourism industry is facing a huge increase in demand.

But first, a slew of factory reports were out internationally overnight and they showed that the cooling global economy is having an impact on the factory floor. One report showed the rate of expansion in US factories slowing, another showed it holding its own after a fall the previous month. It's immediate prospects look quite good after car companies reported a banner month there.

The euro zone factory report also kept up its the healthy growth, as did India, while China's factories contracted sharply. Japan is still expanding. Even though many of the developed countries are still expanding, most of the the factories in the emerging economies are not and that is the reason the global outlook is quite dim. In fact the WTO cites China's factory sector as the main threat to growth in world trade.

Soft demand for minerals hurts Australia a lot. But they have just said that the market is now at its bottom and will rise from here. All their bets are on China's factories rebounding.

In Europe, and in an echo of the VW emissions testing fraud, it seems that Samsung may be guilty of something similar in its 'energy efficiency' scoring of its TVs.

In a Report out yesterday, it is clear that our tourism industry is in for a sharp period of expansion, especially from China. More than 100 mln Chinese took an international trip last year, up +11%. And "Oceania' was the destination for more than 10% of them. The eye-popping detail shows that only the south-west of China has the travel bug so far; when that spreads the numbers will grow very fast. We will need big growth in accommodation facilities and other tourist infrastructure to handle this trade. Tourism is set to be our biggest export earner for some time to come.

China is on a week-long public holiday, and don't forget it is a public holiday in Australia on Monday, their Labour Day.

In New York, the UST 10yr yield benchmark is falling again today and is at 2.03%.

The US benchmark oil price is basically unchanged, now just under US$45/barrel, Brent and just under US$48/barrel. Despite falling rig counts in the US oil production keeps holding up to many people's surprise. And the Mexican's have successfully auctioned off three new potentially large production areas. High production and low prices will be here for the plannable future, it seems.

The gold price is unchanged at US$1,115/oz.

The New Zealand dollar strengthened overnight although it is retracing some of that gain now. It is at 64 US¢, at 91.1 AU¢, and 57.2 euro cents, pretty much where it was at this time yesterday. The TWI-5 is at 68.8.

If you want to catch up with all the local 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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7 Comments

One report showed the rate of expansion in US factories slowing, another showed it holding its own after a fall the previous month. It's immediate prospects look quite good after car companies reported a banner month there.

With such ugly numbers everywhere, the mainstream is rushing to reassure:

And if Japan is expanding I'll eat somebody's UST bond portfolio. Read more

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Too late - US Treasury investors were too busy eating US taxpayers lunch before they got indigestion. View graphic detail. The gift that cannot fail to keep on giving.

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What do you see that is so sinister?
That immediate fall in the yield at the release of the US:BLS:NFP data and open of DS treasuries is standard fare, part recovering 90 minutes later as the "possible" significance is digested and NY loved it with a 450 point range on the day

I would have thought in this instance it was the treasury cowboys themselves who got whacked

You know that when the biggest data release is due, the DOM is cleared out, emptied, cancelled, in the 5 minutes before the release. Anyone who tries to get out after that is in for a rough ride - Painful STOPS

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12 basis points offers many opportunities to clear stops on the yield down move, cover and take the rest of the day off and swill beer as cowboys have a want to do. Treasury market makers hardly ever get whacked. Did I infer there was anything sinister?

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Eating Taxpayers lunch is a bit melodramatic. I reckon there is a 60 minute hiatus after the announcement. The drop is usually at the expense of naked suckers who get stopped

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The whole yield down move from 1982 (~30year ~15%, the 10's weren't the bench mark then) has been financed by taxpayers - higher bond prices capitalise discounted future fixed coupon payments today - interest rates can be cut in half to infinity.

All players are hedged in some way in a VaR credit derived position taking environment. The 450 point move you refer to is usually associated with lifting and resetting hedges.

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Tourism is on the boom alright. Queenstown airport struggles with keeping up for capacity in slots, parking space for planes and not to mention passenger handling. Night flights are required.
Somebody was talking 90,000 people in the basin by the mid 2040s, which is more than triple. !!!!
The demand in the Wakatip could justify A380s direct out of Asia and Dubai. Imagine an A380 dawdling down thru Gibbston. !!! Both Wingtips would be taking out tussocks.

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