90 seconds at 9 am: Lower trade brings lower domestic activity

US job openings slip; Ford rated junk; Canada housing starts rise; China opens up to foreigners, clamps down on developers; Aussie business confidence dips; UST 10yr yield at 1.70%; oil unchanged and gold lower; NZ$1 = 64.2 USc; TWI-5 = 69.5

11th Sep 19, 7:21am by David Chaston

Subscribe to our daily podcast here.

Here's our summary of key events overnight that affect New Zealand, with news China's factories are now experiencing sudden deflation and their housing developers are in a big chill.

American job openings fell for a second straight month in July amid decreases in wholesale trade and the federal government. Even though the change was small it is being seen as bolstering views that job growth has peaked. Q3 growth estimates are now down to +1.5% pa and that is almost its lowest since 2017. Small business optimism has now fallen to a five month low, not because current conditions are weak but because future ones are more uncertain.

And things are not great for American car makers. Moody's has cut Ford's credit rating to a junk Ba1 as doubts rise over their future.

Further, a second White House official is also warning American's to "be patient" over the US China trade talks. Reality is sinking in there that trade wars are not "easy to win".

To the north, things are a little brighter. Canada's housing starts rose more than expected as did their building permits, boosted by large apartment developments. Toronto's housing market is in the middle of a healthy turn up.

China has ditched its investment limit caps on foreign institutional investors. So long as they fund investors and are are in public markets, they can now buy as much as they wish.

But clamps on real estate developers are continuing to bite. The amount of funding raised by Chinese developers tumbled almost -60% in August after the authorities ramped up scrutiny on all financing channels for home builders in a move to keep home prices in check.

In China, they reported their August CPI rise as +2.8%, the same as for July. But food price rises are quite substantial, up +4.6% pa with pork prices up +15%, beef prices up +8% and lamb prices up almost +11%. Even larger price rises are recorded for fresh fruit which is up almost +20% year-on-year. These food prices will echo around the world (and may strain local consumer sentiment as well).

Producer prices are now falling in China. A year ago producer prices were rising much faster than consumer prices but this has turned around completely now. Both input and output prices are lower than this time last year as factory deflation takes hold.

In Hong Kong, inbound tourist arrivals fell -40% in August amid the street protests. And China is clearly rattled by making this claim.

In Australia, the widely-watched NAB business confidence survey took another dip lower in August. Both business confidence and conditions declined in the month, with both now at +1 index point and well below long-run averages. This suggests that momentum in the business sector continues to weaken in Australia, with both confidence and conditions now well below the levels seen in 2018.

The UST 10yr yield is up +8 bps and now at 1.70%. Their 2-10 curve marginally less positive, now, at +4 bps. Their negative 1-5 curve is narrower at -26 bps. Their 3m-10yr curve is sharply narrower at -35 bps. The Aussie Govt 10yr is up +5 bps at 1.13%. The China Govt 10yr is up +1 bp at 3.05%, while the NZ Govt 10 yr is up +6 bps, now at 1.22%.

Gold is lower again, down -US$11 to US$1,492.

US oil prices are little-changed today and now just over US$57.50/bbl. The Brent benchmark is also up at just on US$62.50.

The Kiwi dollar is unchanged at 64.2 USc. On the cross rates we are stable at 93.6 AUc. Against the euro we are also unchanged at 58.2 euro cents. A weaker yen has put the TWI-5 down to 69.5.

Bitcoin is now at US$10,204 and also little-changed from this time yesterday. 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

Source: RBNZ

Source: CoinDesk

Daily swap rates

Select chart tabs

Source: NZFMA

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.

19 Comments

by Fritz | 11th Sep 19, 8:29am 1568147377

Some real trouble brewing in construction.
As I have said before, Housing NZ is building a lot but the margins are so tight or non-existent that it's just not sustainable. It works ok as a stop gap measure.
This building outfit were viewed as quite credible too, which is double troubling.

https://i.stuff.co.nz/business/115673806/stanley-group-collapse-subbie-…

by Dgm | 11th Sep 19, 10:21am 1568154111

The building industry is broken, needs a complete reset..

