US housing start weaken; Fed's Beige Book downgrades; Canada inflation dips; China ponders next moves; IMF sees better balance; Fitch trims AU bank outlooks; UST 10yr yield at 2.12%; oil down & gold up; NZ$1 = 67 USc; TWI-5 = 72.3

US housing start weaken; Fed's Beige Book downgrades; Canada inflation dips; China ponders next moves; IMF sees better balance; Fitch trims AU bank outlooks; UST 10yr yield at 2.12%; oil down & gold up; NZ$1 = 67 USc; TWI-5 = 72.3

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Here's our summary of key events overnight that affect New Zealand, with news the northern summer season is now starting and markets might get a little thinner.

First on Wall Street, equities are lower today after railroad profit warnings that the trade war is undermining rail traffic volumes.

Also, US housing start data came in weaker, and weaker than expected even if they are +6% higher than the same month a year ago. But new residential building permits were almost -7% lower than the year-ago level, so the outlook looks a little grim.

And mortgage applications slipped last week, while US mortgage rates turned a little higher.

All of this is consistent with the latest US Fed Beige Book report that says their economy is now just running at a "modest" level, which is a downgrade from the "modest-to-moderate" wording used in the past.

In Canada, their CPI inflation rates slipped from 2.4% in May to 2.0% in June, but this was as expected on lower petrol prices. Without petrol, it rose to +2.6%.

But Canadian industrial output growth came in below expectations with a +1.6% gain.

In China, steelmakers reported that first-half profits dropped sharply due to surging iron ore prices, sliding steel prices and tighter production restrictions on factories.

Office buildings in China's top cities now have vacancy rates that are surging as demand is unable to keep up with much higher supply, due to economic downturn, US-China trade tensions and the deleveraging campaign in the financial sector. The vacancy rate for Grade A office space in Beijing climbed to more than 11% in the first half of the year, the highest level in eight years, according to Colliers. And, they say, it might rise to 16% by the end of 2019.

China's leaders are off to a summer retreat to ponder their next moves on their economy and the trade war.

The IMF is now pointing out that China is no longer a net lender to the world, with its trade and investment levels basically in balance. The only distortion is that the US can't seem to stop sourcing from China. The IMF's core point is that this improvement has reduced global financial risk.

In the South China Sea, tensions are rising again with the Philippines asking for US help to counter Chinese incursions into its waters.

In Australia, Fitch has downgraded the ratings outlook for both ANZ and Westpac, shifting its 'stable' outlook on their AA- rating to 'negative'.

The UST 10yr yield is now just under 2.06% and -6 bps lower than this time yesterday. Their 2-10 curve is holding on to its steeper shape, at +23 bps, and their negative 1-5 curve is at -12 bps. The Aussie Govt 10yr is down -4 bps at 1.38%. The China Govt 10yr is also unchanged again at 3.19%, while the NZ Govt 10 yr is actually up +1 bp at 1.64%.

Gold has jumped +US$14 overnight to US$1,421/oz.

US oil prices are falling today on trade and growth fears. They are now down more than -US$1 to US$56.50/bbl. And the Brent benchmark is down a similar amount at US$63.50.

The Kiwi dollar is stronger yet again today, now up to 67.4 USc. On the cross rates we are also up, now just over 96 AUc. Against the euro we are up at 60.1 euro cents. That puts the TWI-5 up at just on 72.3.

Over the past 24 hours, the bitcoin price has stayed below US$10,000. It is now at US$9,752 and little-changed from this time yesterday. The 24 hr volatility has been +/- 4.3%. The bitcoin rate is charted in the exchange rate set below.

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36 Comments

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Highlight new comments in the last hr(s).

Good work farmers. Peak pasture. "In the past 20 years, however, something remarkable has occurred, something that few predicted: global pasture has begun to decline. According to data from the Food and Agriculture Organization of the United Nations, there are 140 million fewer hectares of pasture today than there were in 2000, an area roughly the size of Peru.
...Driving this global trend is increasing productivity — producing more ruminant meat and milk with less land. Between 2000 and 2013, even as pasture area has declined, ruminant meat and milk production has gone up by 13% and 32%, respectively. In other words, there has been a great decoupling of production from pastureland — a “livestock revolution".
...For example, according to FAO records, between 1990 and 2015, the area of forest in Europe (a region that has experienced some of the most significant declines in pasture) has increased by about 12 million hectares, nearly 8%. Such restoration, combined with a slowdown in deforestation, has cut GHG emissions from land-use change associated with pasture. One model estimates that abandonment of pasture is now sequestering more carbon than is lost from converting forest to pasture."
https://s3.us-east-2.amazonaws.com/uploads.thebreakthrough.org/articles/...
https://s3.us-east-2.amazonaws.com/uploads.thebreakthrough.org/articles/...

