OECD sees global growth slowest since GFC; Fed banking cash injections continue; Hong Kong near recession; RBA primed to cut again; UST 10yr yield at 1.78%; oil and gold unchanged; NZ$1 = 63.1 USc; TWI-5 = 68.4

OECD sees global growth slowest since GFC; Fed banking cash injections continue; Hong Kong near recession; RBA primed to cut again; UST 10yr yield at 1.78%; oil and gold unchanged; NZ$1 = 63.1 USc; TWI-5 = 68.4

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Here's our summary of key events overnight that affect New Zealand, with news the largest are slowing the fastest.

The OECD says economic expansions are slowing quickly now in most countries with the fastest slowdowns occurring in the largest economies, especially the US and China. Only Canada and Japan are expected to see rising growth and they are both off low levels anyway. They see New Zealand with a +2.5% growth rate and well above most G20 countries, but probably didn't adjust that after yesterday's weak Q2 result that came in at +2.1%. The OECD report says that world growth has now slowed to its lowest level since the GFC.

In the US, the latest regional Fed survey in the Pennsylvania area, shows a slowing of activity although not be as much markets were expecting.

And the slowing growth in August home sales in the US also came in less-worse than observers were expecting.

Electric small truck startup Rivian Automotive got a big boost yesterday when Amazon announced it was ordering 100,000 electric delivery vans.

On Wall Street, the financial stresses are continuing with the New York Fed having to inject another US$75 bln overnight through the repo system that keeps bank capital stable. That followed a dose of the same size on Wednesday and US$53.2 bln the day before. The lubrication is mounting up, now exceeding US$200 bln.

In Canada, the unofficial survey of jobs growth came in better in August that July, both showing strong gains.

In Japan, as expected, their latest official interest rate review kept rates and policy unchanged, but they did signal that more easing measures may be coming in October.

Domestic unrest and the US-China trade war seems likely to push Hong Kong into recession, according to local government officials. The Hong Kong Monetary Authority has cut its benchmark interest rate by -25 bps to 2.25%.

Forest burning in Indonesia for palm oil plantations has reached extreme levels, blanketing many neighbouring countries in thick smog. Because of the economic power of companies like Wilmar, there seems to be little political will to address the issue.

In Australia, they reported poor jobs data yesterday, with all the growth in part-time positions. Analysts think this will be a trigger for another RBA rate cut.

The UST 10yr yield is unchanged today at 1.78%. Their 2-10 curve is still at +3 bps. Their negative 1-5 curve is now at -22 bps. And their 3m-10yr curve is holding at -18 bps. The Aussie Govt 10yr is down -8 bps at 1.06%. The China Govt 10yr is unchanged at 3.14%. The NZ Govt 10 yr is now at 1.21%, a another fall of -6 bps from yesterday.

Gold is in a holding pattern, up +US$2 to US$1,499/oz.

US oil prices are unchanged today at just on US$58/bbl. But the Brent benchmark is up +US$1 to just under US$64.50.

The Kiwi dollar is softer at 63.1 USc. On the cross rates we have firmed a bit to 92.7 AUc. Against the euro we are down to 57.1 euro cents. That leaves the TWI-5 at the same low level it was at this time yesterday, 68.4.

Bitcoin is now at US$10,044 and a small net slide since than this time yesterday. Overnight it did dip well under US$10,000 for some time. 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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Kāinga Ora has been passed in parliament, effective 1st October..

I guess the housing dashboard will be published then.. will be interesting to see what they come up with..

10
up

Wee, another reshuffle of people to a new agency, complete with new letterhead, stationery, email addresses and no doubt some team building exercises and a leadership retreat.

Another entry to be added to https://www.hnzc.co.nz/about-us/state-housing-agencies/ soon.

But have they actually gained any competence, or is it just a hip/PC new culturally enlightened name for the same bunch of paperpushers doing the same thing?

Yep. Exactly.
The next gravy train has just pulled into the station. Destination nowhere.

I believe it is a figure 8 so that they get multiple stops at the trough in the middle on each ride.

The Homes and Communities bill suggests the new agency has consolidated some of the executive powers required to address social housing issues.

The current state is a mess with the community housing portfolio sitting across many different departments and agencies; each having some level of authority and veto over the decision making process.

Exactly.. as usual pragmatist loves to lament..

