US mulls blocking China from its capital markets; US durable goods orders fall, consumer spending slows; China profits drop; EU sentiment down; UST 10yr 1.68%; oil and gold lower; NZ$1 = 62.9 USc; TWI-5 = 68.5

US mulls blocking China from its capital markets; US durable goods orders fall, consumer spending slows; China profits drop; EU sentiment down; UST 10yr 1.68%; oil and gold lower; NZ$1 = 62.9 USc; TWI-5 = 68.5

Here's our summary of key events overnight that affect New Zealand, with news that we are heading into the fourth quarter of 2019 with plenty of big economic headwinds.

But first up today, Wall Street has ended the week down -0.5% and that means it is heading for a loss on the week of -1% (but a +1.2% gain so far for the month). That follows some good gains earlier in Europe where the DAX was up +0.8% and the FTSE up +1%. In turn, they followed Asia yesterday where Shanghai ended its week flat on the day ahead of their week long national holiday but posting a loss of -2.5% for the week. Hong Kong ended down -1.8% for the week on their localised stresses, and Tokyo also ended with a -1% weekly loss.

Both the Aussie and Kiwi equity markets closed virtually unchanged for the week.

The US is moving to expand the trade war into capital markets, fearful it can't compete there either. That didn't help Wall Street market sentiment. The White House is considering forcing Chinese companies to delist from Wall Street and prevent American companies investing in China.

More fundamentally, US durable goods orders in August were down a rather startling -4.2% from the same month a year ago. Typically this data is reported as a change from the prior month, but the depth of the annual fall is a somewhat hidden surprise. The important capital goods component has dropped more than -9% on the same basis. With trends like this, no wonder most of the regional Fed factory surveys are glum.

American consumer spending slowed more than expected in August, signaling a key pillar of their economy is losing momentum as the global economy wobbles and trade tensions remain high. Personal incomes rose in August 2019 from August 2018 by the slowest rate rate of the year, while consumption growth tailed off slightly more. The real weakness in these year-on-year trends is in services.

Also, their consumer sentiment is sharply lower on a similar year-on-year basis (-6.9%) even if it actually rose in August in one of the two widely-watched polls. Perhaps that is because PCE inflation dipped slightly in August.

In China, they reported a sharp fall in industrial profits in August, down -2.0% year-on-year after a +2.6% rise on the same basis in July. Not a great way to celebrate the success of the CCP rule. China is on holiday now and won't return to business for a week. The world's largest seasonal migration is underway.

In Europe, consumer sentiment may be negative but stable, but industrial confidence is still falling and is also now negative.

International trade might be down and international airfreight in the doldrums, but we haven't been paying attention to sea freight rates and demand. There have been special influences there that have caused the core Baltic Dry Index to zoom higher. In fact at close to 2000 this index is currently at more than a eight year high.

And in case you missed it yesterday, the September update of the ANZ-Roy Morgan local consumer sentiment survey fell to 114, its lowest level in four years.

The UST 10yr yield is lower today, at 1.68% and down -1 bps from where we left it last night and -4 bps lower than this time last week. Their 2-10 curve positive at +5 bps. Their negative 1-5 curve is unchanged -21 bps. Their 3m-10yr curve is sharply wider at -28 bps. The Aussie Govt 10yr is down sharply at 0.95%, an overnight fall of -1 bp and a weekly fall of -7 bps. The China Govt 10yr is up +1 bp overnight at 3.16% and in a week it has risen +4 bps. The NZ Govt 10 yr is now at 1.13%, a -2 bps slip overnight and a -5 bps drop for the week.

Gold is down -US$9 overnight at US$1498/oz.

The VIX volatility index has risen sharply today and is now well over 18, and now above its average over the past year of 17. The Fear & Greed index we follow is now exactly at a neutral reading after moving back from the 'greed' side.

US oil prices are lower today at now just under US$56/bbl. The Brent benchmark is just under US$62. That is a -4% fall for the week. The US rig count has moved lower again, now at a 28 month low.

