Big China tax shifts, key China interest rate reform; Hong Kong challenge grows; Singapore suffering; Aussies audit the auditors; US sentiment dips sharply; UST 10yr yield at 1.56%; oil firm and gold up; NZ$1 = 64.3 USc; TWI-5 = 69.7

Big China tax shifts, key China interest rate reform; Hong Kong challenge grows; Singapore suffering; Aussies audit the auditors; US sentiment dips sharply; UST 10yr yield at 1.56%; oil firm and gold up; NZ$1 = 64.3 USc; TWI-5 = 69.7

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Here's our summary of key events over the weekend that affect New Zealand, with news the challenges for China just seem to keep on mounting.

But first, central bankers are off to Jackson Hole, Wyoming for their annual shindig which starts at the end of this week. But they will be stressing over the state of the world economy and the loneliness of having to shoulder all the economic heavy lifting, mostly caused by misguided American policy. Likely the hosts will be deaf to any such criticism.

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%.

And their central bank unveiled a key reform to its interest-rate mechanism, a move aimed at lowering interest costs for businesses struggling with their cooling economy. The existing benchmark interest rates will be replaced with the Loan Prime Rate, which is based on real-world bank lending prices, as a reference for banks in pricing new loans.

In Hong Kong there were more demonstrations over the weekend in a major defiance of Beijing, but this time there was no tear gas from the police. Yesterday's protest was the largest so far, bringing 1.7 mln people on to the streets. In contrast, the single Saturday afternoon pro-Beijing event was minor. 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 an economic blow to the City. Beijing is taking out their loyalty frustration on Hong Kong-based businesses who have operations in China. First to feel the heat are the Cathay Pacific airline, and the large auditing firms.

In Singapore, key exports fell by double-digits for the fifth straight month in July although the pace of the decline moderated, raising the possibility that the worst may be over. Still, the outlook looks bearish. Growth estimates for 2019 have been slashed to 0% to 1% as exports are likely to fall by as much as -9% over the whole year.

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, following the Hayne Inquiry into financial services, their Parliament set up an inquiry into the auditing industry, especially the large audit firms. It was set to receive submission unril the end of September but this has now been extended to late October due to the interest of parties other than the audit firms themselves. Cosy, management-friendly, endlessly-extended, and highly lucrative audit relationships have been under scrutiny worldwide and will undoubtedly also get closely examined in this Aussie inquiry.

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.

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.

Wall Street ended last week up +1.4% on Friday itself, but that is still a small weekly decline. European markets 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 1.56%, a decline from this time last week of -18 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 +7 bps and their negative 1-5 curve is wider at -29 bps. Their 3m-10yr curve has blown out to a negative -50 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 now at US$1,513/oz and that is up +US$17 for the week, or a gain of +1.2%.

US oil prices are a little firmer today at just over US$55/bbl. The Brent benchmark is up at US$58.50.

The Kiwi dollar is a little lower 64.3 USc. But 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 57.9 euro cents. That sets the TWI-5 back to 69.7.

Bitcoin is now at US$10,393 and while that is little changed from where we left it on Friday, it is down almost +12% for the week. The bitcoin rate is charted in the exchange rate set below.

 

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20 Comments

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11
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"Broker John Bolton, of Squirrel Mortgages, said....it was a good environment for borrowers but there was another side to the equation. "The reason this is happening is not so good. It's like having a party on the Titanic before it sinks. I'm not sure how I feel about it... it's a bit scary."

Scary, John?! Really? You should have been scared some time ago. My suggestion is you enjoy the party as it's far too late to find a lifeboat now.... (PS: John, mate. All the "interest rates" lifeboats have gone...the mortgage rate cuts that you rightly say 'are coming' will not save you. They'll numb the pain on the way down though)

13
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You do realize that mr. bolton belongs to the 'elite' class,right???

he'll jump onto the rescue ship while all those folks he enticed to get loans will be left clinging onto the stern ....

14
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Johnkey has took off all the life boats and rowed away last 2 years ago...

Dressed as an Italian women to be available to discuss what happened.

With this criticism of US policy: what alternative is there to stop China and its IP theft?

Tax Capital Flows, not Goods?

A plan...as opposed to random, confused, self seeking, juvenile tweets perhaps?

i find it amusing that mr. chaston is happy to put the blame on mr trump... he seems to think that no one should have rocked the boat...

There is a difference between rocking a boat and rocking it untill it tips over.

o

Speaking of audits - or lack of. The GE whistleblower Mark Markoplus makes for an eye opening little interview...
https://www.youtube.com/watch?v=3jE10T250bo

Someone had a comment the other day around where to buy gold from here in NZ, and being able to buy small amounts through automatic payments or something along those lines? Anyone able to help out? :)

Hi jfree. That was me. I set up an arrangement with New Zealand Gold Merchants (in Onehunga) to buy a set dollar value every payday then mint it into an ounce when there was a sufficient amount. Give them a call and I’m sure they will be happy to help.

NZGM are not backing gold to rapidly rise just yet. https://gogold.co.nz/news-item/tonys-market-update

The merchant also doesn't care about the price, they make a cut on the way through either way.

Would you like to be paid to take take out a mortgage? Denmark’s Jyske Bank announced a -0.5% offer this month (before fees). Meanwhile at Nordea Bank, 30-year mortgages are just 0.5%!

https://www.bloomberg.com/news/articles/2019-08-18/negative-mortgages-se...

Is time up on Fletchers as they release their results this week, or do they get another chance to swing the hammer. The rise in Contacts price over the past few months, suggests that institutional investors have jumped. If there are no positive surprises, vultures will circle.

would be very surprised if their results are not bad.

Methinks that the Quantitative Easing / money printing and excessively loose monetary policy in the US
, EU, CHINA and Japan was a load of stupid nonsense and was eventually going to come back to haunt us .

And it is starting to do so