Hah, just being realistic about the non-performance of this govt on Housing, ( and Immigration and Transport..)

btw, checked with the HLC people about market homes in the Mt Roskill development, nothing in the pipeline anytime soon, might be some "off the plan" sales before Christmas, so maybe some actual foundations going down sometime next year. So everything you saw at Mt roskill south was state housing.

yup, agree.. I didn't say the KB ones are happening in the next month or two..

the ground work happening on many sites I was told are KB, so the actual foundations and structures, could be early next year..

the houses currently being erected are state houses.. and as I said, they are all the ones with the HNZ banners..

based on my sources, most of the KB houses will be prefabricated...

I believe state houses have a specific building specification, so prefabs are out of scope... would any one know why...

.. Friday Funny Time : PM Taxcinda arrives in Japan and at her first meet and greet tells her hosts how great is the relationship and the trade NZ has with China ...

That must've had them rolling in the aisles... chortle chortle ... aha haaaaa ...

She's human after all..

Slip of the tongue, is no fault of the mind

12
up

Agree. A pointless talking point.
Still got nothing on Simon Bridges referring to his esteemed deputy as "Paula Benefit".

US President George Bush Snr topped that a few years ago at a state dinner when he actually vomited over the Japanese PM ....

I suspect that might be hard to TOP!

Is that Comrade Bridges now?

hehe.
I can't wait to hear that shouted at the next Federated Farmers meeting.

You do realise Comrad is a Spanish word associate with socialists and popularised in Russia ?

Surely you would associate that with Labour policy!

Apart from the fact Labour and National are very similar in policy, it sounds like you need to catch up on Simon Beijing Bridges' recent adventures.

Yes I read that but fail to see any point.

Is it worse to talk to the guy 25th in the line up or the guy who is No 1 like Jacinda ?

One of them tells the other what to do and believe me its not going to be the guy 25th in line.

How many times has the Australian flag been hoisted at an event instead of ours? In fact, how many time has the opposite happened!
"Australia confuses their own flag for New Zealand's"
https://www.morefm.co.nz/home/trending/2018/01/australia-confuses-their-...

.. the difference being that the Aussies and us are allies...

The funny thing Taxcinda did was to confuse two mortal enemies who have a 1000 year history of wars .. and a brutality against each other that makes " Game of Thrones " look like " Sesame Street " ...

Another day, another nail for team Jacinda.

11
up

Not sure it's making any difference, swing voters like me aren't any more likely to vote National because of Labours incompetence, we are just wondering if it's worth voting at all..

The current team's long list of failures keeps on piling up day after day. That is all that I am saying.

Plenty of people voted for Labour and the coalition last election based on their promises of change, myself included. I will not be voting for them at the next election, and I will be voting, and I won't be the only one. Your claim that this isn't making any difference is quite wrong, I am sure.

So you are planning on voting for National in the next election because Labour is rubbish?

We can not carry on with team Jacinda. The next player gets a chance, that's how it works.

But if the next player is team Chinese Bridges?? i'd rather pull the plug and reboot the machine.

That is fast becoming a realistic way forward.

No, I will never vote for National again as long as I live. If TOP is still around it will be them, otherwise Ban 1080 or some other nonsense in protest.

Yep, similar position to me. Except I could vote National again in future.. if they change their policies and people.. so probably not next election.

TOP. lol Gareth Morgans muppets.. how much did they spend for each vote last time...
Anything to do with Morgan will be a failure due to him being a compleat nutter.

Talk smack about the man all you like, a fair few of their policies would have been good moves. Better than the stale garbage we get from the current pack of morons.

Used to be a good bloke, now he is just a nutter who has lost touch with reality.

He has nothing to do with TOP these days.

Come on mate. Gareth is behing it all with dollars running the show.

Evidence?

Come on. You think the white board Wednesday bloke comes up it all himself...

I'll leave you to your conspiracy theories..

Agree he is a bit of a clown, but got my vote due to mostly sound policy and a genuine shot at meaningful change.

That was the reason most people voted Labour last time.

As a nation we vote people out, rather than vote them in.

If the Nats did things like cut income taxes might you vote for them Pragmatist?
I'm still basically centre-left (but have voted for Nats once or twice), but Labour are a mess, and for me it now comes down to self interest.
And Labour are doing very little that benefits me, and doing very little that benefits society....

