Kiwi dollar weak; Wall Street down; trade talks stutter; NY Fed adds more liquidity; HSBC plays defense; Brexit talks improve; UST 10yr 1.72%; oil unchanged and gold up; NZ$1 = 62.6 USc; TWI-5 = 67.9

Kiwi dollar weak; Wall Street down; trade talks stutter; NY Fed adds more liquidity; HSBC plays defense; Brexit talks improve; UST 10yr 1.72%; oil unchanged and gold up; NZ$1 = 62.6 USc; TWI-5 = 67.9

Here's our summary of key events overnight that affect New Zealand, with news the Kiwi dollar has fallen sharply overnight and is now at a ten year low.

Our currency is currently at 62.6 USc and the last time it was this low was in June 2009. This represents a -4.5% devaluation since the surprise -50 bps OCR cut on August 7.

Although most of the fall is versus the American currency, we are lower against most others as well - near a one year low against the Aussie and the euro. On a TWI basis it's a four year low.

Wall Street is lower near the end of its weekly session. A Chinese delegation is in Washington to renew trade talks but they pulled out of its planned visit to a US farm state, and hopes by the Americans for a breakthrough are fading. The Americans are talking tough, but quietly they announced that more than 400 additional Chinese exports had been excluded from their tariff regime. Those growing exclusion lists are now huge. This is the new game in Washington - get your Chinese imports on one of these lists, all very crony-capitalist.

New Fed data shows that US household net worth grew only marginally in the June quarter, but at least it grew. It was the third slowest growth in the past twelve quarters.

In New York, the NY Fed pumped yet another US$75 bln into its money markets overnight, taking the total to US$275 bln in four days. Plus it has added new capacity to deal with the issue. And it seems these measures have calmed their repo market pressures.

In China, global banking giant HSBC has launched a public-relations offensive aimed at leaders in Beijing, reflecting worries that its position as the biggest foreign bank in China is at risk. This comes as there are calls in China to place it on its "unreliable" blacklist.

And the Chinese central bank lowered the new reference rate for bank loans by -5 bps to 4.2%, indicating that monetary conditions remain loose after weak economic data spooked investors.

Meanwhile, China's giant sovereign wealth fund (NZ$1.5 tln) saw the profits on its international portfolio fall more than -2%, a sharp reversal for this portion which earned more than a +18% gain in 2017. It is opaque about the split between international and domestic investment, but their overall fund value actually fell in the year.

In Europe, the British seems to be getting more serious about the necessity to compromise, and Brussels and Dublin are responding with some encouragement.

In Australia, it has been revealed that incoming NAB chief executive Ross McEwan will officially take up his new role at the beginning of December. That may trigger some serious reshuffling at the bank.

The UST 10yr yield is lower today, at 1.72% and down -4 bps from where we left it last night and -14 bps lower than this time last week. Their 2-10 curve more positive now at +4 bps. Their negative 1-5 curve is wider -23 bps. Their 3m-10yr curve is also wider at -24 bps. The Aussie Govt 10yr is down sharply at 1.02%, an overnight fall of -4 bps and a weekly fall of -21 bps. The China Govt 10yr is unchanged overnight at 3.12% although in a week it has risen +3 bps. The NZ Govt 10 yr is now at 1.18%, a -1 bps slip overnight but a -17 bps drop for the week.

Gold is up +US$15 overnight at US$1514/oz.

The VIX volatility index is little changed over the past week now at just on 15, and near its average over the past year of 16. The Fear & Greed index we follow has moved back toward a neutral reading.

US oil prices are little-changed today at now just on US$58/bbl. The Brent benchmark is just on US$64.50. The US rig count has moved sharply lower again and dropping by more than expected, down another -2% in just one week. It is now at a 28 month low.

The Kiwi dollar is much weaker today, now down to 62.6. On the cross rates we are softer too at 92.5 AUc. Against the euro we are at 56.8 euro cents. That puts the TWI-5 back down to just on 67.9 and a -100 bps fall in a week.

Bitcoin is now at US$10,156 and that is -0.6% 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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41 Comments

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Highlight new comments in the last hr(s).

This is what happens when Black Swans fly over a Saudi oil complex (maybe Oily Swans?!)
"Rogue Singapore oil trader loses $320m in unauthorised trades"
And if we reckon he was on his tod, we're dreaming!

There who have been quite a few betting on a big price hike and flopped.

The Singapore trader's positions were closed out before the Saudi issues. ?

Thanks, fo that! Sloppy reading....

What a train wreck the US has become. China laying trump, trump playing his own people.

Great article... thanks for that ... so Moores Law remains on track , the doubling of computer capacity every 18 months... I read somewhere that its theorised another 38 or 39 doublings may be possible ..

If you can't grow inflation, import it.

Bit tough on those who are trying to make ends meet and and cover the basics while increased freight costs radiate through our own supply and manufacturing chains, but it's their fault for being poor.

Yep. Spot on. Increasing petrol, imported goods, travel expenses for those still able to travel etc. Detrimental to all, excepting those who took a punt on the NZD when the new govt got in...at about 75c. I know someone who did that, and has made a few bob on the deal even though he got out a while ago..

