US car sales boost overall August retail, sentiment rises; bonds sold off sharply; global equity markets tame; Hong Kong proposed vacancy tax; ASIC squirms; UST 10yr 1.91%; oil and gold down; NZ$1 = 63.8 USc; TWI-5 = 68.9

US car sales boost overall August retail, sentiment rises; bonds sold off sharply; global equity markets tame; Hong Kong proposed vacancy tax; ASIC squirms; UST 10yr 1.91%; oil and gold down; NZ$1 = 63.8 USc; TWI-5 = 68.9

Here's our summary of key events overnight that affect New Zealand, with news benchmark bond yields are rising suddenly in the US.

But first, solid American retail sales data for August have calmed some concerns about the US economy. They rose +4.2% from a year ago but that was slower than the +4.9% gain in July. A surprisingly good rise in vehicle sales kept the data robust otherwise it would have been lackluster.

US consumer sentiment as measured in one widely-watched survey stopped falling.and posted a small rebound, even though it remains -8% lower than this time last year.

These two pieces of data have turbocharged the US bond markets with prices falling sharply and yields jumping. Growing doubt about the usefulness of lower interest rates has traders thinking the US Fed may use other means to prop up American economic growth. The bond yield shifts are having echos in our markets too.

Equities on the other hand are yawning, down marginally on the day although the S&P500 will end the week +0.5% firmer.

European markets were more positive, up about +0.5% overnight. The German DAX is up +2.1% for the week, the French CAC up +1.0% while the English FTSE is up +0.7%. The prospect of impending ECB QE is the tonic they are responding to.

In China, yesterday was a public holiday, mid-Autumn Festival. The Shanghai exchange ended its shortened week up +1.0%, Hong Kong was up +2.3% after a rough few weeks, and Tokyo was the winner, up a full +3.6% for the week.

Locally, the ASX200 inched up just +0.3% while the NZX50 was the clear loser, down -3.2% for the week as the view on our economic prospects dimmed sharply.

Those Asian market gains seemed to be on the back of the US President saying he would be open to an "interim deal" on trade issues, something the Chinese have been pushing for. The iron ore price stopped falling and turned up on the remarks. China suggested that it would exempt some American ag products from its retaliatory tariffs, like soybeans. The sign that the Americans are coming to understand that a compromise will be needed buoyed Asian sentiment.

In Hong Kong, their government is proposing to introduce a vacancy tax. The Rating (Amendment) Bill will target all newly completed flats left empty – unsold and not rented out – for more than six months in a year. Flats will be considered finished one year after the developer obtains an occupation permit. The proposed tax rate will be equivalent to two years of rental income, calculated by government specialists and based on market rates.

In Australia, the impact of detailed prescriptive regulation is being felt by newly credit-shy bankers not wanting to end up in court. The resulting credit squeeze has ASIC squirming at an Australian parliamentary oversight committee hearing and claiming it is not to blame "but bankers are". ASIC is fighting court ruling losses that block its ability to prescribe how banks assess borrowers credit situations.

The UST 10yr yield is rising fast today, up +12 bps from this time yesterday at 1.91% and that is +35 bps higher than this time last week. Most of that jump has come in the past few days. Their 2-10 curve more positive now at +10 bps. Their negative 1-5 curve is fading fast, and now at just -12 bps whereas a week ago at was -33 bps. Their 3m-10yr curve is even narrower at -8 bps down from -50 bps a week ago. The Aussie Govt 10yr is up sharply at 1.23%, an overnight gain of +7 bps and a weekly gain of +16 bps. The China Govt 10yr is unchanged overnight at 3.09% although in a week it has risen +7 bps. The NZ Govt 10 yr is now at 1.35% and also unchanged overnight but a +17 bps gain for the week and that was on top of the +8 bps gain last week.

Gold is sharply lower at US$1,486 and a drop of -US$13 since this time yesterday and a fall of -US$22 in a week.

The VIX volatility index is little changed over the past week now at just on 14, and below its average over the past year of 16. The Fear & Greed index we follow has moved sharply over to  the middle of the 'greed' zone.

US oil prices are softer today at now just under US$55/bbl. The Brent benchmark is just on US$60. The US rig count has moved lower again and dropping by more than expected, down -1.3% in just one week.

