American service sector growth dissolves; eyes on non-farm payrolls; Canada housing recovers; EU services also weaken; Aussie service sector expands faster; UST 10yr yield at 1.53%; oil down and gold up; NZ$1 = 63.1 USc; TWI-5 = 68.5

American service sector growth dissolves; eyes on non-farm payrolls; Canada housing recovers; EU services also weaken; Aussie service sector expands faster; UST 10yr yield at 1.53%; oil down and gold up; NZ$1 = 63.1 USc; TWI-5 = 68.5

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Here's our summary of key events overnight that affect New Zealand, with news investors can't seem to escape bad data, even as expectations rise that monetary and fiscal authorities will act soon.

Overnight there were two surveys out taking the temperature of the giant American services sector. The international one found little change from August but sees it barely expanding. The more widely watched one found the expansion falling back quite sharply and the gap between the two has narrowed a lot. American analysts have been surprised by the extent of the fall.

Those analysts expect non-farm payrolls to rise marginally from the low August result when this data is out tomorrow morning. These expectations are not very high because this would be the third lowest rise since 2017 and those previous lows involved storm disruptions or government shutdowns. This payrolls data has the equity markets awaiting the signal and the S&P500 is posting a small gain so far today.

In Canada, following up Vancouver's positive housing market recovery, the Toronto realtors also say the are getting the same positive impact, even if the highs of 2016 haven't returned.

The European services sector is similar to the American one, now essentially showing a stalled state.

And the same survey in Germany was very downbeat which triggered a sharp selloff in the German equity markets. Last night the DAX was down -2.8%, a move that wasn't mirrored in other European equity markets. Most other equity markets were up modestly on the day, although London was lower again. In the UK, there is growing awareness their Brexit recession is upon them now.

Official data for EU retail sales released overnight wasn't too gloomy, although it was only for July.

In Australia, there were two services PMI reports out as well and both positive. The internationally-connected one was quite upbeat, reporting a rising expansion in September and a good rise in new orders. The local version wasn't quite so upbeat but it also reported a lift.

However none of this optimism saved their equity markets yesterday, with the ASX200 dropping an eye-watering -2.2% on the day. The negative vibe spread across the Tasman with the NZX50 down -1.2%. Local investors can read the US and European tea-leaves as well as anyone, and when China's markets return next week, news from there will almost certainly record a sharp adjustment lower as global trade falls bite everyone.

The UST 10yr yield is down another -6 bps to 1.53%. Their 2-10 curve is more positive at +15 bps. However, their negative 1-5 curve is wider at -28 bps. And their 3m-10yr curve is wider at -19 bps. The Aussie Govt 10yr is weaker at 0.91%, an fall of -4 bps. The China Govt 10yr is unchanged at 3.16%. The NZ Govt 10 yr is at 1.05%, a -1 bp slip from yesterday. There were sharp falls in our swap rates yesterday too taking them down to new record-low levels.

Gold has risen further today, up another +US$7 after yesterday's +US$19 rise and is now back up to US$1,508/oz.

US oil prices are lower yet again today, down to just under US$52.50/bbl. The Brent benchmark is just on US$57.50.

The Kiwi dollar is firmer today on a tallest-dwarf basis, now at 63.1 USc and up a full +½c. On the cross rates we are back up to 93.5 AUc. Against the euro we are at 57.4 euro cents. That puts the TWI-5 back to just on 68.5 and similar to where we were on Friday last week.

Bitcoin is now at US$8,184 and only marginally lower than this time yesterday. 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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57 Comments

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Not to worry! More debt will save us ...

Australians are already paying silly prices for properties that don't deserve such prices, one buyer's agent says....affluent buyers at the upper end of the market, tended to exercise more financial discipline and objectivity to risk than first-time or unrepresented buyers. He said he was seeing young buyers with about $1 million to spend going back to the bank to ask for more money when the properties they were interested in were selling for $200,000 above their budget. "Buyers should not worry about missing out. What they should be concerned about is what can they actually afford. If they lose their job will they be able to sell their property?" he said...."I do remind people that, yes it's great, [money] is cheap, but you've got to make sure you can keep your job. Because if you don't have income coming in it doesn't matter how cheap it is, you won't be able to afford the repayments,"

https://www.afr.com/property/residential/house-hunters-will-take-on-extr...