Debt is a big issue, where most can't cope.. they have taken on too much..

The issue is that these folks will operate under a new name and continue the same thing all over again

by profile | 11th Sep 19, 8:56am 1568148968

The head of the Norway Oil Fund is sanguine on global trade disputes. "The trade dispute will probably work itself out “over time,” Slyngstad said, adding that it will be “a lot more difficult” to break up global supply chains than it may seem. “There’s a huge upside in keeping the production chains together,” he said."
"...The fund has so far taken a sanguine approach to turmoil stemming from Brexit, even adding to its London real estate holdings in the immediate aftermath of the 2016 vote. It has repeatedly argued that the U.K. will remain a European economic power regardless of the outcome of Brexit."
https://www.bloomberg.com/news/articles/2019-09-04/norway-s-1-trillion-…

by scarfie | 11th Sep 19, 10:46am 1568155593

Sort of a mutually assured destruction thing, there is certainly merit to that train of thought. It will end when there isn't enough, or one side needs a distraction from domestic affairs.

by Audaxes | 11th Sep 19, 8:56am 1568149003

Further, a second White House official is also warning American's to "be patient" over the US China trade talks. Reality is sinking in there that trade wars are not "easy to win".
Forget Trade Wars. Capital Wars Are Easier to Win.

An effort by Senators Marco Rubio and Jeanne Shaheen to steer pension investments away from China could have damaging repercussions.

by profile | 11th Sep 19, 9:02am 1568149320

The head of the WMO is sanguine about the end of the world. Not great news for the doom fuelled funding model. "Petteri Taalas, the secretary-general of the WMO, told Talouselämä magazine that he called for a calm and rational approach to the climate debate, and disagreed with those who are promoting end-of-the-world scenarios.
“Now we should stay calm and ponder what is really the solution to this problem,” Taalas told Talouselämä magazine.
“The latest idea is that children are a negative thing. I am worried for young mothers, who are already under much pressure. This will only add to their burden,” Taalas said."
“It is not going to be the end of the world. The world is just becoming more challenging. In parts of the globe, living conditions are becoming worse, but people have survived in harsh conditions.”

https://www.zerohedge.com/news/2019-09-09/world-meteorological-organiza…

by youngdumbandbroke | 11th Sep 19, 10:04am 1568153096

Hey profile, how do you find zerohedge as a news source? independent and reliable? be interested to hear your feedback . cheers

by powerdownkiwi | 11th Sep 19, 12:16pm 1568160987

He's only paid to obfuscate. As with any site, Zero hedge can put up some useful stuff. I find an interesting selection at:
https://www.theautomaticearth.com

I sat chatting with the fellow one evening, and Nicole Foss too. Was an interesting discussion....

by profile | 11th Sep 19, 2:35pm 1568169319

I could care less about zerohedge but I do put credence in a direct quote from the Sec. Gen. of the World Meterological Organisation. Here is the direct quote for you from Talouselama. Cheers!
"The long-term meteorologist does not see the basis for the apocalyptic predictions that are now in circulation.
“There will be no end of this world, the world will only become gray. For some of the planet, living conditions are getting harder, but people have been living in difficult conditions, ”Taalas says
In his view, the Finnish debate and reporting on climate change has become too distressing.
“The Finnish media atmosphere has been a cause for concern. The latest thing was that children are a negative thing. For example, I am concerned about young mothers who are living under many burdens. This adds to their load. ”
According to him, the solution to climate change does not require an individual to have an ascetic life or give up child labor."
https://www.talouselama.fi/uutiset/ilmastoguru-petteri-taalas-ilmastonm…

by Audaxes | 11th Sep 19, 9:16am 1568150217

Everything That Worked in Global Markets in 2019 Suddenly Doesn't

For a second straight day, 2019’s biggest winners across assets are getting hammered as investors reassessed expectations for global economic growth. The Treasury market set the tone, with a 10-month rally grinding to a halt Friday after data on the American consumer and labor market signaled a recession is far from imminent.