The Kiwi dollar is much weaker today, now down to 63.8 USc which is more than a +½c fall since this time last week. We are back to where we were a week ago. On the cross rates we are very softer too at 92.7 AUc as the Aussie jumps and that is the lowest level since November 2018. Against the euro we are at 57.6 euro cents. That puts the TWI-5 back down to just on 68.9 and taking the overall devaluation of the Kiwi dollar since the beginning of July to -3.8%.

Bitcoin is now at US$10,217 and that is -1.7% lower since this time last week. 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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25 Comments

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"In Hong Kong, their government is proposing to introduce a vacancy tax. The Rating (Amendment) Bill will target all newly completed flats left empty – unsold and not rented out – for more than six months in a year".
Seems to be an ongoing global trend to adopt a Empty Home/ vacancy tax, I wonder when NZ will come up with this initiative seems long over due in our main cities.

Will not happen in the current environment, that will remove demand for new builds, as market will be flooded with listings...

Government is depending on the construction sector to boost the economy

Well it would be the next logical step if house prices aren't seen to be falling to affordable levels quickly enough. Trying to rely on the construction sector to make new builds more affordable simple doesn't appear to be working, if anything it only continues to push up the cost of living in our larger cities. The nice thing about a Empty Homes Tax is the revenue can be used to build homes. This measure has already help other countries, take Canada for example; Vancouver’s levy raised C$38 million in first year (Around $44 million NZD), Even parts of the US are now looking to adopt the same Empty Homes tax measure.

Remember it's politics...

They campaigned on building affordable homes, not to bring prices down

Depends on which political party you are referring too. It's Labours goal to lower house prices and create sustainable economies. It is Nationals goal to shove house prices back up again so locals can't afford to live here, therefore creating a false economy.

I remember the prospective Labour PM stating explicitly that Labour did not want to see home prices decrease. There is no Labour goal to lower house prices, or to create a sustainable economy. Please prove me wrong, I'd rather be wrong on these as I'd be in strong support of a party that wants to reduce house prices and work towards a true sustainable economy. BTW, a sustainable economy is not a growth oriented economy.

Labour are committed to making homes more affordable therefore that results in low property prices for resident wage earners, that also helps to make NZ economies more sustainable. Here's their link for you regards to housing. https://www.labour.org.nz/housing

As Yankiwi noted Ardern when asked specifically if she wanted house prices to come down (pre election) categorically said "no" although wanted to make them more affordable. A prime example of ... well you could call it all sorts of things.

Your link is a link to waffle it is only you that draws the link "...more affordable therefore that results in low property prices..."

"The UST 10yr yield is rising fast today"

So, now the fun begins!

Having blindly followed piper Draghi, and his cohort, the wrong way down the cul-de-sac of disaster for a decade, 'we' are now frightened at his latest call of "Come on, fellas! Keep following me..." and some of us are going to try to tip-toe back to where we came from. It's a long way back now; far too far to make it without severe damage, in fact. So let's sit back and watch...
What do we think will happen to New Zealand bubble asset prices, for instance, if "The NZ Govt 10 yr is now at 1.35% .... a +17 bps gain for the week and that was on top of the +8 bps gain last week." breaks into a trot or dash back towards 'normality'.
Nastiness is what happens. Real nastiness....

Buy the dip (price not yield). Interest rates are in a downtrend, there are larger forces at play than central banks can control. The only play left is money expansion in an attempt to stimulate consumption, only question is how it is done. Their is an inverse relationship of interest to money, so interest rates, and actually the yield on pretty much everything, must go down to match the expansion. Doesn't matter who is expanding the money supply either, as long as it is eurodollars.

Hallelujah Scarfie, so well explained, very few understand this overriding concept and many get lost in other meaningless data

Damn, you must work at the RBNZ

...empirical evidence shows that the central banking narrative on interest rates is diametrically opposed to the observable facts in two dimensions: instead of the proclaimed negative correlation, interest rates and economic growth are positively correlated. Secondly, the timing shows that interest rates do not move ahead of growth, but instead are either coincidental or even follow it.

Thus instead of the central banking narrative that lower rates lead to higher growth, the empirical and verifiable reality is that higher growth leads to higher rates and lower growth leads to lower rates. If rates are the result of growth, they cannot be the cause.