Good god, man.
Don't let PDK see this!

Intensification of animal production is almost always associated with substantial environmental cost. That is why Regional Councils are screaming oh god why did we encourage the farmers to do conversions when the RMA told us to manage things sustainably.

Did they look at whether pasture was being replaced by such things as maize production and palm kernel production? Also, I thought pasture was a carbon sink?

If you take soil carbon into account grazing is a carbon sink. The governement chooses to ignore soil carbon and focus on gross, not net, ag emmissions. Funny that.
"-Adaptive multi-paddock grazing can sequester large amounts of soil C.
-Emissions from the grazing system were offset completely by soil C sequestration.
We demonstrated this based on measurements of soil C and cattle productivity at the Lake City AgBioResearch Center from 2012 to 2016, which indicates a sink during the finishing phase of −6.65 kg CO2-e kg CW−1 which is similar to the results of Beauchemin et al. (2011). Yet, our results differ from many of those in the current literature, reflecting the importance of considering emissions and sinks from the entire system in a geographically localized area, including the soil ecosystem, when modeling beef production systems."
https://www.sciencedirect.com/science/article/pii/S0308521X17310338

Just going to drop this here..
https://ourworldindata.org/fertilizer-and-pesticides#fertilizer-consumption

less pasture, more crap dug up and dumped on it. Not necessarily a better outcome for the planet.

You'll be big on GM then? "On average, GM technology adoption has reduced chemical pesticide use by 37%, increased crop yields by 22%, and increased farmer profits by 68%. Yield gains and pesticide reductions are larger for insect-resistant crops than for herbicide-tolerant crops. Yield and profit gains are higher in developing countries than in developed countries."
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0111629

Yes, GM is great, so long as proper verification and controls are in place. Far quicker than the old way of doing things.

However the "breakthrough institute" that produced your report seems to be nothing more than a thinly disguise lobby group for oil/nuclear power interests.

That will be why Time named Nordhaus and Shellenberger "Heroes of the the Environment" then. Big oil got to that flaky left wing rag Time too.

I've been thinking about GM a bit and as stated the tests and controls need to be completed before introducing anything but I think it is actually better for the environment and the numbers you have stated show just that. It is just the risk of unintended outcomes most are concerned about. Modifying one part of a plant and then losing it's ability to fight another disease that is not currently present in the crops. The banana industry desperately needs GM or we're in big trouble IMO.

The tests and verification need to be in place for all types of advanced plant genetic modification. Old selective breeding methods are so slow that its unlikely you'll get any bad effects suddenly appearing (but not unheard of https://www.tested.com/science/weird/454414-dangerous-genetically-modifi...), but the modern "non-GM" methods are far far more dangerous than direct gene editing, have a google about mutagenic breeding methods.. Basically exposing seeds/pollen to mutagenic chemicals or radiation, resulting in random mutations, then giving it a suck it and see trail and error approach to finding better varieties. These are generally classified as Non-GMO plants.

Compare that with first identifying which genes are responsible for certain properties and then directly editing those genes, aka "scary" GMO plants... I know which sounds like a better idea to me.

Well, we could CrispR a few squillion Possums for a start, but Greens sagely (heh) deem that Haram.....

get the headings right either gold was down heading or gold was up body text.

Canada's population outgrew the economy two quarters in a row (0.4% vs 0.1% each quarter).
Two terms to describe the state of the Canadian economy - per-capita recession and stagflation .

New Zealand's housing market is different from the rest of the world. "armour-plated"

https://www.stuff.co.nz/national/114321627/new-zealands-armourplated-hou...

Interesting note below from that article, apart from the seeming subtext of "the last thing we want is affordable housing for Kiwis!"

