US PMIs limp; Canada wholesale trade rises; China raises priority for new debt-based stimulus; EU PMIs signal prolonged sag; Aussie banks ease serviceability test; UST 10yr yield at 1.71%; oil and gold up; NZ$1 = 62.9 USc; TWI-5 = 68.4

US PMIs limp; Canada wholesale trade rises; China raises priority for new debt-based stimulus; EU PMIs signal prolonged sag; Aussie banks ease serviceability test; UST 10yr yield at 1.71%; oil and gold up; NZ$1 = 62.9 USc; TWI-5 = 68.4

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Here's our summary of key events overnight that affect New Zealand, with news data out of the world's largest economies continues to unimpress.

The latest PMI survey for the US in September shows both their factory sector with a limp expansion, and now their service sector is showing the same. This survey suggests that the US economic engine is worryingly close to a stall.

However, the August Chicago Fed National Activity Index suggests the direction forward might be better.

In Canada, there was unexpectedly positive wholesale trade data out overnight with consumer items, especially cars, helping lift this data.

In China, they are going into a lockdown period ahead of the 70th anniversary of the Chinese Communist Party. Real news will be scarce overwhelmed by rivers of propaganda. But Chinese buyers did purchase ten shiploads of American soybeans last week, it has been revealed. And it turns out the trade trip to a US ag state wasn't cancelled by them, it was cancelled by the US Administration.

And Beijing has instructed local governments to submit their plans for issuing special-purpose bonds as soon as possible. The directive signals that central government policymakers are in a hurry to square away funding for growth-boosting infrastructure projects amid fresh signs that growth is slowing.

In Europe, their September PMIs are suffering a broad-based fall in both the manufacturing sector, which is contracting faster, and services, which is now barely expanding. That had Mario Draghi lamenting that the eurozone economy faces a 'prolonged sag'.

In the core metals markets, there are PMIs too. All the three biggest metals are in contraction mode although to be fair, this is not getting worse. (Steel, Copper, Aluminium.) This is despite signs China's steel industry is generating another glut.

In Australia, their composite PMI is expanding in September, cancelling out the unexpected August contraction. Essentially, it was their service sector which turned up while their factory sector contracted. There are early signs that the combination of rate cuts, tax rebates and rising dwelling prices is having a positive impact on the services sector.

And still in Australia, the big banks there are lowering their mortgage serviceability test rate. It seems to have been cut to 5.35% from 5.75%, the rate that borrowers are assessed their ability to withstand rising rate pressure.

The UST 10yr yield is lower today, at 1.71% and down -1 bp from this time yesterday. Their 2-10 curve is still positive at +4 bps. Their negative 1-5 curve is unchanged at -24 bps. Their negative 3m-10yr curve is slightly wider at -26 bps. The Aussie Govt 10yr is down -2 bps to 1.00%. The China Govt 10yr is at 3.11% and down -1 bp. The NZ Govt 10 yr is now at 1.16%, a -2 bps drop overnight.

Gold is up +US$6 to US$1523/oz.

US oil prices are a little firmer today at now just on US$58.50/bbl. The Brent benchmark is just over US$64.50.

The Kiwi dollar has firmed slightly this morning, off its lows at 62.9 USc. On the cross rates we are firmer too at 93 AUc. Against the euro we are at 57.3 euro cents. That puts the TWI-5 back up to just on 68.4.

Bitcoin is now at US$9,801 and that is -1.8% lower from this time yesterday. The bitcoin rate is charted in the exchange rate set below.

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23 Comments

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And Beijing has instructed local governments to submit their plans for issuing special-purpose bonds as soon as possible
That's what China needs right now to boost growth - more ghost cities!

Assuming the Central Government buys the bonds , it may be a book balancing effort in preparation for a recession.

As soon as I read that, I had these visions of empty pipelines that overshadow the Great Wall of China, visible from space, a future civilisation pondering their mysterious purpose in a few millennia from now and so on. I suppose China will have some nice roads everywhere though.

