US jobs growth slows; Wall Street senses Fed's stimulus signals; Canada jobs growth good; global airtravel slows; China slices reserve ratios; Thailand takes its chances; UST 10yr 1.55%; oil up and gold down; NZ$1 = 64.4 USc; TWI-5 = 69.7

US jobs growth slows; Wall Street senses Fed's stimulus signals; Canada jobs growth good; global airtravel slows; China slices reserve ratios; Thailand takes its chances; UST 10yr 1.55%; oil up and gold down; NZ$1 = 64.4 USc; TWI-5 = 69.7

Here's our summary of key events overnight that affect New Zealand, with news China has sprung a bit of a surprise with the size of its reserve ratio cuts.

But first, the August US non-farm payrolls result shows that the American economy continues to add jobs, but at a very modest pace as the trade war intensifies and global growth slows. In fact, the +130,000 new August jobs is the fourth lowest month in the past year, and for the whole past twelve months, the jobs growth is -19% blow the same prior period, and the least since 2011. The only saving grace is that wage growth is staying up at +3.2% where it has been for about a year although it is hard to see that sustained as labour demand wanes. The American participation rate remains low at 63.2% making their jobless rate look better than it really is.

Markets however looked past this dour result, preferring to focus on Fed comments which reinforced the 'whatever it takes' policy and embeds the Fed 'put' - and are being taken to mean rate cuts are coming.

The S&P500 is up a modest +0.2% today giving a weekly rise of +1.5%. That follows European markets that were up +0.4% overnight. And Shanghai, Tokyo and Hong Kong were all up a bit more than +0.5% overnight. Shanghai was up +4% for the week

The jobs situation was more inspiring north of the border. Canada reported good jobs growth, up +81,000 in August from July. Compared with August 2018, employment increased by +471,000 (+2.5%), the result of gains in both full- (+306,000 or +2.0%) and part-time work (+165,000 or +4.8%). Over the same period, hours worked were up 1.2%. Their participation rate is 65.8%. (New Zealand's participation rate is 70.4%.)

There is little to report on the trade war front and there probably won't be until the meetings in early October take place.

As we reported yesterday, the global airfreight market is now shrinking. But until now the international passenger market was in good shape. But the July data out overnight shows that growth is pulling back here too, up only +2.7% in a year. and only half the rate we reported in June The Asia Pacific region grew similarly at +2.7% in July. The weakest region is North America with growth only half that.

In China, they cut their reserve ratio by more than expected, a chunky -50 bps, which is expected to release up to US$125 bln in additional bank liquidity. And they are doubling the cut to -100 bps for commercial banks that operate only within provincial-level regions. All this extra liquidity is to help fund the boosted infrastructure projects at provincial levels, funded by even more local authority debt.

In Hong Kong, protests are flaring again this weekend. Ratings agency Fitch cut Hong Kong's credit rating to AA from AA+, citing these protests.

In New Zealand, ratings agency S&P has affirmed the ratings on the four major New Zealand banks (at AA-) and Rabobank (at A). The outlooks on all five banks are stable. They say the risks facing banks and nonbank financial institutions operating in New Zealand have reduced as house price growth has slowed in the past two years.

In other news, German industrial production data extends it contraction. And Thailand is offering a 50% tax cut for manufacturers fleeing China (there are a few, but so far there is no mass exodus).

The UST 10yr yield is down -1 bp from this time yesterday at 1.55%. Their 2-10 curve still marginally positive, but only just at +2 bps. Their negative 1-5 curve is unchanged at -33 bps. Their 3m-10yr curve is wider at -50 bps. The Aussie Govt 10yr is at 1.07%, down -2 bps overnight. The China Govt 10yr is down -3 bps at 3.02%, while the NZ Govt 10 yr is now at 1.18%, up +9 bps overnight and up +8 bps over the past week.

Gold is sharply lower at US$1,508 and a -US$10 fall in a day, a -US$17 drop in the week.

The VIX volatility index is sharply overnight, now at just on 15, and below its average over the past year of 16. The Fear & Greed index we follow is slightly less extreme, now in the middle of the 'fear' zone.

