Wall Street equities higher even as bond markets signal more recession fears; China consumer debt leaps; UK parliament to be prorogued; Aussie construction shrinks; UST 10yr yield at 1.47%; oil up and gold unchanged; NZ$1 = 63.4 USc; TWI-5 = 68.7

Wall Street equities higher even as bond markets signal more recession fears; China consumer debt leaps; UK parliament to be prorogued; Aussie construction shrinks; UST 10yr yield at 1.47%; oil up and gold unchanged; NZ$1 = 63.4 USc; TWI-5 = 68.7

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Here's our summary of key events overnight that affect New Zealand, with news we are near the end of the American summer holiday season and markets will return in earnest next week after their Labor Day holiday.

But markets are open and are still absorbing economic news. Firstly in the US, we got official confirmation that higher tariffs are to be imposed on October 1. It is no longer just a tweet threat. Business groups say that this is coming at "the worst possible time". And consumers are now saying the American "economy is getting worse". And there was a sharp drop in mortgage applications last week.

And China is still ignoring the US calls for renewed trade war talks. No-one is confirming the "calls from China" actually took place.

But Wall Street is up strongly today, with the S&P500 up +0.7% so far in afternoon trade, even if it is light trading. Equity investors seem to be ignoring any warning signs today. But it is healthcare and big pharma stocks that are driving today's rise.

However, recession fears are building in the bond markets. The US Treasury 30 year bond hit just 1.90% a few hours ago and that is an all-time low amid unrelenting demand for low-risk government debt. US Treasury 30 year yields are now below 3 month Treasury bill rates for the first time since 2007.

In China, their households are getting deeper into debt. It was just a few years ago when Chinese household savings seemed unusually high. Things have turned substantially and households now have 55.3% of GDP as debt liabilities. That is up from 51.4% a year ago. The explosion of consumer lending is behind the sharp reversal. Official data showed that in June, consumer loans increased +21% from the same time last year, while the expansion of national retail sales slowed to a 15-year-low of +9.4%. But much worse are their corporates who hold 155% of GDP in debt exposure and while that is not getting worse, it remains a huge load and a critical vulnerability.

In the UK, their new prime minister is threatening to dissolve their parliament early to prevent any democratic stumbling blocks to his goal of a hard Brexit. The British currency fell on the news.

In Australia, the latest data for construction completed have been described as 'ugly' as they fell more than expected and suggesting economic slowdown fears are materialising.

The UST 10yr yield is down -2 bps at 1.47%. The widening of the inversions continue. Their 2-10 curve is now negative by -4 bps. Their 1-5 curve is at -38 bps. Their 3m-10yr curve is at -61 bps. The Aussie Govt 10yr is at 0.89%, down overnight by -1 bp. The China Govt 10yr is also down by -1 bp at 3.07%, while the NZ Govt 10 yr is unchanged at 1.11%.

Gold is unchanged at US$1,542/oz.

US oil prices are up about +US$1 again and now just under US$55.50/bbl. The Brent benchmark is also up to US$60.50.

The Kiwi dollar is softer again, now down to 63.4 USc. On the cross rates we have slipped to just under 94 AUc. Against the euro we are also softer at 57.2 euro cents. That pushes the TWI-5 down to 68.7 and still its lowest since September 2015.

Bitcoin is now at US$10,130 and virtually unchanged from this time yesterday. The bitcoin rate is charted in the exchange rate set below.

 

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26 Comments

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Going from very low debt in China to the level it is now is a huge step jump in spending. A one off huge jump. No wonder things have been going well in China. But from now on, its done. No further big jump. Reality strikes hard. Most of this lending would have gone into property prices (the product with the most elastic pricing) and in this case where they don't even own the land!

debt is just promises
so they stocked up on promises
at some point promises wear thin

Uninterested..... I watched a YouTube video yesterday from Real Vision Finance which stated at least 45% of chinese loans are bad.

https://youtu.be/4cwXifDaCjE

https://www.resilience.org/stories/2019-08-28/the-green-new-deal-battles...

"That’s one popular denial narrative, and most of the media tends to parrot it. In a technological society, the media builds consent by serving the powerful".