It is a pretty sad state of affairs when the choice for a vote comes down to "who is the least incompetent?" It appears they are neck and neck in the race to the bottom.

Yep.

Its a hard call. I'd like to see things improve for all NZers, and Nationals not exactly known for that , but yeah, at some point I have to eventually say fuggit, gotta put myself and family first..

I really dunno, I will vote, but It may just end up being a protest vote for a minor party in the hope that enough of us do it to get some new blood/thinking into parliament and force the two major parties into actually getting their crap together.

It would be a breath of fresh air if it wasn't just another 2 horse race. Kiwis are fed up with the same merry go round. At some point enough has to be enough

We have all wondered about voting making any difference for a long time BUT by not voting you then have NO basis to COMPLAIN in my view.

Voting for more of the same failed policies is mind blowing.

"Voting for more of the same failed policies is mind blowing."

Yeah, but that encompasses both National and Labour.. So leaves me with the minor parties. I'll never vote ACT again, I'd support some/most of the greens environmentla policies, but a lot of the social justice bs can piss right off. So who?

You second sentence discredits your first.

If you only have junk to vote for, then the best course of action is to not vote and complain bitterly.

Are you a party hack for the Nasty Nats, per chance?

Jacinda seated alongside Macron did look very good for an NZ PM.

Not at all. National do not look like leaders as well. Putting your head in the sand and not calling the screw ups isn't helping at all.
Notice that on Stuff news that any artical on Jacinda has the comments disabled.... That speaks volumes on how her bubble has burst!

Yes it is amazing. If her name even appears as an aside in an article - all comments are off.

Probably because it sets off all the right wingers who lose their #$%* at any mention of Jacinda. Too many retired right wingers with nothing better to do. A bit like talkback radio.

Really, seated by the LEAST POPULAR president of France ever!

High praise in deed

Vote for Simon Beijing Bridges!

Thanks Kezza. Good work.

Start a hundred projects and only get a small percentage to actually work isn't going well.
Nat or Labour do not have any leadership or plans in place to steer NZ out of what is coming.

The Rivian trucks are impressive. One or two generations in and I wouldn't mind one myself if they live up to their hype...

A big ask but i hope theyre affordable for the average joe

On the Fed injecting cash into the banking system, the article claims this has now exceeded $200bn. This isn't really true, they have offered up to $75bn in overnight lending facilities - i.e., $75bn which is then repaid the next day. It isn't cumulative, they effectively have a rolling facility of $75bn.

Forest burning in Indonesia for palm oil plantations has reached extreme levels, blanketing many neighbouring countries in thick smog. Because of the economic power of companies like Wilmar, there seems to be little political will to address the issue.

Indonesia's attempts to eradicate the Orangutan, driving it into extinction. Must be some quality people at the top of companies like Wilmar. Kuok Khoon Hong and Martua Sitorus, for two.

We do our fair share to help.

Save a Kiwi - Kill an Orangutan.
- Turn off the Gas and buy more Indonesian coal
- Stop fertilising/irrigating the dairy land and buy more PKE.

The Watermelon's green skin has been just about peeled off. They really are just Labour extremists.

Slightly odd rant.

Re the repo drama (why is something so simple, so hard to grasp), Martin Armstrong explains that negative yielding bonds are the present day equivalent of mortgage backed securities:

What has transpired is the buyers of these negative bonds have been simply traders. They have not bought this stuff to actually hold to maturity. They have been happy to trade them assuming rates would continue lower so it would be a bond rally. We are looking at SERIOUS credit risk once again but instead of the time bombs being mortgage-backed securities, this time it will be negative-yielding bonds issued by governments. The bond markets have been converted into a child’s game of musical chairs. When the music stops, someone will be left holding negative-yielding bonds that will only be salable at even deeper discounts of perhaps as great as 50% in a few years.

About 30% of the bonds issued by governments and companies worldwide are trading at negative yields which is now about $17tn of outstanding debt. This unprecedented reversal of normal practice has raised profound questions about the outlook for bonds. This is seriously impacting core holding for institutional investors.

https://www.armstrongeconomics.com/markets-by-sector/interest-rates/the-...