It's called inflation. It happens when there is a credit impulse in any particular asset class. If everyone was borrowing to buy Kumara, kumara would be 'hot property'.

It won't be long before everyone IS borrowing to buy kumera ( or trying to!), because jobs are going to be both hard to come by and hard to keep.
Then it won't be called Inflation. What's the word I'm searching for that starts with a D ?

Kumera (not Kumara, that's a wide spot in the road near Greymouth, probably could be entirely purchased for under a million or three) - perhaps they are the new tulips....

If this doesnt get a "po ta to , po tah to" comment ill be disappointed

You have to keep in mind that Australia hasn't got enforced rules to protect their property market against money laundering as we do. Hence why their property is still selling in the upper prices brackets, that has a big impact on house prices overall: ABC News: Real Estate: dirty money laundered through Australian housing https://www.youtube.com/watch?v=-A_lH4S3ufA

A buyers agent says buyers represented by agents aren't paying silly money. Yes I really believe his anecdotes, there's no conflict of interest there.

In Australia, there were two services PMI reports out as well and both positive

How much of the sharp bounce back in "new orders" can be attributed to a resurgence in rental, hiring and real estate services .

Whales reappearing in NY harbour and now seals returning to London. Those carbon taxes are really starting to kick in.
"More than 130 seal pups have been born in the Thames this year - a remarkable turnaround for a river that was declared 'biologically dead' 60 years ago."
https://inews.co.uk/news/environment/130-seal-pups-born-in-river-thames-...

Profile adds marine biologist to expert commentary list.

Yeah, amazing isn't it, you fix the sewers so you aren't literally pumping shit into the rivers, put controls on other commercial pollution sources (including pesticides, fertiliser and farm runoff) and wait 30-40years and the river becomes healthy again. Glad you are onboard with cleaning up our waterways.

Absolutely true. NZ biggest advantage compared to most other places on earth is that fresh, clean water is abundant in NZ. Destroying this strategic resource for a quick buck is madness.
I think it is a shame that global warming and carbon emission are the main focus points of the government. Not that they are not important or real or whatever. Just because NZ is well below any materiality thresholds in such a global issue and whatever we do (including killing all the animals and ditching all fossil fuel) will have nil impact on anything.
Fresh water on the other hand is something that is almost entirely in NZ control and any benefits (or harms) from cleaning (or further polluting) it will also directly flow to all NZers. If it was up to me, i would have reallocated all NZ resources from any global warming and carbon emission etc to cleaning NZ waterways. I think, by sorting out our water pollution, we will be in a very good position to sort out other significant issues as well.

"Just because NZ is well below any materiality thresholds in such a global issue and whatever we do (including killing all the animals and ditching all fossil fuel) will have nil impact on anything."
I think the "animals" would beg to differ - and well done - did Trump write this sentence for you?

I do not believe that it is OK to harm animals. And by animals I meant cattle. I am sorry that I was not more careful with my words. But this is what I meant: the high number of cows in NZ is a significant source of green house gas emission. Those who want to reduce emission now believe that their numbers must significantly reduce (either by stopping them from reproduction or by killing them). My point was that if all the NZ cattle disappears, this wont change global warming. I was not cheering for cruelty to animals or anyone for that matter.

I am at a loss why I am being compared to Trump. Is he for clean NZ waterways too? Or has he ever said that US emission is below materiality thresholds on a global scale?

So first you say "including killing all the animals and ditching all fossil fuel) will have nil impact on anything" but now you are for clean NZ waterways. Which is it?

Have you read my comment carefully? English is not my first language, so may be I have failed to relay my message clearly. I am all for clean NZ fresh water. I also do not deny the negative impact of other forms of human pollution (including Green House Gases and plastic and other wastes).
My point is simple: water quality is something that is in full control of NZ (well excluding the quality of rain and snow). Global GHG emission is not. Because NZ is so small that whatever it does, its global impact will be nil. Even if we reduce our GHG to zero (hence the statement that you are unwilling to let go despite my effort to clarify myself), the impact on global pollution will be nothing.
So it makes sense to me to spend our limited resources on something that delivers a better return for our investment.