Yields jumped, spurring the worst momentum unwind in U.S. equities this decade on Monday. Stocks coveted for their defensive characteristics -- REITs and utilities -- got pummeled at the expense of banks beaten down during the Treasury rally. Oil, battered by signs of flagging global demand, surged back toward recent highs. Copper rallied, and the dollar pulled back.

by murray86 | 11th Sep 19, 10:50am 1568155840

And Fonterra is going into melt down.Starting about 10 years ago I have been very critical of Fonterra for effectively exporting our diary processing technology to the world, opening up themselves to competition, as opposed to protecting that technology and focusing on a value chain based on products. But Fonterra wouldn't even support the local market, by supplying affordable products, arguing that the community needed to support their farmers. So their failure is many pronged, destroying cooperative value, now with the write downs they haven't sold our technology, they have effectively given it away, and finally they have betrayed not only their owners (the farmers) but the country as a whole, by failing to ensure there is a well supported local market. Geed rules!

by keithwoodford | 11th Sep 19, 11:51am 1568159472

Murray86
I can assure you that there is a lot more inflow of technology into the NZ dairy industry than outflow of technolgy. Processing technology is largely supplied by firms such as GEA and TetraPak. Animal health products nearly always come from overseas. Similarly, the diagnostics for diseases such as M bovis come from overseas. Even on-farm technlogy such as pivot irrigators is imported. Tractors all come from overseas. Even new thechnology IP such as composting barns come from overseas. I can not identify any country which has built a successful and major dairy industry based on the NZ model which only works in temperate maritime climates.
KeithW

by youngdumbandbroke | 11th Sep 19, 12:07pm 1568160457

and thats a good thing. NZ dairy would be toast if other countries could establish their own industry based on an NZ model

by powerdownkiwi | 11th Sep 19, 12:20pm 1568161259

My pick? By 2040, 50% of the people in NZ cities, will be involved in food production. Large numbers of them will have relocated. Big Ag will not exist, but wool will have made a major comeback and we'll be tanning and spinning again in NZ.

I sense a growing number of people who are realising this, but the problem is morphing from here to there. There will be tears.

by youngdumbandbroke | 11th Sep 19, 12:36pm 1568162206

My pick is that animal products will be near extinct the way popular opinion and policy is going. Tightening animal welfare and environmental regulations will force farmers away from traditonal livestock systems to plant based agricultural systems. Yields will be lower than expected per ha as fertiliser and pesticide usage will be more tightly controlled

by Korki | 11th Sep 19, 12:56pm 1568163376

Agreed, to both posts above.

Genuine food grown on the land will become a high end product - yeild volumes per ha will drop significantly with environmental restrictions, unless we adopt GE.
Most of the population will be fed lab made foods.

Animal farming, particularly dairy/beef maybe the target now, but once they have throttled that, they will look at horticulture, and when the finally realise how much fert, herbicide, pesticide, fungicide, soil loss and fossil fuel consumption is involved in the production of vegetables they will froth at the mouth.

Vegetable production without the all the above, on any meaningful scale, will only be possible with GE.

Not promoting GE just facing reality.

by youngdumbandbroke | 11th Sep 19, 1:43pm 1568166212

If the anti farm brigade had even half a clue on the scale of chemicals, fresh water and fertiliser applied to horticultural crops, I'd hope they would feel guilty for bashing the farmers over their practices

by waymad | 11th Sep 19, 1:53pm 1568166804

But for the Meat Faithful, there'll be plenty of scope for Soylent Green sales....win-win for carnivores and population numbers alike....pass the salt....

by Pragmatist | 11th Sep 19, 2:57pm 1568170661

Anybody got any idea why Mercury shares are plummeting at the moment? Down 27cents since last night?

Slightly peeved, was going to sell yesterday but couldn't remember my FIN..