US oil prices are firmer today at now just under US$56.50/bbl. The Brent benchmark is also up at just on US$61.50. The US rig count has moved lower yet again and under 900 for the first time since mid 2017.

The Kiwi dollar is much firmer today, now up to 64.4 USc which is more than a +½c gain in a day and a +1½c gain since this time last week. We are back to where we were three weeks ago. On the cross rates we are firmer too at 93.9 AUc. Against the euro we are +1c higher for the week at 58.3 euro cents. That puts the TWI-5 back up to just on 69.7 and reducing the overall devaluation of the Kiwi dollar since the beginning of July to just -2.9%.

Bitcoin is now at US$10,393 and that is -1.3% lower since this time yesterday. In the meantime it had risen +3.6% but has jerked back suddenly in the past two hours.Bitcoin has jumped +9.3% in a week however following last week's -8.6% drop. 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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11 Comments

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There's been several stories in the past week about building companies falling over. Not a good sign. Here's another one. This is the issue with working for HNZ. They may have lots of work but they are so dangerously tight on fees, it invites under pricing.

https://i.stuff.co.nz/business/115579344/auckland-construction-firm-liqu...

... the real profits accrue to land bankers ... sadly , not to hard working construction companies ... we desperately need to reconfigure our tax legislation to encourage business , and to nip at the heels of lazy land hoarders ...

Such a lost opportunity by Mickey & the Tax Working Group to be so fixated on introducing an idiotic CGT instead ...

Totally right Gummy.
Construction is on a precarious precipice.
Take MBIE and council proclamations of continuing building boom with a grain of salt.
The thing is, I don’t think there is any cynicism behind their proclamations. I just think they are incompetent.

I did some numbers this morning, on the relevance of the US job numbers.

Well it turns out, employment growth is better than the current participation rate.

US population grows by one person every 13 seconds, which is the equivalent of 2.425 million per year or 0.7% increase of their current population of 330 million. Turns out 158 million people are employed, which is approximately 60% participation. With 130,000 jobs per month being created, based on population growth, this indicates 64% will be employed. When it drops below 121,000 jobs per month, the headache start to get worst.

Of more concern is NZ employment participate rate; where conveninetly no current stats appear to be available, however based on the latest stats available suggests our participation rate is at best 55%. Not sure whether this includes low cost migrant workers (replacing those who dont want to work), however if it does perhaps explains why the government have to keep borrowing to paper over the cracks.

And that 130,000 will be revised down in a few months when people arnt that interested anymore probably haha

Fitch have Hong Kong at AA and ANZ at AA-. Sorry for the colorful language but this is utter bullsh/t.

Every property in HK is leasehold so the government has a biblically large annuity stream. So much so that they have no sales tax, no capital gains tax, no inheritance tax and don't tax income on dividends, interest or for companies foreign income. They don't spend anything on defence and welfare in minimal. They have more money than God.

ANZ is a bank with a large mortgage book in two overvalued property markets with regulators in both their main markets looking at some issues in their business practices.

Chalk and cheese and yet one notch different. Utter rubbish.

... the land tax which some of us bang on about is similar to the Hong Kong leasehold system...

Except , the land tax is only levied on the underlying value of the land ... not on the capital improvements...

... in either system , ultimate ownership is vested with the crown , to provide on going revenue streams .... and to minimize tax on the productive sectors, business and wages ...

Yep I'm an advocate of a land tax too. So many logical advantages over income taxes.

The land value tax - MoneyWeek Videos
https://www.youtube.com/watch?v=cwDqjmSmtMQ

The Gumster has solved the housing crisis : stop the presses ed ... yes folks , you heard it here first :

RV's ! . . simple really ... why let tourists scam the system with their " freedom camping " ... run them off , they add nothing to the economy...

... utilise RV's for the housing needy ... good units run about $ 60 000 ... one tenth the cost of a Kiwi Build house ... they can drive them to work , to school to drop off the kids ... to the shops ...

RV's ... then, now , forever : mobile houses for Kiwis who need to fly , cheaply ...