I got it and to a point I agree - if NZ took it's emissions to zero it would have little impact on global emissions.
However, it would show to the world it can be done and would allow us to pressure large emitters to do likewise.

Like that time we pressured big nuclear powers to go nuclear free? NZ going zero carbon is eye wateringly expensive virtue signaling nonsense.
Spend the money on getting ready for the next earthquake or on basic R and D to help ourselves and other countries reduce their pollution levels or other actual problems.

Yes, this. Sometime you just have to do things because they are the right thing to do, even it the actual outcome from your own actions is relatively insignificant. Having said that, there are some easy and reasonable changes that we should be doing, and then there are bunch of eco-warriors that demand we stop all imports of ICE vehicles etc now.. which just isn't practical, not even close, maybe in 10 years it will be.

Hang on, hasn't most of the discussion about farming in NZ been around protection of fresh water? Fencing etc. Nitrogen / other run-off.

Also plenty of kerfuffle about our water in that it's a natural resource that National were keen to allow foreign companies to benefit from without any benefit from that resource going to New Zealanders. An "oil", and once more without significant flow-through to New Zealanders.

Yes, if we are sensible enough to stop giving away our fresh water to Chinese bottling plants, then as climate change bites harder we will find that our fresh water will be more sought after than milk. I predict that in a decade or two Fontera could be selling more water abroad than milk, if they can get their act together. I can foresee today's oil super- tankers being re-purposed to carry our water to Australia for instance.

More fine examples of what a difference we can make when we actually recognise a problem and put our minds to it.

My book, I have not read it yet, had it but recommended.

https://www.amazon.com/Thing-Which-Has-No-Name/dp/0753556510/ref=sr_1_2?...

Early adopters. Not only do they love to have the latest toys, they like to be seen to have them. The rest following thinking that if they have what the early adopters has, they will become like the early adopter. They never will, doesn't stop them trying though. Part of the formula anyway, it is more complex than that. The innovators are earlier on the curve than early adopters, and usually being high net worth the drive is perhaps even stronger to copy. Presuming some of what I say is right, then if early adopters knew of their influence would it give them more responsibility in what they do?

Great podcast about new book detailing the entry of China to the WTO - and the flow on to western jobs and asset prices. Ultimately US corporate profits out of China are pitiful - equal to about 6 mths typical annual profit growth. All that pain for no gain.
What is profitable is being more-equal-than-others - with the top ten big dogs in the National Peoples Congress accumulating $185 Billion between them.

https://delingpoleworld.com/37-stewart-paterson-18-09-2019/

http://londonpublishingpartnership.co.uk/china-trade-and-power/
Why the West’s Economic Engagement Has Failed.

16
up

The price we are starting to pay for globalisation and financialisation is high. In our little rural town 7 people have committed suicide in the last month, I don't know what else to blame, low wages, lack of opportunity, expensive housing, immigration/invasion, welfare, hell I haven't a clue.

All of the above and more. Personally I think it has to do with goals - people have to have a goal to achieve - even if it is something simple like learning how to swim, then set another goal and another. The thing is that it is multidimensional - there are work goals , family goals , financial goals etc - some may be more important than others. That I think is a skill that needs to be taught.

In part you are right, but a bit further down the track. Before this comes opportunities. Andrew intimates he is in a small regional town, and being in one myself I am acutely aware that opportunities have been bled from the region since the introduction of Rogernomics, the implementation for the 'free market'. Without opportunities for the majority of ordinary people, they are not able to set goals, and fall into despair and desperation. the end result for some is suicide and others drugs and crime, but may also lead to suicide. This is the consequence of 30 years and more of failed socio-economic policies. In NZ, for Maori this timeline is significantly longer as they have been ruthlessly dispossessed of their land for almost 160 years. I do not believe there can be any equitable fix for this, but Governments today and the future if they do not want to face a social melt down, absolutely must work to create opportunities for people everywhere. The recent changes the Government has proposed around power pricing is just evidence that they do not understand, and are still sucking up to money.

Indeed.