The Kiwi dollar is little-changed today, now at 62.9. On the cross rates we are still at 93 AUc. Against the euro we are at 57.5 euro cents. All of these are firmer than this time last week. That puts the TWI-5 back up to just on 68.5 and a +60 bps gain for the week.

Bitcoin is now at US$8,040 and while that is up marginally from where we left it last night it is more than -20% down from 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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33 Comments

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I'm guessing that the Baltic Dry Index is split into different regions as this news suggest counter?

https://www.zerohedge.com/economics/september-container-shipping-rates-c...

Crikey. Someone has fingered China's weakness. Cutting off access to USD capital funding would cripple their economy in short order. Are the Americans sensing opportunity?

Pork prices in China have more than doubled over the last year. Things could turn ugly quite rapidly if mainland chinese lose faith in the CCP. Remember the "arab spring", where soft western journalists mistook food riots over wheat prices for a cry for elections? China is vulnerable at the moment.

Eurodollar funding is not subject to US government diktat. Nonetheless, all the nations of the world seeking it's status as the global reserve currency trading interface mechanism have been suffering from short G-SIB balance sheet capacity. Germany and Japan are suffering as much as China - as is the US.

FX swaps and forwards: missing global debt?

The outstanding amounts of FX swaps/forwards and currency swaps stood at $58 trillion at end-December 2016 (Graph 1, left-hand panel). For perspective, this figure approaches that of world GDP ($75 trillion), exceeds that of global portfolio stocks ($44 trillion) or international bank claims ($32 trillion), and is almost triple the value of global trade ($21 trillion).

The outstanding amount has quadrupled since the early 2000s but has grown unevenly (Graph 1, left-hand panel). After tripling in the five years to 2007, it fell back sharply during the GFC, even more than international bank credit. This most likely reflected a reduction in hedging needs, as both trade and asset prices collapsed.

Liquidity is tight as some suspect a European name to be no good.

Treasuries are the real gold.

the smartest thing Trump has done was a reset of the postal union deal,it was a rort and probably explains why NZpost is losing money,delivering thousands of parcels from china for nothing.at least he is on the case 24/7.there is pro USA leadership.I dont get that feeling about our situation.

Yes, Aliexpress deliveries over $5 seem to get delivered by NZ Post courier van, and $2 orders are often post free. It makes no sense.

Where are all those that bash the current government for the state of nz economy, when the world is sliding to the bottom..

Guess they are hoping for National to come to power, so we can be slaves to the Chinese

Chinese has not slaved ppl since about 3000 yrs ago whereas Anglo Sanxons only stopped slaving ppl from 200 yrs ago.

11
up

What rubbish: https://en.wikipedia.org/wiki/Slavery_in_China
Slavery was widespread in China throughout history through to the present time with millon+ Uighers in concentration camps forced to labour as slaves.

Touche!

Slavery noted by Marco Polo and that was a time when China probably was greatest.

under the mongols?

Kublai Khan. Marco Polo describes incredible wealth and prosperity noting large numbers bath houses etc. Clearly a country in a different league to any European nation of the 13th century. Just found this quote online ""It is also the custom for every burgess of this city, and in fact for every person in it, to write over his door his own name, the name of his wife, and those of his children, his slaves, and all in his house, and also the number of animals that he keeps. And if anyone dies in the house then the name of that person is erased, and if any child is born its name is added, so in this way the ruler is able to know exactly the population of the city. And this is the practice also throughout the country."" It does imply slavery was standard practise.

And then what would this be?
https://en.m.wikipedia.org/wiki/Uyghurs

.

xingmowang,

You had little credibility before this post-now you have none.

Who is this guy? Who's to say this video is not a scam about a purported scam.
If I knew this was true then I would support Trump's pulling out of the Paris Accords.
Where can we find a hallowed academic to challenge or agree with this view?

your friend mr google, however it's easy to see a link between climate activism and the price of carbon credits soaring.

https://en.wikipedia.org/wiki/Shiva_Ayyadurai

running for Senate
https://shiva4senate.com/

AJ, have you seen the way gen4 nuclear power is being accepted as policy by left & right in USA.
(Installing solar panels causes more hurt!)

