China makes big cut to reserve ratio, China fx reserves rise; China exports fall; US payroll growth weak; global air travel soft; UST 10yr yield at 1.56%; oil unchanged and gold lower; NZ$1 = 64.1 USc; TWI-5 = 69.3

China makes big cut to reserve ratio, China fx reserves rise; China exports fall; US payroll growth weak; global air travel soft; UST 10yr yield at 1.56%; oil unchanged and gold lower; NZ$1 = 64.1 USc; TWI-5 = 69.3

Subscribe to our daily podcast here.

Here's our summary of key events overnight that affect New Zealand, with news China has sprung a series of data surprises.

They cut their reserve ratio by 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 their boosted infrastructure projects at provincial levels, funded by even more local authority debt.

And there was another surprise; China's foreign currency reserves actually rose in August, an unexpected outcome given the devaluation Beijing is orchestrating in the yuan. The rise wasn't large (+US$34 bln), but it masks a stronger situation than you might otherwise have assumed.

Also a surprise is an unexpected fall in exports in August. Exports fell -1% in dollar terms from a year earlier, while imports declined -5.6%, leaving a trade surplus of US$34.8 bln, The reason for the fall in exports is a sharp drop to the US, which was down -16% on a year-on-year basis. Analysts had expected a small rise as front-loading extended.

In Hong Kong, protests flared 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 Europe, German industrial production data extended its contraction.

And in Thailand, they have started offering a 50% tax cut for manufacturers fleeing China (there are a few, but so far there is no mass exodus).

In the US, their August non-farm payrolls data shows that they continue 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% below the same prior period, and the least since 2011. Of note, freight companies 'slashed' their payrolls, the industry sector with the largest reversal. The only saving grace is that overall 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.

A Presidential adviser conceded over the weekend that the trade war could take "a decade" to result, undermining his boss's claim that trade wars are "easy to win".

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 on Friday, the global airfreight market is now shrinking. But until now the international passenger market was in good shape. However the July data 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.

The UST 10yr yield is unchanged since from this time Friday at 1.56%. Their 2-10 curve still marginally positive, but only just, at +2 bps. Their negative 1-5 curve is unchanged at -32 bps. Their 3m-10yr curve is at -49 bps. The Aussie Govt 10yr is at 1.07%. The China Govt 10yr is at 3.02%, while the NZ Govt 10 yr is now at 1.18% and up +8 bps over the past week.

Gold is lower at US$1,506 and a -US$12 fall over the weekend, a -US$17 drop in the week.

US oil prices are holding at now just over US$56.50/bbl. The Brent benchmark is also up at just on US$61.50.

The Kiwi dollar is firmer today, now up to 64.1 USc which is more than a +½c gain over the weekend 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 94.2 AUc. Against the euro we are at 57.6 euro cents. That puts the TWI-5 back up to just on 69.3.

Bitcoin is now at US$10,397 and that is unchanged since this time on Saturday. 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 ».

Daily exchange rates

Select chart tabs »

The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

Daily swap rates

Select chart tabs »

The '1 year %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '2 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '3 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '4 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '5 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '7 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '10 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

15 Comments

Comment Filter

Highlight new comments in the last hr(s).

So the Thais have the balls to do something to help build growth. When will our government try something like this? The long term gains to the country must be worth it?

Fonterrible will be seeking a bail out when they flee China .. hows that for balls !

We all understand that the Government attempt to set up a monopoly has failed dismally GBH. The only question now is how the fallout falls?

... when you're " too big to fail " , your directors continue to receive their $ million salaries ... regardless how culpable they were in leading the company the wrong way .... bail out coming ... rivers of white gold ? ... nah , taxpayers gold !

Government - I thought Fonterra was a Co-OP owned by the farmers? Let them fail and sink - best and brightest will then take over.

Yes but the Government created specific legislation to allow them to form, so in effect it was the "Government". But the thing that truly amazes me is that this company hires extremely well qualified people, most if not all I assume with pretty good track records, pays them extremely well - and they just demonstrate their collective incompetence? Just goes to show qualifications mean NOTHING, and previous history does not guarantee future success.

Disagree - you could say Government made legislation for Companies to form - but is it the Governments fault that they fail? So over the "special status" farming gets in the country - droughts - bail out - pollute the environment- stop picking on us - Fonterra mismangement -bail us out.
Stand on your own 4 feet and deal with it!

So the Thais have the balls to do something to help build growth

Or they \they're desperate and overreliant on Chinese investment for their manufacturing economy. Nissan is in the process of laying off workers in Thailand. Car sales have dropped off a s cliff in the region.

It depends what Thailand is doing - if the 'growth' is dependent on draw-down then it's 'painting into a corner'.

There's isn't much time, globally, for these types of changes now. The graph to watch is this:
https://serc.carleton.edu/earthandmind/posts/last_call.html

"This comparison suggests that we are at a very interesting moment in history".

It's the only game in town now - we will all go into, and through, the bottleneck with the infrastructure we currently have, plus or minus a small increment. Concentrating on export of consumption-fodder to a debt-ridden West, may not be the wisest move....

And Fonterra had no choice. The free-marketeering of recent years, ends with a few biggies in the pond - Joe's corner store cannot compete with a conglomerate, big beats small. Fonterra had to try and be big, the default was fail. Sorry, but that's where neoliberalism leads.

I don't disagree PDK. The other article on this site about the housing riddle also explores this somewhat, well at least the commenters do. While choosing not to comment on that one as at this time there are already 130 comments there, most if not all the commenters clearly miss the entire point and are talking about more growth, when the conversation should actually be bending towards a stable population, and Government regulation putting a harsh brake on residential housing investment to make housing more affordable. But as at least one commenter states there are now too many big players influencing Government policy in this area.

China has sprung a series of data surprises.
They cut their reserve ratio by 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

As you’ll see in every news report, the claim 50 bps RRR is equal to unlocking about RMB 900 billion “liquidity.”

While that may be technically true, it is still a lie of omission. What’s left out of the story is vastly more important. You are left with the misimpression that this is an effective surplus of funds which will be thrown on top of an otherwise static and stable condition. A net increase.

What’s really happening, and why RRR’s are a warning rather than stimulus, is that the 900 billion is meant to hopefully partially fill in a much bigger and more dynamic funding/liquidity gap that already exists. Link

Boom and just like that china money is refreshed.

Maybe it's just the mortgages in NZ that seem real.
When the bail out comes, let's do it for the borrowers not the banker & their equityholders. (was looking to include deposit holders, but there are none, they are all unsecured to the bank, - where's the trust).

We have done it before, in the 30's when folk were walking off the land.

Much better than zero interest rates now and skinning the widows and orphans in fixed income.

This works on so many levels for the growth, population and climate change hand wringers. "But Swedish researcher Magnus Söderlund believes this could be a genuine solution to climate change and asserts we must "awaken the idea" of eating human flesh in the future.

At a summit for food of the future called Gastro Summit, Professor Söderlund held a talk called “Can you Imagine Eating Human Flesh?” where he argued "conservative" taboos against cannibalism should be broken down."
https://www.standard.co.uk/news/world/scientist-suggests-eating-human-me...

Who do you think the Greens will sacrifice first for consumption - Marama or James?