US housing starts drop; US sentiment drops; China tax collection change; Hong Kong growth evaporates; Malaysia growth up; equity markets chase stimulus plans; UST 10yr 1.54%; oil up and gold down; NZD devalued by -4.5%

US housing starts drop; US sentiment drops; China tax collection change; Hong Kong growth evaporates; Malaysia growth up; equity markets chase stimulus plans; UST 10yr 1.54%; oil up and gold down; NZD devalued by -4.5%

Here's our summary of key events overnight that affect New Zealand, with news the prospect of new policy stimulation is juicing equity markets today, but bond markets remain sceptical.

In the US housing starts fell for a third straight month in July amid a steep decline in the construction of multi-family housing units. That leaves them at the same level they were a year ago. But a rise in building permits offered some future optimism for the struggling American housing market.

And consumer sentiment as measured in a widely-watched survey fell sharply to its lowest level of the year. Negative reactions to the latest tariff moves were a key reason cited by survey respondents.

As the trade war intensified, there has been a switch in the largest foreign holders of US Treasury debt. Now Japan has edged out China at the top of this list. It wasn't China selling down - they didn't - it was that Japan has increased its holdings. All foreign holders of US Treasury issues account for 40.3% of all debt held by non-Government agencies, and stable (so 60% is held by US citizens and private entities). The level of foreign holdings has been steadily falling; five years ago it was 48%. As the US debt levels rise, foreigners are letting their share of funding it fall away.

In China, their central government tax collections are undergoing considerable change. In the first seven months of 2019 overall tax collections rose only +3.1%. Consumption tax collections were up more than +20%, but income tax collections slumped more than -30%.

In Hong Kong overnight there were more demonstrations and more are expected this weekend. Meanwhile the Hong Kong government sharply cut its 2019 growth forecast to a range of 0%-to-1% this year, down from 2%-to-3%. It also announced a stimulus package of almost NZ$4 bln. The protests and the global trade wars are a double blow to the City.

In Indonesia, they seem to have decided to move their capital out of Jakarta to somewhere in Borneo, to insulate it from the impacts of climate and subduction risks. Even more forest will have to be cleared. They also set a +5.3% growth target for the country next year, up from this year's 5.0% expansion rate.

Malaysia is also seeing rising economic growth, recording a Q2 increase to +4.9%, up from +4.5% in the previous quarter.

In Australia, the Hong Kong-vs-China tensions are boiling over as rival groups demonstate over the issue. The irony of their freedom to do this seems to be lost on the pro-China groups.

The recent sharp fall in the iron ore price seems to have run out of steam with prices stabilising in the past few days after a -22% drop.

Wall Street has ended the week up +1.4% in the day, but that is still a small weekly decline. European markers were up a similar amount, but they too have ended with a -2% weekly decline. Both markets were up on rumours that major German stimulus is being planned rather than any real economic turnaround.

The UST 10yr yield is now at 1.54%, a decline from this time last week of -20 bps on top of the -33 bps fall the previous two weeks. Their 2-10 curve is much flatter for the week, now at just +6 bps and their negative 1-5 curve is wider at -29 bps. Their 3m-10yr curve has blown out to a negative -52 bps and down to where it last was prior to the GFC. The Aussie Govt 10yr is at 0.89%, down another -9 bps for the week on top of last week's -12 bps fall and the prior week's -13 bps fall. The China Govt 10yr is virtually unchanged for the week at 3.03%, while the NZ Govt 10 yr is now at 1.03%, an -8 bps decline on top of last week's -28 bps retreat. Benchmark bond yields are still making big moves lower.

Gold is slightly lower today than yesterday, down -US$9 to US$1,514/oz, but is up +US$18 for the week, or a gain of +1.2%.

The VIX volatility index is over 19 although down from the high of 23 yesterday, now still above its average over the past year of 16. The Fear & Greed index we follow has moved to the 'extreme fear' zone.

US oil prices are a little firmer today but are little-changed from this time last week. They are now just under US$55/bbl. The Brent benchmark is unchanged for the week at US$59. The US rig count has moved up for the first time since June.

The Kiwi dollar is a little softer today, now down to 64.3 USc. That is equaling the low of October 2016 and prior to that you need to go back to January 2016 when it has been that low before. It is a consequence of the low OCR. On the cross rates we are down at 94.8 AUc. Against the euro we are up to 58 euro cents. That sets the TWI-5 back to just on 68.3 and that is a -150 bps drop for the week so in the past three weeks the devaluation of our currency has been -4.5%.

Bitcoin is now at US$10,445 and while that is little changed from where we left it last night, it is down almost +12% for the week. The bitcoin 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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31 Comments

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Yes and Trump has officially flow over the cuckoo's nest: BBC article Greenland: Trump warned that island cannot be bought from Denmark. Trump is said to have discussed the idea of purchasing Greenland, an autonomous Danish territory, during dinners and meetings with advisers.
Politicians in Denmark have ridiculed the idea of a possible US acquisition. "If he is truly contemplating this, then this is final proof, that he has gone mad," foreign affairs spokesman for the populist Danish People's Party, Soren Espersen, told national broadcaster DR. "The thought of Denmark selling 50,000 citizens to the United States is completely ridiculous." https://www.bbc.com/news/world-us-canada-49367792

Nothing new under the sun? The USA has wanted to buy Greenland several times in the past, the last time in 1946. And of course, they have bought several large chunks of land previously - Alaska being the biggest. ( or maybe the Louisianna Purchase was larger? )
https://time.com/5653894/trump-greenland-history/

Yes but when it comes to wanting to buy the whole island that's a different matter to selling or leasing off portions of land. Lots of countries tend to do that, even NZ has been doing that for years with lots of off shore buyers. Humm I wonder which country has the biggest share of NZ now?