Roads are a mixed bag, congested in the cities, and full of 5hp tractors elsewhere. They have some very nice high-speed rail though. Why spend a whole day driving when you can sit back and relax on a train and be there in a few hours.

Imagine Auckland to Hamilton in 20mins.

If they're going to eke out the last bit of the current golden years then sounds like roads + more rail should be the way to go.

Hedge Funds Expose Banks to Heightened CLO Risk, BIS Says

Banks may be indirectly exposed to collateralized loan obligations if the hedge funds they have relationships with suffer losses on their holdings, the Bank for International Settlements said.

As providers of services such as prime brokerage to major investors in CLOs, banks may face larger losses than those implied by their direct exposures, creating heightened financial stress, the BIS said in its quarterly review. The opacity of such links may represent a source of instability similar to financial institutions’ off-balance sheet exposure to the collateralized debt obligations (CDOs) that were at the center of the financial crisis, the BIS added.

At what point is it a rebound and not a dead cat bounce?

DFA. Some have a theory that Hong Kong money is arriving. If so, we could be back into a protracted bounce. I hope not.

It may rise but we all know it will go down. Unless the old saying of what goes up must come down is no longer true.

Does anyone have any data on the percentage of GDP that is spent on oil (petrol/deisel/jet fuel and possibly refining costs)? Just curious to know if the deflationary pressure on the economy is connected to the increased costs of oil, now that we are getting to the hard-to-access stuff.

I disagree, GDP is a measure of how productive the people are. Look at Japan, no resources but huge GDP.

Look at Venezuela, huge Oil resource but zero GDP.

Not sure what your meaning, the cost of Oil is around the lowest its been for a long time. We have way less of it being used and production by OPEC has been dropping more and more.
Labour has tried to offset that by increasing the tax on Petrol by 16% to try and force inflation. However that only causes deflation as people have less money to spend, especially the poor which Labour claims they are helping.

Thats the question the public keep asking - if oils so cheap, why are fuel prices (and therefore everything else) continuing to rise??

That's the thing though, CPI inflation is pretty low, especially considering the cost of petrol is rising. But a huge amount of stuff depends on oil for production and transportation to markets, so you'd expect inflation to skyrocket. But if the cost of everything is going up, people are going to cut back on the discretionary stuff, not look at borrowing and try to hold onto the money they have...

Agree. Consumer confidence is shot - no matter what the economists say

The investigation the govt paid for showed Petrol was cheaper or at least should have been with the difference being the 16% tax Labour has put on fuel.

There is then as you say a flow on affect with that increase cost going onto other essentials like food and transport. So the little guy has less in his pocket to spend overall.

Confidence is the next thing, the govt has killed the confidence for business. Why invest in NZ when you can have a stable policy in other countries, look at the Oil & Gas banning. Labour CGT and 100 other TAX ideas killed confidence. OCR dropping, kills confidence.

Why loan when you think OCR will just keep on dropping.

Broadly, all "stimulus" measures are not paid for. That is, they are based on increasing debt.
The money is not earned by improvements in productivity or by more exports earning income.
So, it is NOT a solution and that has been apparent for 11 years now.
TIME surely, for other suggestions to deal with what is plainly INADEQUATE demand.
Start by asking WHY demand is inadequate.
Could be connected to siphoning off wealth to top 20% over 45 year period and government refusal to intervene to stop this, but instead sucking up to corporates who want all State provided benefits for nothing or as little as they can get away with?
People are taking on ever more debt to pay for stuff that their wages are not adequate to purchase.
This is seen as normal. Is it desirable? Does it work.
Naughty questions, not to appear on TV or anywhere near an election.
As in, more of the bloody same

A solution would be to reduce Govt and reduce the TAX burden imposed by them.

I think you'll find that 2019 is the 70th anniversary of the PRC, not the CCP.

Also on the Chinese Communist Party today, experts now highlighting the Chinese New Zealand Herald as being pretty much under the CCP's control: https://www.newsroom.co.nz/2019/09/23/819874/chinese-nz-herald-under-sup...