"And the real unfolding drama — the collapse of a global civilization founded on a highly material culture created by cheap energy — is not a narrative we want to tell ourselves or our children".

"He emphasizes that BAU and GND suffer from the same shortcomings:They are both energy blind. Neither BAU nor GND, for instance, understand that energy flows underpin economic flows. The more carbon-based energy we use, the more economic growth global civilization experiences.The less we use, the more our economies contract"

"We’ve begun to experience collapse in all spheres of life. Collapse can be both slow and rapid. It is a series of unending emergencies. Instead of responding or preparing, we’re cheering on a fight between fantasies".

I think we are already seeing the play book with Trump. One mini crisis after another. The frequency and magnitude will simple increase.

The country that can go without strawberries in the middle of winter the longest wins.

" we are near the end of the American summer holiday season and markets will return in earnest next week "
Looks like 'we' expect quite a return to work!
"Google searches for “dow jones” (this month) were higher than they were in May, when the blue-chip Dow Jones Industrial Average DJIA, +1.00% retreated 6.7% and the S&P 500 index SPX, +0.65% suffered a 6.6% decline.... “We’ll have to wait to see how markets perform over the rest of 2019,but one thing is sure: Americans are watching.”
https://www.marketwatch.com/story/americans-are-googling-dow-jones-and-t...

Average Joe walking onto the dealing floor from their holiday on Monday morning with holiday bain looking at the market... Terbulant at best, gold & silver increase sharply on bad news and keeps pace with the market when it rises. Not much good news on the horizon, what's everyone else going to do??? I'll play it safe in gold and silver and other safe havens with a bit over 50% of my total exposure till there is a better indication of where this is all going and my brain switches off holiday mode....

I think you’re right about people piling into gold this year and longer. I see it easily reaching and going beyond the all time high in USD. Already is in many currencies.

"“The latest fake bars . . . are highly professionally done,” said Michael Mesaric, chief executive of Valcambi, a refinery. Although only a few thousand have been found, he said, there were “way more still in circulation”.
Many of the forged bars are believed to come from China, the largest producer and importer of gold. They enter the market through trading houses in Hong Kong, Japan and Thailand, and spread into supply chains worldwide."
https://www.thetimes.co.uk/edition/news/gold-crisis-as-banks-find-50m-fa...

It's never the States, they would never distribute misinformation, weapons or drugs to destabilise a country......
Obama wanted oil that was being stolen from Syria by ISIS to stop and dropped letters from the air to ask them to stop.. Yet the trucks kept rolling into Turkey and then it been sent mainly to Israel. Russia says stop, it doesn't, so they turn the convoy into smoking rubble.
Just like the UK would never distribute opium to China to get their silver back.
He who controls the media, controls the people.

When you click throught to the story and read further..
"The global trade in gold is beset by a forgery crisis after the discovery of $50 million worth of fake bars in bank vaults.
At least 1,000 counterfeit gold kilobars, the standard 1kg size, have been found in the past three years. This is a small proportion of the quantity produced each year — between 2 million and 2.5 million — but the forgeries are increasingly sophisticated, gold refiners say.
Although conventional fakes, made from cheaper metal plated with gold, are easy to detect, those with counterfeit stamps are a difficult challenge. The gold can be real, even of high purity"

Australia backs wrong horse as IP rights loom large in US-China trade war

Intellectual property rights are critical to US corporations because they operate in a world of global value chains. A corporation’s headquarters and engineering and design departments are established in one country, its manufacturing facilities in another, and its finance and sales departments in yet another country.

The aim is to declare profits in the lowest tax jurisdiction while locating production in the country with the most favourable combination of labour costs, workforce skills, infrastructure, and logistics. An estimated 80% of all international trade is simply the movement of intermediate goods and services between different arms of the same company across international borders.

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Part of the big disconnect between companies and societies, compared to earlier relationships between the two. With companies now starting to deliver less and less benefit to the societies they participate in, focusing instead on bleeding money out to tax havens.