That's $1 trillion in untaxed capital gains, which at the top marginal rate would have generated extra tax revenues of $330 billion, or enough to build nearly 700,000 new state houses or fund the next 14 years of New Zealand Superannuation payments.

Irony alert.
So now that BH is talking from your playbook, he is reliable?
You, TTP, etc will just forget the often made point that he was so wrong in 2009?

Interesting standards.

I bet Ireland thought their housing market was armour-plated too at the peak of the Celtic Tiger.

Oh yes, October 2006. Some extremely similar narratives to what we are hearing today.

The Irish housing market remains in very good health, despite some
fears.
The housing market is being supported by a robust overall economic
performance, particularly continued strong employment growth.
This should support further high levels of net inward migration.

Domestic demographic trends are also favourable.
Thus, housing demand remains well underpinned. However,
deteriorating affordability conditions are impacting on buyers’
ability to realise their demand.
Meantime, supply is increasing. Forward looking indicators point to
record levels of output near term and only a moderate downtrend
thereafter.
Not surprisingly, the rate of house price inflation is moderating as
the supply/demand balance adjusts.
Further price moderation is anticipated as the market heads for the
much anticipated soft landing. House price inflation could be in a 3-
6% range by end 2007.

Undoubtedly, though, the risks to the market have grown and
require careful monitoring. These centre primarily around
deteriorating affordability. Sentiment also plays a key role,
particularly in the investor sector.
The market also remains particularly vulnerable to government
intervention and any proposed taxation changes should be well
considered in terms of the impact they might have on the market.

Wheres Bernard gone? Miss his input on this site.

Heres a goodie from him for those that struggle to see why their constant predictions of house price plunges never eventuate:

https://www.newsroom.co.nz/2019/07/18/686320/our-armour-plated-housing-b...

Never? You speak too soon, and Bernard could be as well. If there’s such a shortage, why are sales rates in Auckland going so low? New builds not exactly rushing off the shelves.

126k consents in 4 years vs 176 new households.. a gap of 50k...

What was left out is the number of those 126k consents included an income option as part of the buid, thus reducing that gap...

That is a good article and outlines all the arguments the bull have although I have to say it is very slanted to a positive outlook.

Some key areas that are missing is how the prices have ballooned (in Auckland mostly) due to foreign money and speculation during the frenzy, the medium prices are now well out of whack with medium household incomes meaning that price growth in Akld is near impossible in the short to medium terms. If there is no growth, there is no speculation, no FOMO and the buyers have all the power which is what we are seeing now.

Sure all those "Armour plating" solutions may come to pass, but if 11% were to lose their jobs you can be sure that prices in auckland would be down 20%, (a lot of places are already down 10%+) meaning that 7% of Akld home owners would be in negative equity. and that can only cause a downward spiral.

It also makes the huge assumption that Chinese QE will hit the mark again without crashing its currency

Hope you’re going to discuss this soon in one of your articles, in relation to the housing market and mortgages: ANZ and Westpac credit ratings outlook downgraded to 'negative': Fitch (this is for both Australia and NZ)
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

These rarely gets discussed..

Because everything’s fine.

no, Everything is Awesome - https://www.youtube.com/watch?v=StTqXEQ2l-Y

Does this have any impact on the bank's wholesale funding rates?

Should do, but a central bank official rate cut will offset the impact.

Ive just moved significant amounts away from ANZ, I have a feeling there is a lot more brewing under the surface...

I wonder if others are doing the same???

Yes, same. Spread the risk. Seems crazy to say that with cash in a bank but I agree.

The cracks on the Titanic are creaking.
Aussie banks being downgraded to negative.
China vacancy rates growing because supply exceeds demand
Millions of Chinese, therefore, facing drops in equity.
USA growth sliding. Japan, EU, Indian and China growth sliding.
The debt deflation precedes hyper-inflation. hence gold price rising as USD weakens.
This is a 4-7 year switch but USA reserve currency is past its sell by date.
It was based pre 1973, on Bretton Woods. Then on Japanese assent to de-value in 1985. And also on relationship with OPEC. Now world increasingly less reliant o oil from Middle East and China and Russia cosying up to Iran and Pakistan re trade and basis for payments. Re-set in world trading situation is beginning

But all is good in ockland