Bank traders buy sovereign bonds with negative yields which lock in a loss at redemption because they are the most money like collateral that can substitute for the cash shortage now evident in the US. Furthermore, they can serve as a rehypothecation tool to bolster suspect collateral employed for non-pristine bank repo financing activity. The redemption loss is considered a necessary balance sheet hedging cost. The acute eurodollar credit shortage requires drastic measures since central bankers are not a liquidity backstop mechanism for the actual global reserve currency. Global bank credit creation aided by various and some nefarious derivative instruments is indispensible and relies on sovereign bond collateral repurchase agreements as a liquidity backstop.

Some back ground commentary helps to reinforce reality:

Unanswered Risks That Could Affect the Global Economy For a Long Time

I am often reminded of what one long ago New York Times article had noticed about the monetary system back when Britain’s pound was in crisis. At around the same time Japan’s JGB curve was last emerging from inversion, in 1992, a (very) few people had recognized just how the world had changed and in which direction the balance of power had (permanently) shifted.

“The world’s currency markets, it seems, are no longer governed by central bankers in Washington and Bonn, but by traders and investors in Tokyo, London and New York, as the chaos in the currency markets this past week has shown.”

What are the implications of such a statement? Central bankers and even the mighty IMF would effectively become powerless once the market – meaning dollar - gets moving. While very few understood the notion in 1992, it only gained a little more awareness in 2008 at its fullest display. The idea that central banks and official institutions are at the center of the global system remains despite all the evidence otherwise, evidence that continues to pile up in the present day.

Foreign Exchange Trading Soars to $6.6 Trillion a Day, US Dollar is Total King

t happens every three years: The Bank for International Settlements released its Triennial Central Bank Survey about the global foreign exchange (FX) and over-the-counter (OTC) derivatives markets, as it occurred in April. The numbers are ginormous, and get more ginormous with every survey, with trading volume measured in trillions of dollars per day. This is a huge data trove, and I will focus here on global FX trading.

Fed Funds Is Loudly Declaring the Fed's Total Cluelessness

You want to speculate on junk corporates issued by some company in Brazil? You can’t go to the repo market to fund that position because the repo market won’t take it. But you might be able to go to one of these more optimistic dealer banks and “borrow” some Treasuries putting up your junk as collateral for the transformation. The more willing the dealers, the more this goes on (and the cheaper it gets).

It’s the same sort of thing AIG did in the precrisis era which eventually led to its bailout (it wasn’t credit default swaps which nearly brought the company down, it was securities lending of just this type). In other words, banks engaging in these transactions know what the true downside looks like. They must not have believed there was much downside given, again, “globally synchronized growth.”

But what if that proved to be nothing more than a bumper sticker slogan? Now you begin to see the early months of 2018 very differently. If you are a dealer bank who had been involved in especially Eurobond tranformations throughout 2017 as a bypass of the Treasury shortage, then you scale back if not stop the transformations and bring the system back to…the Treasury shortage.

Not only that, if you are a dealer who was engaged in this kind of risky (really, stupid) behavior throughout 2017, binging on transformation of Argentine, Brazilian, Chinese junk, you are going to set about cleaning up your act in early 2018 as it looks like things are starting to go the wrong way. The further 2018 went on, the more wrong, the cleaner your act.

Nobody wants to be the next AIG. Cleaning up your act means taking on less risk, doing less monetary things.

The rising dollar beginning in April 2018 was the global marketplace signaling this was going on. Therefore, May 29 followed in close succession (a collateral event). Eurodollar futures a few weeks after that (pricing for the consequences). Then full-blown yield curve implosion another five months further down the road (widespread acceptance of this as the new base case), all while Powell was still hiking rates and congratulating himself on the unflinchingly strong economy.

On Wall Street, the financial stresses are continuing with the New York Fed having to inject another US$75 bln overnight through the repo system that keeps bank capital stable

In accordance with the FOMC Directive issued September 18, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct an overnight repurchase agreement (repo) operation from 8:15 AM ET to 8:30 AM ET tomorrow, Friday, September 20, 2019, in order to help maintain the federal funds rate within the target range of 1-3/4 to 2 percent.

This repo operation will be conducted with Primary Dealers for up to an aggregate amount of $75 billion. Link

That would be the fourth open market operation this week, correct?

Yes.

Another global financial crisis, and the world is #$^^ed.
Hardly anything left in the tank to respond.
All so predictable.

Its a case of when rather than if it seems...

.. hey , wait your turn guys ... its " climate change emergency " this year . .