References:
Interest rates do not move the economy – and hence are not the main monetary policy tool -Section II-2
Milton Friedman 1967
Reconsidering Monetary Policy: An Empirical Examination of the Relationship Between Interest Rates and Nominal GDP Growth in the U.S., U.K., Germany and Japan

Gummster Polling Services : Question ; will Jacinda Ardern still be prime minister when election 2020 arrives ...

.. clearly this has been the week from hell for her ... will heads roll from this debacle ... or will more disasters from our biggest corporate shemozzle Fonterrible distract everyone's attention ....

. . any ideas , theories or fantasies , team ???

I think she handled the whole issue very well...

Shows how slimy the National party are.. that they tried to stir up the situation..

Yet when the National party was embroiled with controversy recently, JA said it's for them to sort out and she will not be commenting in their affairs..

The National party are trying the dirty Aussie politics.. that won't prevail in kiwiland

... the duty of any opposition is to uncover the dirt , to expose into the light , the governments secrets ...

Now , the key seems to be that the PM has mismanaged this situation ... rather badly ... surely the sexual misconduct allegations ought to have been met with an immediate apology , and an independent investigation , perhaps even involvement of the police ...

Easy peasy ... sorted ... move on ...

Dgm,

Look back a few years when Labour was in opposition. I clearly recall the whiny Andrew Little being the slimy attack dog. Sadly, it is the nature of opposition to be odious. There is a reason why Labour was polling in the 20s prior to replacing Little, as his continual stirring the pot whilst in opposition gave a strong distaste to most voters. Swapping out leaders with a few weeks to go was a political masterstroke.

Exactly, hence I'm referring to the current circumstances of JA being righteous vs the the slimy Paula Bennett (the andrew little you refer to)

A systemic failure was inevitable given years of negative rates. We could see another 1994-style financial meltdown with Japan at its epicentre.

https://asia.nikkei.com/Opinion/Japan-s-flailing-regional-banks-hinder-q...

Thanks for posting. If you're interested in this, I recommend the following interview.

Shannon McConaghy of Horseman Capital paints a dour picture of the Japanese banking system. He reveals the accounting tricks that have allowed these banks to survive in a predominantly negative-interest-rate world, and discusses why credit costs are finally rising. Shannon warns of a potential meltdown that could have far-reaching ramifications, in this conversation with Real Vision’s Roger Hirst. Filmed on July 11, 2019 in London.

https://www.youtube.com/watch?v=GaWg-cuEHVs&t=451s

Thanks , JC. That was really insightful albeit super scary!

Growing doubt about the usefulness of lower interest rates has traders thinking the US Fed may use other means to prop up American economic growth. The bond yield shifts are having echos in our markets too.

All possible, but it was surely evident casino style position taking had captured the US bond markets. Banks' balance sheet demands (regulatory) were superceded by potential rehypothecation actions using repo counterparty UST pristine collateral to offset margin calls arising from higher risk positions.

Nomura cross-asset strategist Charlie McElligott says trend-following funds known as commodity trading advisers exacerbated the latest Treasury rally and a subsequent unwinding could add to this week’s stress as yields rise, particularly if the funds’ positioning in Eurodollars flips.

Economic data “caught a U.S. rates market ‘priced for the end of the world’ somewhat flat-footed,” McElligott wrote. CTAs, which have billions pegged to their bets, likely were forced to unwind their positions, contributing to the magnitude of the market moves, he said. Link

The Hong Kong changes are to respond to recent protests. Lack of affordable housing has been a problem in Hong Kong for a long time but conditions are terrible now. Mainland investors have also been buying and leaving empty the same as Auckland and many other cities.

All the vacancy taxes are to negate the cultural or social standing issue of needing to own property (even if it doesn't make sense).

The only way for HK to address the housing issue is to have the Chinese Government go after all those Chinese nationals who have parked money in the HK residential housing market for tax evasion.

In 2003, prior to the ability of Chinese nationals to invest in HK residential property there was no affordability issue.

This incidentally is also why the overseas (non resident) buyer ban is so necessary here. Go JA for that policy.

How about a sweepstake on what bonds will do tomorrow :-)