US delays latest tariff hike for domestic reasons; US CPI up 1.8%; consumer debt manageable; US carmakers glum; China FDI up; German sentiment dives; UST 10yr yield at 1.67%; oil up and gold lower; NZ$1 = 64.5 USc; TWI-5 = 69.8

US delays latest tariff hike for domestic reasons; US CPI up 1.8%; consumer debt manageable; US carmakers glum; China FDI up; German sentiment dives; UST 10yr yield at 1.67%; oil up and gold lower; NZ$1 = 64.5 USc; TWI-5 = 69.8

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Here's our summary of key events overnight that affect New Zealand, with news of a temporary tariff-related sugar-rush.

First up today, the US Administration says it will delay the imposition of the latest extra 10% tariffs until the end of the year. The move is to allow US retailers to stock up for the end-of-year holiday selling season and prevent sticker-shock going into a key re-election period.

Even though the unilateral US move won't fix any trade or currency issue, the market relief is palpable. The S&P500 has regained all it lost yesterday, up +1.8% so far. The oil price jumped too.

American consumer inflation rose at the rate of +1.8% in July, it's average rise in the past year. Core inflation is up +2.2% (excluding food and fuel) driven by rent and medical care both of which are up more than +3.3%.

And American household debt rose +1.4% to US$13.9 tln in the second quarter of 2019, or to just over 65% of GDP. It has risen in every quarter for the past five years and the total is now US$1.2 trillion higher than the GFC peak. This data does show that overall deliquency levels are now back to levels they had just prior to the GFC, but the portion that is 'serious' is now at its highest share ever (even if it isn't anything like a stability risk). Just for perspective however, New Zealand household debt is on a completely different scale, running at 96% of our GDP.

In the US, two of the major car manufacturers are reported to be planning for an economic downturn.

In Hong Kong, their airport has been closed for a second day after it has became the centre of protest. The Hong Kong share market fell heavily yesterday, down more than -2%. And there seems to be no end to the trouble, with dissatisfaction spreading among Hong Kong residents at China's increasingly heavy influence.

In China, they released data that appears to show that foreign direct investment in the country is rising at a faster rate, up +8.7% from the same period a year ago. A lot of that was via new free-trade zones.

In Japan, machine tool orders are still in the doldrums, down -33% in July from the same month a year ago. Still, that was a smaller drop that they reported in June.

In Germany, their influential ZEW business sentiment survey has come in much more negative than was expected.

In Australia, their latest NAB business confidence survey isn't as bad but it isn't great either. They are seeing below average confidence and conditions with the business sector losing 'significant' momentum since early 2018 and forward looking indicators don’t point to an improvement in the near term.

The UST 10yr yield has firmed by +1 bp to be at just over 1.67%. Their 2-10 curve is now almost completely flat, now at just +2 bps and their negative 1-5 curve is much wider at -29 bps. Bond investors aren't buying into the latest tariff change optimism. The Aussie Govt 10yr is at 0.98%, up +3 bps from yesterday. The China Govt 10yr is down -3 bps at 3.02% and its lowest in ten years, while the NZ Govt 10 yr is down -2 bps to 1.10%.

Gold is -US$4 lower today at US$1,501/oz.

US oil prices are up strongly today by more than +US$2 to be over US$57/bbl. The Brent benchmark are now above US$61.

The Kiwi dollar is marginally weaker today, at 64.5 USc. On the cross rates we are -½c weaker at 95 AUc. Against the euro we are actually firmer at 57.7 euro cents. That puts the TWI-5 at just on 69.8.

Bitcoin is now at US$11,349 and that is almost exactly unchanged since this time yesterday. The bitcoin rate is charted in the exchange rate set below.

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30 Comments

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Highlight new comments in the last hr(s).

The superstar economy doesn't have any actual superstars
https://promarket.org/the-biggest-puzzle-in-economics-why-the-superstar-...

Hmmmmm..- is personal data collection a suspect business model?

“Imagine that in the 1960s you were to double the productivity of GM—that would clearly have a huge impact on the economy. If you were to double the productivity of Facebook overnight, it wouldn’t even move the needle.”

Wow, household debt at 96% GDP!?

and thats if you trust GDP numbers

A worthless piece of paper gained at a temple of knowledge that was supposed to transform lives of teenagers for the better is today the number cause of severe delinquencies in the US. Oh the irony!

12
up

Certainly a problem with running everything including education as a business, especially when it leads to exploitation of the young to profit those in charge. E.g. see the textbook industry and the current use of single-use codes to ensure they can't even use second hand textbooks. Disgraceful ethics from the education industry in the USA.

Yes - the economic system aims to MAXIMISE waste/consumption
Second hand anything is bad news if it supresses demand for more stuff
Which is why according to economists, earthquakes are such a windfall

I had 2 cases recently which were very disappointing. Firstly a not very old Microwave started blowing the fuse, which I diagnosed to a transformer short. Cost for transformer in NZ $150.00.(without labour) Looked up cost of transformer in China $12.00 (but not worth shipping). Microwave to the scrap metal yard. Second a Dryer that had become noisy and would stop. Diagnosed to a seized motor bearing. Cost for bearing $20.00 cost for labour $300.00. Dryer to the scrap metal yard. Pretty simple fixes for both of these yet uneconomic to repair. I would have much preferred to repair both of these items.