And the other half of society cannot see this because they got their opportunities from quite a different looking society that had put a lot of effort into creating opportunities - affordable housing, education etc. And in the last 30 years they've then benefited quite nicely from the abandoning of such approaches and the financialisation of everything. So it's all worked quite nicely and they cannot see the forest and trees you describe.

Except their children cannot compete quite so well on merit alone these days, so at some level they realise they have to use their own wealth to prop their kids up. The rest of the dots haven't quite connected yet.

Yes some boomers have done nicely, but not all. Plus the financialisation of things means that boomers who go through a relationship break up from the 90s, find themselves in the same place as their children trying to rebuild their lives from nothing. I know - I am a boomer, and I did go through a marriage break up in the 90s. So I've had to build from nothing twice. As a white male there has been absolutely no assistance from anywhere. The only solution is hard graft, but when there are no opportunities, even that is not enough! I was in my 40's when i got my IT degree, and that age disqualified me from most jobs I applied for. Where i am now was because I accepted something unrelated to my qualification, was and still is underpaid for people who come to it, but I have worked my way up. Judith Collins 'flexible lifestyle' mantra was just BS stacked on BS, and a new way to reword 21st century slavery.

A town of three thousand people.

Essentially it's a multi-layer thing. Nationally we live a false narrative for a start - denying the repression of others which is required to maintain our lifestyles. That repression is slave-level wages (offshore but increasingly tricked-up here), resource theft (as per phosphate and oil) and the disenfranchising of future generations. We also fail to pay our way via unmitigated pollution - everything from plastic waste to underground-sourced CO2.

Those with a conscience are in trouble with that lot already.

Then there's the incessant drum-beat of 'buy this or buy that, to raise your status' (in the gene-pool stakes, presumably). Some fall for that, and think their lesser buying-power represents failure. Those folk can also see a reduction of assets or buying-power, as failure too.

Then there are those of us who judge people by different values - kindness, willingness to volunteer, community input, awareness. That leads to a more supportive circle of friends and community - the opposite of loneliness and the better support mechanism. This is where neoliberalism falls over, all it produces are a whole lot of Eleanor Rigby's.

Indeed, and its a stereotype that is pushed by almost every music video that our your watch on their phones. Reality is people with more disposable income have a better standard of living than those that do not. It affords choice of house, food, education, recreation. That said NZ is still a luck country in that all those choices are still available for everyone regardless of income when compared to the options available in the rest of the world. The shock for the low income kiwis is that globalization is pushing the minimum standard towards the global lower average in all those criteria.

Excessive increase in human population, the fact that western countries welfare was at least partially supported by extremely cheap resources from the third world and that could have not been sustained for ever etc.

How long do you believe that globalization (with the modern technology including such things as internet) could have been avoided? do you believe that protectionism would have offered any better outcomes (given the aforementioned trends)?

I wonder if families without dads is a bigger deal.

The bigger question is whether any sapient lifeform, on any planet, could work out that it was overshooting but use it's emergent sapience/technology, to avoid the overshoot?

It appears that the answer is no. It appears that the cognitive connections required for growth from a low base, remain in the brain beyond the point where such connections become a negative influence. This short window (between being cognitive enough to be able to transmit, and overshooting/collapsing) seems to be about 100 earth-years - and may explain the lack of inward communication....

If we'd held population at around 2 billion (1930 levels) we might have gotten away with it - but we probably wouldn't have the internet due to less specialisation.

That is the most perplexing thing in all this. I believe part of the answer I have described in the work of Carl Jung with Sensing vs Intuition, but even that has a big "why" attached. We are going to be screwed and only 1:1000 can see it. The rest, in increasing numbers, can only see no hope.

No mention of the Stuff report from yesterday about Wellington 2019 where it is identified the Munich Re, a major reinsurer is contemplating pulling out of NZ? This could have significant economic impacts, and also highlights the rort that insurance has largely become.

Insurance companies think they are doing you a favour, if they ever have to pay you out more than 50% of what you paid them. Before the CHC earthquake, they put you on a list if you ever breached that 50% ratio, that list must be a lot bigger now.
I live in CHC, and I see it every day, houses which have been paid out in full on, which are better than a motel in Twizel we once used. Insurance should be for damage caused by extreme events, not shoddy workmanship, and for most of CHC, it was not an extreme event.