I now doubt Trump will make it to 2020 elections...losing it on all fronts. Anyone still believe he is doing a good job?

Trump has failed because he is a bully not a negotiator. Problem is that China is now to big to be pushed around. China has more control over their country from currency to the will of the people, its a war he cannot win. The question is will he toss his toys if he sees that he is going to loose the next election or is his ego just so big he still thinks he is a winner.

Unfortunately there is no one good enough in the democratic side

Yes her name is Elizabeth Warren...but I doubt USA would elect a female yet?

10
up

Warren is a proven liar. She may even get the Democrat nomination (more fool them) but I doubt the American public will elect anyone who rose to the position she has by continual lies on her 'cv' over many decades - male or female. And so to Donald Trump? "Cometh the hour, cometh the Man". He's there ( and more than likely will be for another 4 years after 2020 - then the first lady president- Ivanka?) because 'he's what we needed'. It isn't pretty, but it's going to be effective. If 'we' didn't challenge the underhanded behaviour of CCP now, then when? ( and yes, it was and is). When they've' bought' all our farmland? Our politicians? Our way of Life?

https://www.nbcnews.com/think/opinion/elizabeth-warren-s-native-ancestry...

You think Warren couldn't be elected because she is a liar? Have you not noticed the current President? Americans don't seem too phased by proven liars.

Tell me Donald Trump is any different today than the day he came down the elevator declaring he'd run for President! He's not, yet he still ran over 16 other Republican's to get nominated and then saw off The Clinton Machine ( speaking of liars!). The question isn't "Is Donald Trump a liar?" but "Why did Trump get elected in the first place?" and the answer to that is the same as it was in 2016 - because he's The Man of the Hour in a way that Warren doesn't even know what time it is....

Try watching The Great Hack...you may change your tune. Better still you were probably one of the fence sitters who got manipulated.

"Senator Elizabeth Warren is embroiled in controversy once again, this time after she admitted to wearing racially offensive "paleface" at a costume party back in her college days."
https://babylonbee.com/news/elizabeth-warren-admits-to-wearing-paleface-...

Warren could win the primary but not the general election as she is too far left for the general population - particularly when it comes to socialized healthcare. Americans don’t want that.

Crumbling empire

.more than CCP too worry about

Anyone on the Democratic side would make
A great president compared to Trump. Personally, I pray Sanders is the nominee.

Democrats will struggle to win if they don't nominate a centrist. Sanders and Warren are too far left - off putting to swing voters and Biden is too far gone. But no one else in the field looks like coming through, O'Rourke Buttgeig and Harris are spent - falling support, only Yang is rising, but far too slowly. Warren will take the nomination but she will have her work cut out for her in trying to distance herself from far left positions she has taken.

First of all a lot of Warrens positions are only ‘far left’ in the context of US politics.

Secondly, what is labelled ‘far left’ in the US often has support from the majority.

Thirdly, Warren won’t change her policies, she will run as a populist crusading against the rich and the corrupt.

She would annihilate Trump in the debates...just hope it gets that far.

Absolutely. His approval has been on an upward trajectory since polls started being taken.

https://www.realclearpolitics.com/epolls/other/trump_favorableunfavorabl...

China is backed into a wall and is suffering from the consequences of the trade war a lot more than the US.
Domestically he's a lot more moderate than portrayed and often more moderate than the democrats who have been driven mad by him. All they had to do was put up someone with a persuasive policy platform, but instead they just say the opposite of whatever Trump's position is. Just look at the calls to keep troops in Afghanistan and the Middle East from the Democrats. It's bizarro-world.

Judicially he's appointed 150 conservative judges to federal courts including two excellent justices to the Supreme Court.

Illegal immigration is something that absolutely has to be dealt with. It's an issue he has a clear advantage over the Dems on. He just needs congress to play along.

So yeah, if the nominee is Warren or Biden, Trump will take it again.

Choose a less biased polling organisation ...

https://news.gallup.com/poll/262694/latest-trump-job-approval-rating.aspx

https://poll.qu.edu/national/release-detail?ReleaseID=3638

The one you chose is uniquely pro-Trump. That is not independent scientific polling, that is partisanship.

RCP is a bit on the right but to be fair they just average polls.

Five thirty eight have trump in a pretty similar position (the toilet) and they adjust for house effects.

https://projects.fivethirtyeight.com/trump-approval-ratings/?ex_cid=midt...

The fact is it is very difficult to win re-election from where Trump is.

Wow, especially with the Chinese CPI increasing substantially, our imported products will zoom in price...

Guess even the rbnz didn't expect it to be at this rate..

I sold some AUD on thursday as I thought it was the best it was going to be and now it has had a bounce and maybe not the dead cat variety.

The fact that this is ongoing seems important:

https://www.cnn.com/2019/09/19/business/overnight-lending-market-turmoil...

"Overnight lending markets are essentially the plumbing of US capital markets," Colas wrote, "and the volatility over the last few days feels like walking into a luxury hotel only to find that the toilet won't flush."