Some of us choose not to own either appliance.

And we get along very well.

The only markets which have seen massive price spikes like education are ones which are heavily intervened in by the state. Education is only a business insofar as the wealthy elites and bureaucrats at the top of the universities are creaming it at the expense of the students.

Who is to blame? I'd point the finger at the federal loans scheme, which provides guaranteed income to the aforementioned troughers.

Wherever else business is allowed to flourish prices fall, they don't rise exponentially.

In the US, two of the major car manufacturers are reported to be planning for an economic downturn.

A downturn in US automotive industry won't affect its local populace. The US manufactured about 1.5m more vehicles on-shore in the year 2000 than it did in 2018. An industry expert on WSJ has reported that most of its "non-specialty" vehicles are assembled offshore in Thailand, Mexico and China.

Good job NZ. Price is probably a good indicator too."However, a new book suggests food miles are a poor indicator of a product’s total carbon footprint, and could even be misleading.

Bananas imported from the Dominican Republic, apples from New Zealand and oranges from Brazil are among the most carbon-friendly foods UK consumers can buy, according to Professor David Reay, a climate scientist from the University of Edinburgh."*
Edit
*Comment paid for by the Apple and Pear Board, Big Tobacco and the Koch brothers.

Good try.

Anyone else spot it?

My bad PDK. I forgot to add that my comment was paid for by the Apple and Pear Board, Big Tobacco and the Koch brothers.

..wrong again (as usual) as are you are assuming you must eat those products. You need not, eat local.

So the banks are in such a spot they think that paying people to take up large loans will be better for their bottom line than the effects of letting prices return to more affordable levels?

So that's interesting. From the article, "Another Danish bank, Nordea Bank Abp, also said that it will begin offering 20-year fixed-rate mortgages with 0% interest". Don't know about you guys, but I could pay off my mortgage over 20years with much nicer payments than I pay monthly now, to pay it off over 21yrs. I'd take that loan. So, could it happen here, don't see why not.

Been in Denmark for a while now. Now it is just blamed on Brexit.

"Updated April 14, 2016 10:14 am ET

AALBORG, Denmark—Hans Peter Christensen got some unusual news when he opened his most recent mortgage statement. His quarterly interest payment was negative 249 Danish kroner."
https://www.wsj.com/articles/the-upside-down-world-of-negative-interest-...

Mommy where does money come from?
https://archive.org/details/JohnTitusRichardWerner

What is a cross currency swap and what does a negative basis for it really mean?

The negative yen basis swap acts like leverage where even yields on the interim “investment” are negative. Any speculator or bank with spare “dollars” could lend them in a yen basis swap meaning an exchange into yen. Because you end up with yen you are forced into some really bad investment choices such as slightly negative 5-year government bonds, but that is just part of the cost of keeping risk on your yen side low. Instead, the real money is made in the basis swap itself since it now trades so highly negative. The very fact of that basis swap spread means a huge premium on spare dollars; which is another way of saying there is a “dollar” shortage. Because of the shortage and its premium, you can swap into yen and invest in negative yielding JGB’s in size and still make out handsomely.

These are huge potential returns embedded in a negative basis (especially averaged across all the major currencies). The fact that it can get so negative to begin with tells you that there aren’t enough takers for the other side, the fat side of the trade – those with “spare dollars” which is really just balance sheet capacity. The fact that it persists for long periods of time means something other than temporary, the very condition that would drive market participants more and more into UST’s no matter how many times they are assured by all the right people to never fight the Fed because there’s nothing but curious trivia setting the market. Read more and more

In Germany, their influential ZEW business sentiment survey has come in much more negative than was expected.

Draghi on manufacturing slowing down and the importance of fiscal policy

Whoomp, there it is

Now that the damage is done, let's conveniently place the blame elsewhere.

One of the most efficient and growing industries indirectly promoted by successive governments is baby-farming, i.e. the having baby after baby particularly by solo mothers as a life-style choice at the expense of the state through working-for-families,etc. The fathers can now walk free without contributing a cent to the baby's upbringing and the mother is not now penalized if she doesn't wish to name the father. In many cases the state has to pick up the tab when the multi-childed mother can't afford the rent and has to appeal through the media for assistance. The state is then shamed into having to finance them into a rental property or motel. Meanwhile the fathers are off having other babies to other mothers.
The state must be applauded for promoting such an efficient enterprise.

I'm in the wrong industry then

There's a direct electoral feedback loop here too: them kids, assuming they Vote at all, will vote for Mo' Gubmint Cheese....Keb Mo, with National steel guitar played bottleneck

Well, it's late in the evening and I'm on my knees
It's late in the evening and I'm on my knees
Yes I'm all so grateful for my government cheese
Government cheese

It's a bad situation when I love my little friend Louise
It's a bad situation when I love my little friend Louise
She's a wiz in the kitchen and she knows what to do
With that government cheese
Government cheese

Serious question. I have cash in the bank, what can I do with it? I have no mortgage and good income.

You're looking in the wrong place for credible investment advice tbs...

serious answer - buy yourself some resilience to an ongoing economic depression - whatever you think resilience entails...
bearing in mind
- cash will continue to lose its buying power
- levels of income cant be relied on
- rationing will become the norm
- givens we assume as sure as day & night will go down as history