Equities rise on trade talk restart signal; US data positive; US Fed says trade war costing -1% growth; China ready to lower reserve ratio; UST 10yr yield at 1.56%; oil unchanged and gold dumped; NZ$1 = 63.8 USc; TWI-5 = 69.1

Equities rise on trade talk restart signal; US data positive; US Fed says trade war costing -1% growth; China ready to lower reserve ratio; UST 10yr yield at 1.56%; oil unchanged and gold dumped; NZ$1 = 63.8 USc; TWI-5 = 69.1

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Here's our summary of key events overnight that affect New Zealand, with news of a growing smile in global equity markets.

Financial market sentiment is much improved today because there seems to be an appetite by both China and the US to resume trade talks. China has announced that trade talks will recommence at a senior level in early October with their negotiator going to Washington DC. Before then, lower level officials will work to clear or narrow the key issues. Wall Street is up +1.3% on the news which came out late yesterday. Shanghai was up +1.0% and Tokyo up +2.1%. (Hong Kong has other issues and while it did rise spectacularly on Wednesday on local news, it barely changed yesterday with this news.)

There was other better news in the US. The precursor employment report for this weekend's August non-farm payrolls report came in more positive than expected. Tomorrow's non-farm payrolls are expected to rise by +160,000, a relatively low result and very similar to the July result. Employment levels may be growing, but not everyone is happy.

There were two US service sector PMI reports out overnight with contrasting messages. The local membership one was positive showing a stronger expansion, the internationally-benchmarked one was weaker, reporting an expansion that is cooling to near a stall. Take your pick. The markets however chose the optimistic one.

The final report for US factory orders however came in better than the earlier flash result. But within that the important durable goods orders component weakened, weighing on the result.

Markets know what the US Federal Reserve research shows: American trade policy will reduce American economic output by more than -1% through to early 2020.

Globally, service sector growth slowed as business confidence slid further.

Air cargo continues to suffer from weak global trade and the intensifying trade dispute between the US and China. Global trade volumes are -1.4% lower than a year ago and trade volumes between the US and China have fallen by -14% year-to-date compared to the same period in 2018.

In China, their housing market is cooling fast. And authorities have signaled they are about to cut their bank reserve ratio.

In Europe, their equity markets rose about +1% across the board. The exception was London which fell about -0.6% in the shadow of their Brexit debate omnishambles.

The UST 10yr yield is up +10 bps to 1.56%. Their 2-10 curve is now still positive at +2 bps. Their negative 1-5 curve is narrower at -32 bps. And their 3m-10yr curve is a negative -48 bps which is also narrower. The Aussie Govt 10yr is leapt +14 bps to 1.09%. The China Govt 10yr is fell -3 bps to 3.05%, while the NZ Govt 10 yr is up +3 bps at 1.09%.

Gold has dropped sharply, down -US$37 or -2.4% to US$1,518/oz.

US oil prices are unchanged today at just on US$56/bbl. The Brent benchmark is still at US$60.50.

The Kiwi dollar has firmed to 63.8 USc. On the cross rates we are unchanged at 93.6 AUc. Against the euro we are the same at 57.8 euro cents. That puts the TWI-5 at 69.1.

Bitcoin is now at US$10,523 and down -1% from this time yesterday. The bitcoin rate is charted in the exchange rate set below.

 

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my book of the week

All the trouble in the world

https://www.amazon.com/All-Trouble-World-Overpopulation-Ecological-ebook...

I first read this one in the early '80's.

https://www.amazon.com/Overshoot-Ecological-Basis-Revolutionary-Change/d...

"We rush toward a destiny we have not paused to discern because, under the influence of the cornucopian paradigm, we readily mistake accelerated draw-down (which shortens out future) for a solution to our predicament"

40 years ago and with 4 billion on the planet. It would have been an easier fix...

14
up

But neoliberal 'wisdom' says businesses need to sell their crap to a larger population base to achieve more shareholder value, governments need a greater taxpayer base to rake in revenues to play with, and cities need to be more populated to achieve economies of scale and bring cost of living down.