No need to wonder, foreign owners of NZ capital is public information.. The largest are USA, UK, Luxembourg, Australia, Japan..

Greenlanders can have a vote, wonder which way they would go?

Not with Trump that's for sure, at least they have good healthcare and freedom with their government.

What if the US offered every Greenlander five million dollars? I think I would agree to that.

Some how I don't think they would believe Trump even if he tried to offer Greenland voters five million dollars each, all of his promises have turned out to be fake news. Such as building the wall and getting the Mexicans to pay for it, Better healthcare - he still has no clue...

In Australia, the Hong Kong-vs-China tensions are boiling over as rival groups demonstate over the issue. The irony of their freedom to do this seems to be lost on the pro-China groups.

Scott Morrison has been accused of causing an extraordinary rift between Australia and Pacific countries by the prime minister of Fiji, who said the Australian prime minister’s insulting behaviour while at the Pacific Islands Forum in Tuvalu would push nations closer to China. Link

Those naughty Australians. They should just grease the palms of the righteous representatives of the Pacific peoples. Sigh. It seems to be a bidding war.

Yes, you only have to look at the Samoan Rugby scenario.

Depends on how you interpret that freedom, there certainly has been a show of force to intimidate people: Nine News Australia - Three Chinese warships make surprise entrance into Sydney. https://www.youtube.com/watch?v=hJzcRoDA5sE

I find the surprise bit, incredulous, I don't believe those ships are not tracked 24/7

Yeah, would be entirely sure all the major players track each others surface ships pretty closely, but maybe the US didn't give Oz the heads up? Doubt Oz has the satelite resources of its own to cover teh entire globe?

Its good for the US as the proportion of domestic treasuries held by US residents grows. It becomes more and more stable like in Japan.
Stable but ultimately unsustainable!

European markers were up a similar amount, but they too have ended with a -2% weekly decline. Both markets were up on rumours that major German stimulus is being planned rather than any real economic turnaround.

The ECB also chimed in - Link and more detail.

Careful.
I'm sure that if the brainwashed Chinese mainlanders wanted to hold a march in the mainland in support the Communist Party's plans for Hong Kong then that would be welcomed. So they can do certain things. As long as they align with the Party's wishes. If not they would probably be shot.

I think we need to be careful Uninterested as I get the feeling we get brainwashed into thinking how bad things are in China with all one sided media coverage. Some of their major cities have recently implemented a recycling program that would never get off the ground here because we cannot be bothered even sorting our rubbish. They are not going to rise to the number one economy in the world by accident, when they want something to happen it HAPPENS.

Not having democracy means they can get things done quickly, whether most people agree with it or not. Lots of renewable energy ramped up quickly, but also Orwellian level surveillance in the making.

The housing shortage we just had to have. Using Statistics NZ newly released figures, over the past three June calendar years, New Zealand's population has increased from 4.693 million lucky souls June 2016, to 4.92 million more lucky souls. An increase of 227000. During those three years, not including renovation consents, which may of added more/less accommodation , New Zealand has consented 30400 homes thru June 2017, 32860 thru June 2018 and 34761 homes thru June 2019, in sum 97021. Notwithstanding the lag periods,or regional differences, that equates to one new home for 2.33 individuals, or their parts thereof.
Unless I have collated my numbers incorrectly,its saturday morning afterall, if there is no housing shortage,(excluding vested interests claiming so) but only unaffordable housing and extreme household debt levels as the recently released RBNZ data underlines,what will drive house prices higher.

Nice work. The big housing shortage is a myth.
I think it's roughly in balance, maybe a minor shortage.

I have noticed that housing affordability for young people is being touted as a driver for the protests. The Chinese government should think of a way to correct this. They may be able to do this with their vast population and experience at building large empty cities. Significantly subsidized housing for young people may be the way forward.

What I want to see from China is a good alternative to "universal suffrage", something we all assume is an absolutely marvelous thing, yet it seems that suffrage for everyone is suffrage for no one in reality. A credit system where people can only vote if they have a certain score could be good or achieving some sort of civic qualification you have to study for to be able to vote.

You cannot have 'more affordable housing' while there are ever-more of you, depleting the resources with which housing and servicing thereof, best-first. There will be an escalating bidding-war, made worse because debt-issuance has expected more every tomorrow.

No political system trumps (sorry) physical realities. Nor does bidding produce something from/for nothing - perhaps the biggest mistake we've made in recent years.

The Chinese government could build apartment blocks and sell them at a subsidized price. They manage it well enough in Singapore. The older generation of city workers in China had their apartments provided to them by the state.

@ Zachary; Credit score you say, you mean this: Everyone In China Is Getting A 'Social Credit Score' https://www.youtube.com/watch?v=N4Gr-HLM7Qk

I really want to watch China and see if they can devise a different system. We also have credit systems for approving loans and assessing immigrants and for criminals. You're likely to be eligible for diversion if you have been good mostly.

"All animals are equal, but some animals are more equal than others."

George Orwell.

'NZD/USD sitting lower today at .6430'

1st support is at .6425, second at .6380, then Roger Kerr goes bush.......

This mornings “Straits Times” headline “Optimism” The new government in Malaysia is swimming against the tide. I heard a government radio ad in a Grab asking Vegans to stop with there activism. No PC dribble here. It’s all about growth. And NZ is all about virtue signalling