I really do wonder what the future will hold in this regard, assuming its not dystopian. More cooperative models? More government ownership of stakes in companies that participate in their society?

https://kunstler.com/clusterfuck-nation/the-g-7-blues/#more-10868'

"The next economic bust is going to amount to the crack-up of the oil age, and the “global economy” that emerged in its late stage. It was all about moving fantastic quantities of things around the planet. The movements were exquisitely tuned, along with the money flows that circulated freely, like blood carrying oxygen to each organ. All of that is coming to an end. The nations of the world must be feeling desperate, despite the appearance of good manners at meetings like the G-7. What’s at stake for everybody in the dark background is the ability to maintain high standards of living only recently attained. And the fear behind that is not knowing just how far backward these high standards of living may have to slide".

So a bit like Kunstler's Y2K predictions? "Writing this in April of ‘99, I believe that we are in for a serious event. Systems will fail, crash, seize up, cease to function. Not all systems, maybe only a fraction, but enough, and enough interdependent systems to affect many other systems. Y2K is real. Y2K is going to rock our world. People will consequently suffer."

With where we are heading the 30 year treasury at 1.9% is a bargain. You just have to keep Exters pyramid in mind, and also the value and return on those bonds under massive QE.

Are there records kept on mortgage payment failures 30 / 60 / 90 day defaults in NZ?
From what I am seeing on the property sites there are price reductions and 'unfinished projects' entering the market. In an artical the other day a - 6.3% drop in Hawkes Bay property prices was mentioned and in another artical 'Alk auction sales rates 60%' aprox half of the properties went for below their RV. It wasn't that long ago that below RV sales in Alk were in single figures, this shows a bigger drop than reported.
On one hand there are indications that property prices have fallen dreastically and continuing to fall but the media (except interest.co.nz) is not reporting this.
Is anyone seeing the same?
Also the narrative in this comments section seams to have taken a more negative outlook over the last week.

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UK PM "is threatening to dissolve their parliament early to prevent any democratic stumbling blocks to his goal of a hard Brexit." Funny, I remember they had a referendum on the matter where the democratic result was that a majority of people wanted to leave the EU. I guess the people did not understand, therefore, it's for the best if their "betters"decide for them.

"Our constitution is robust. No harm will come from respecting the will of the voters"
https://www.telegraph.co.uk/politics/2019/08/28/constitution-robust-no-h...

Johnson is amoral. He cares most about staying in power, so he must be pretty sure of his polling and support to have taken this step. Vox populi.

An issue that the west has, that China doesn't.
A classic hare and tortoise tale. The long game wins.

I think they voted with one finger to the establishment - which they saw as responsible for their backward trajectory consumption-wise. It wasn't about exiting the EU, it was about up yours, I'm angry. Some of the Elite saw it as an opportunity to bypass EU environmental restrictions (Monsanto, GE, follow the trail) and link with the retrogressing US..

The problem is that neither the disenfranchised, nor the elite, can solve the energy/resource/depletion/overpopulation dilemma. It's too late, and has been for 50 years or more - perhaps 100 years. We did it on draw-down of natural stocks, did it at exponentially-increasing rates, and are about to be forced to reduce that draw-down with increasing rapidity.

It seems that the rabble vote (it's often the last one they're allowed) for populist, shallow-speaking charismatic leaders at this point in their distress - logical debate seems to be the preserve of those with the spare time and the knowledge-accrual often (but not always) academic in origin. And the books always seem to get burned, accompanied with chants of 'watch thou for the mutant' (with apologies to Wyndham).

Having tried to get traction for this debate in this First World country for a decade or more, I can tell you it isn't going to be had here either. So folk like me are addressing adaption, post-collapse. Mitigation/transition are rapidly vanishing from the order-paper.

...the world rapidly turning into a free for all. Will we get war or another great plague to 'correct'?

Nobody voted for a no deal exit

Mataura Valley Milk seeking funding after 1yr of production Current projections indicate the company will exhaust its existing bank facilities in September 2019, and needs an additional $12 million in funding over the period through to 31 May 2020." https://www.stuff.co.nz/southland-times/southland-top-stories/115277032/...