How does 2020 work for you ... we'll see if we can squeeze " GFC 2 " in there . . Best offer I can do , fellas ..

Does anybody know the following about an electric motor.
....Does it need servicing and if so how often?
....What is the approx life of an electric motor.?

Electric motors don't really need servicing. Tesla states that it doesn't void your warranty if you never have the car serviced. When you go for a service, generally they replace the oils and other fluids, check the spark plugs, grease bits that need greasing etc, none of which is required for an electric motor. Things like CV boots, strut mounts, tyres are all rubber and will perish regardless of your motor, so these will periodically need replacing.

On the approx life question, I don't know. It would be good to know, as I suspect currently electric cars are being depreciated based on the expected lifespan of a combustion engine because that is what everyone is familiar with. If electric motors have significantly longer lifespans, a secondhand Tesla could be underpriced right now.

Yep, and with the simple transmissions there is no clutches or torque convertors or solenoid banks to fail either. ICE to EV goes from a few thousand moving parts to <100 in the engine and transmission.

- Don't forget battery replacement, toxic throw away and not recyclable
- Govt RUC will also get introduced soon

Really, from that sites page "Most of today’s recycling solutions for EV batteries are not able to recover valuable minerals. Crisolteq has a hydrometallurgical recycling facility in Harjavalta, Finland, where the ‘black mass’ can be treated on an industrial scale."

So my statement is not a lie, its not available.

One site in Finland does not service the world, nor does it prove there solution works either.

It certainly does prove they are recyclable:
"We are able to recycle over 80% of lithium-ion battery materials. Our industrial-scale, low-CO2 process allows us to recover the cobalt, manganese and nickel from the battery for reuse in producing new batteries."

and that one site probably can service the world, given the very small number of EV batts currently being pulled out of dead EVs.. there just aren't enough yet to justify hundreds of recycling plants for EV batteries. By the time we have an actual need for recycling lots of dead EV batteries the technology will have improved and there will be plenty of incentive to build more plants.

Sorry, your BS talking point has no merit.

Ok, so you saying as of late 2019 we can now recycle 80% of the waste but its not economical till we get more EV battery waste plus we have to ship it all the way to Europe.

I sit here corrected.

RUC is what is most concerning - its sure as hell going to be a lot more than current diesel kms

why would you assume that?

Because there will be less/no excise tax from petrol and diesel, so has to come from somewhere else??

There is no excise tax on diesel.. thats why it has RUCs.

So are you suggesting the petrol powered car drivers are currently subsidising diesel car drivers (we certainly are subsidising diesel heavy vehicles who pay far less in RUCs than they should based on damage to the roads)

No not saying that. The damage caused by trucks is a necessary evil to transport everything, including petrol. Point i was trying to make it that if we do achieve a significant uptake in EVs, then the lost excise tax from drop in fuel consumption will have to be taken from somewhere else i.e. RUCs

But RUCs already make up for the loss of fuel tax on diesel cars.. so unless the RUCs on diesel cars are too low it's no different.

Increase in EVs = less petrol consumed
less petrol consumed = less tax revenue
less tax revenue means new source needs to be found.
Source = increased cost per km RUCS

Increase in EVs = less petrol consumed, but increase in number of cars paying RUCs. = revenue neutral. (once the EV exemption expires)

So you think the beehive will acknowledge this and RUCS won't increase in price? Good luck with that one

You think the various motoring organisations, the Greens and Ev owning public won't put pressure on them to keep them down? Much greater chance they keep kicking the EV RUC exemption expiry down the road for another decade than start trying to screw diesel and EV owners.

Nope. Theyll argue they need to keep them increasing to pay for all the charging infrastructure etc.

I dare say I have this awful suspicion that the entire coalition is way out of its depth , Jacinda does not even know where she is.

A former housing minister who does not know how big the number 100,000 is

A minister for trees , who has even less idea how much a billion is

A minister of Finance constantly looking in his rear view mirror, trying to see the 'past nine years " and he is going to crash if he does not look in front of himself

The Green academics who have never had to turn a Dollar in their lives want to slap a tax on farmers utility vehicles , the also slapped a ban on oil and gas exploration ........... without even a word of warning to the investors who have risks Billions here .

Winston just smiles like a Cheshire cat , is full of snide remarks and is frankly clueless .

Its like something from a really bad Monty Python skit ..........