The problems began Monday when the rate on overnight repurchase, or repo, agreements hit 5%, roughly double the Fed's target range.

There is uncertainty over why these market strains have emerged now. And that mystery is a bit unnerving to some.

"This is part of the market that is supposed to be invisible," said DataTrek's Colas. "This is the equivalent of having to go to three different ATMs to get your cash. You begin to wonder, 'What's going on?'"

So they create $75 bill on the back of the US tax payer to fix a problem they don’t understand and don’t fix anyway? Or have I missed something?

The money doesn’t matter I don’t think, the problem is a system that is supposed to work isn’t working under some pretty optimal conditions and if it were placed under stress what would it do then?

This is perplexing me also, the answer should be discoverable. If I was to hazard I guess i would say that the repo market is really acting as an interbank clearing house, with the value of loans created by banks being balanced by this temporary lending facility. It necessary because not all banks create an equal amount of loans each day, but over weeks or months it does even out. They just need overnight liquidity to balance the accounts.

There is reported by some to be a lack of demand for loans. If you think of a loan as as security, there is a lack of liquidity in this market. Less liquidity can result in an increase in volatility, and it is perhaps that volatility we are seeing in the repo market.

And Trump essentially told his bosom pal, the hawkish Senator Lindsey Graham, to go to hell. Graham, of South Carolina, had suggested the Iranians had felt they could get away with drone and cruise missile attacks on oil facilities in Saudi Arabia because Trump had not responded forcefully when the Iranians brought down an unmanned US drone in June.

“I actually think it’s a sign of strength,” Trump retorted. “Ask Lindsey, ‘How did going into the Middle East, how did that work out? And how did going into Iraq work out?’”

https://www.asiatimes.com/2019/09/article/refraining-from-strike-on-iran...

Fascinating blog post on currencies:

All currencies today are still backed and are not intangible. Now, that statement may provoke thousands of emails. But the value of any currency has NEVER been its intrinsic value even throughout history.

This idea that money MUST be tangible is not realistic. It is the product of people frustrated by the business cycle, no different than Karl Marx. Marx sought to confiscate all wealth to kill the business cycle and others keep preaching a gold standard to fix the currency to also defeat the business cycle. If money were truly fixed and could not rise or fall, that would mean your house could never rise or fall in value and you should not expect a raise at work.

Money is the perception of the wealth of a nation, which is its total productive capacity of its people, and not its gold reserves or tangible resources. Russia has tremendous natural resources, but its economy is dominated by oligarchs who have prevented Russia from expanding as China has shown the opposite. The fluctuations in currencies are how capital votes on the confidence of the political state behind each currency.

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/al...

So what is the wealth in New Zealand Roger? I would argue it is in agriculture, and other (sustainable) productive aspects of the land. I would further proffer that we hit close to a peak in the 1950's, and all we have done since then is add people to reduce the wealth per person. We've got a bit of fishing, but arguable that should be kept to feed the local population in sustainable way. I think the NZD might very well reflect this before much longer.

Did we know about this?
...bankers on trial for siphoning €60bn....Hailed as a maths prodigy at school, Shields accepted a junior position at Merrill Lynch after studying engineering, economics and management at Oxford University....(Another trader) Paul Robert Mora a 51-year-old Kiwi with a penchant for rugby and Hawaiian shirts has denied wrongdoing, telling New Zealand media that all his trades were “approved by legal experts and undertaken in accordance with advice”.
https://www.theguardian.com/business/2019/sep/20/the-men-who-plundered-e...

@BW - only this article from Stuff 6 days ago but nothing from granny herald

https://i.stuff.co.nz/business/115639254/testimony-in-768m-german-fraud-...

As much as people like to see China as a rising power I'm not convinced that she is. China's power doesn't really extend much beyond it's own borders - if that - as the current unrest in Hong Kong shows. China made an agreement - one country, two systems. If China can't reach an agreement with the protestors in Hong Kong and decides to militarily crush the protestors - she loses - no one will believe any agreement she makes. If China backs down and agrees to the protestors demands - she loses - China will be seen as weak. China needs a solution that saves face - but I don't think that exists.

China is trying to project power when she is in fact weak.

In the early 1950's there were protests in Berlin (the East German side) - the East German Communists couldn't understand why the workers were protesting in the workers paradise and for next 30 years they didn't understand. The Communists wanted to control every aspect of the workers lives. It could be argued that China is following the same path - trying to control every aspect of it's citizens lives. China exists in it's own little bubble - the RMB is essentially useless as a currency or means of payment outside it's own borders. It must have been especially humiliating for the CCP to have to clamp down on the capital outflow from China - the implication being that no one trusts or has faith in the Party. If no one has faith or trust in it's country's leaders dissatisfaction could lead to change. China has resorted to "stimulus" over and over again to effectively to keep the populous "happy" - how long can this last - that is the question before the population want real change i.e. real freedom.

Edit for spelling.

Hate to be "that guy" but your comment would be much improved if you used the word lose instead of loose. Will delete my comment if you edit yours.