Boris J is spending large on fusion too.

Could be the way forward irrespective how climate science turns out.

https://www.google.com/amp/s/www.telegraph.co.uk/politics/2019/09/27/bor...

Perhaps the importance of cheap energy is finally dawning on Western governments, now that 50 reactors are being built between China /Russia and India.

https://www.statista.com/statistics/268154/number-of-planned-nuclear-rea...

https://www.world-nuclear.org/information-library/current-and-future-gen...

Boris, emerging reality.

https://youtu.be/XaN-MbGV4dY

Simplistic explanation but largely accurate - carbon trading is a financial instrument/mechanism - created (i.e., "dreamed up") by the worlds elite, using the UN/IPCC hierarchy as a means to implement the new financial instrument which would charge nations and their producers of goods/services for this form of global pollution. Here's another explanation;

https://www.investopedia.com/terms/c/carbon_credit.asp

And as with all financial markets schemes - they are scammed (some scams being legal, others not!);

https://www.france24.com/en/20180129-france-trial-carbon-credits-fraud-p...
https://www.cityam.com/tax-scammers-and-carbon-credits-decade/

And yes, Al Gore set up a business aimed at profiting from this newly founded carbon market;
https://en.wikipedia.org/wiki/Generation_Investment_Management

Here's its website;
https://www.generationim.com/

Check out the Generation Foundation as well;
https://www.genfound.org/

Offsetting CO2 emission via a carbon market is a crock. It isn't going to lower global emissions - given its just a money-go-round, polluter pays scheme. And at the bottom of the market are consumers who are ultimately paying.

Plain old carbon taxes would have been more useful if you really want to reduce GHG emissions. And the taxes are collected in-country - not traded globally. Our government could have just decided to make all public transport free and that would have seriously reduced our carbon emissions. We'd have had to really up our PT infrastructure, but wouldn't have to be building greater capacity into our roading network - so there would be significant cost savings elsewhere.

And we never should have brought agricultural/biological emissions into the NZ "counting" framework - I don't think any/many other countries do.

Thanks Kate, always comes back to the money and the power.

"Seeing very measured groups like the Union of Concerned Scientists on my immediate left (naturally), I turned to a representative of one of the rent-seekers (in on the meeting were the American Gas Association, Niagara-Mohawk Power, and BP, among others) on my right and asked, “What are we doing sitting around a table with a bunch of people who want to put us out of business?” I was told with a laugh, “They want to put coal out of business first.”"
https://www.nationalreview.com/planet-gore/al-gores-inconvenient-enron-c...

Going through the E Rutherford display at the Arts Centre.
He "hung out" with Albert Einstein...

Come away thinking NZ gotta have more effort on STEM skills.

We need more science skill in schools universities and workforce.

It seems advicates and arts graduate journalists are frightening our children. Let's also include the social media influencers too.

https://i.stuff.co.nz/environment/climate-news/116149373/school-strikes-...

A pretty web site, social media thread is so different to peer reviewed science.

ER was brutally blunt is slicing through poor thought!

Young people are young people for a reason and are respected as such. The Greens are letting it slip by suggesting the voting age be reduced to 16. As they can't convince, persuade or frighten enough adults.

UC are also struggling with the concept too.

Tony Blair’s diabolical plan has succeeded: more than half of young people are now at left-wing madrassas

Expanding the higher education sector was never about boosting social mobility. It was about churning out Labour voters – and in that respect Blair’s policy has succeeded like gangbusters. In the 2017 General Election, Labour had a 15 per cent lead among university graduates — and among 18-24 year-olds the gap was a whopping 35 per cent.

https://www.telegraph.co.uk/politics/2019/09/27/tony-blairs-diabolical-p...

We are so lucky that us old codgers outnumber the young whipper-snappers. Experience beats unrealistic day dreaming.

https://www.stuff.co.nz/national/116152134/auckland-council-annual-repor...

Despite the record cccs, the emphasis is on improving performance, as they can see the huge numbers in the pipeline