The last one has to be the most counterproductive socioeconomic experiment in the history of our modern world.

a relatively low result and very similar to the July result

Global economic commentators have taken upon themselves to talk down the economy, especially in the West. US monthly job growth at 100k is supposed to be outpacing working population growth rate and the global media is expressing disapproval at 160k but rejoicing when China fudges positive PMI numbers using 'stimulus efforts'.
I feel that's why we are witnessing a decoupling of business and conumer sentiment indices and actual economic performance.

Who will audit the auditor?

https://www.goodreads.com/quotes/472433-oh-the-jobs-people-work-at-out-w...

“Oh, the jobs people work at! Out west near Hawtch-Hawtch there's a Hawtch-Hawtcher bee watcher, his job is to watch. Is to keep both his eyes on the lazy town bee, a bee that is watched will work harder you see. So he watched and he watched, but in spite of his watch that bee didn't work any harder not mawtch. So then somebody said "Our old bee-watching man just isn't bee watching as hard as he can, he ought to be watched by another Hawtch-Hawtcher! The thing that we need is a bee-watcher-watcher!". Well, the bee-watcher-watcher watched the bee-watcher. He didn't watch well so another Hawtch-Hawtcher had to come in as a watch-watcher-watcher! And now all the Hawtchers who live in Hawtch-Hawtch are watching on watch watcher watchering watch, watch watching the watcher who's watching that bee. You're not a Hawtch-Watcher you're lucky you see!”

Sounds like these bees haven't heard of the Hawthorne effect...

Central Banks Dust Off Old Tools to Stem Risks From Easy Money

I haven't noticed any curbs imposed on the casino-like speculation taking place in sovereign bond markets initiated by central bank QE asset swap programs. There is no direct benefit to citizens and NPV costs of government term liabilities double every time official interest rates are cut in half. Let's impose a higher RWA rating above zero for non-regulatory bank purchases.

Massive news story yesterday. I don't recall seeing this mentioned on interest.co.nz. "China and Iran flesh out strategic partnership. Staggered 25-year deal could mark seismic shift in the global hydrocarbons sector."

https://www.petroleum-economist.com/articles/politics-economics/middle-e...

The central pillar of the new deal is that China will invest $280bn developing Iran's oil, gas and petrochemicals sectors. This amount may be front-loaded into the first five-year period of the deal but the understanding is that further amounts will be available in every subsequent five-year period, subject to both parties' agreement.

There will be another $120bn investment in upgrading Iran's transport and manufacturing infrastructure, which again can be front-loaded into the first five-year period and added to in each subsequent period should both parties agree.

Great link - Belt and Road here we come, and crunch-time for the oil-dependent USA (and satellite hangers-on...) The US imports just on 10 million barrels per day - so much for the Saudi America alternative fact - and cannot survive as configured, without that. Fracking was a temporary injection, never turned a buck and has sucked the best already. So the US has to stop this initiative, by force.

Had to happen - energy is life, money is a board-game. It's always been about the oil since Churchill, Fisher, T.E.Lawrence and Gertrude Bell. They weren't fighting over date-palms.

Notice how the follow-up reaction to the recent incident in the Persian Gulf, where an oil tanker was attacked and then Iran shot down an unarmed drone, completely fizzled out? China has clearly drawn a line in the sand when it comes to Iran.

Quote from a blog I read: Who really attacked the oil tanker in the Persian Gulf? Was it Iran, as the deep state assured us? Or was it Saudi Arabia, the United Arab Emirates, or Israel? Nobody really knows. The deep state sprung into action and the planes took off and Trump called them back. He said it was inappropriate to kill Iranians for shooting down a drone with no loss of American life. The deep state was not very happy with that call.

Russia providing the security to complete the triad: Russia, Iran to hold joint naval drills in Indian ocean: Zarif

Also goes to show that while the US is trying to bust their chops over breaches of their treaty by developing nuclear weapons, China doesn't care, and therefore Iran doesn't either. If they can't trade with the west, they'll trade with the east! Another stepping stone to a nuke war in the middle east between Israel and everyone else.

We will not be immune from the fallout!

"Air cargo continues to suffer" - and as a consequence how much less CO2 has been released into the upper atmosphere?

Could Trump's deglobalisation be the environmental answer?

So could a large pogrom, but both have some rather nasty side effects..