Hmmmmm.. A rogue RBNZ governor?

The Bank has all year tended to be pretty dismissive of any suggestions that the availability of credit might be adversely affected, and they’ve still provided no supporting analysis. Nine months ago when they launched the Governor’s radical scheme, they thought the economy didn’t look too bad. Since then they’ve had to cut the OCR by 75 points, with more cuts to come (on almost everyone’s reckoning) even before allowing for any effects of these capital proposals. Perhaps then a rash Governor could afford to be cavalier about bank capital, but it borders on the outright irresponsible for him to take that stance now – with so little conventional monetary policy leeway left, in a world looking more difficult almost by the day. Reduced credit availability, to the extent it happens, will only exacerbate any downturn, and the effects are likely to be concentrated in those sectors least readily able to tap alternative credit (hint: not big corporates, not household mortgages, but eg farms and small businesses). But, of course, thanks to the government’s indifference there are no effective checks and balances on the Governor following his whim, in some sort of Orr-tarchy.

It is curious that the way the system works it pumps liquidity to those with strong political representation, ie, big corporates (meaning SOEs and banks) and mortgage holders. Those who actually need it get demands for reducing their loan balances. Why is that? Systemic failure? Anti-business mindset in the bureaucracy?

Why do we not treasure our job creating Mittelstand?

https://english.bdi.eu/topics/germany/the-mittelstand/

ECB crushes German community banks, making up 80% of banks and the bulk of lending to the real economy and SMEs, forcing them to join the ECB-induced property bubble Germany, in pursuit of its official program to reduce the number of banks & commentators wonder why economy tanks. Link

Without doubt BIS Risk Weighted Asset (RWA) capital requirement preferences are critical to banks' preferred asset profile - residential mortgages attract decidedly lower capital demands - a topic explored in detail here.

Is the US repo mayhem more significant than we are being told? Is the US Fed saying "Move along now, nothing to see here" in public, but behind the scenes is in full on emergency mode? The memories of them needlessly destroying Bear Stearns and Lehmann will still be strong and they are bright enough to know their culpability. They can't admit institutional dereliction of duty in public of course, that would never do. Is a 0.5% cut at their next meeting likely? Would this be enough to stop the USD rising and thus stuffing up the world economy? A rising USD seems to just suck liquidity from the rest of the world and cause chaos.

https://www.reuters.com/article/us-usa-repo-jpmorgan-analysis-idUSKBN1WG...

The most important clue:

JPMorgan made the biggest draws from the Fed late last year and bought securities, winning praise from analysts for locking in fixed interest rates before Federal Reserve cuts. Buying the securities also offset pressure on JPMorgan’s mortgage loan portfolio from falling rates.

Under US law mortgage debtors can refinance to lower rates without penalty - hence mortgage book valuations collapse as do MBS - duration collapse - the hedge is to buy UST. Pristine collateral to cover for crap collateral. Read more

The memories of them needlessly destroying Bear Stearns and Lehmann ...

They didn't destroy them, they simply didn't rescue them from their own actions.

Yet again, crap collateral was posted to fund position and they could not refinance and obviously had no recourse to UST to bolster it.

You may be repeating official propaganda there Rick. One of the fundamental duties of a central bank is to be a lender of last resort when the banking system seizes up due to a system wide cash flow problem. Officialdom will always blame "a few bad apples" in the private sector. They are expert at covering their backsides.

Not so much "official" propaganda, more so simply reading in to what Bear Stearns had been up to. Clearly they should have managed their own risk (including the representation - or misrepresentation - of that risk to their investors) and liquidity better.

"Investors can't escape bad data"

BUT THE PROPERTY CLOCK POINTS TO AN UPTICK

Hope, or an absence of it, makes people do stupid things. That is why chartists came up with the technical indicator called the dead cat bounce.

The fact economic data doesn't support the housing bounce should be cause for suspicion. But then most people here think housing is the economy, hence the trap is set.

I'm not so sure it was Technical Analysts who came up with the term 'dead cat bounce' (i.e. the "Bull Trap") but everything else yep.

Why so negative David?

"The European services sector is similar to the American one, now essentially showing a stalled state."

stalled means your not moving. The economy has not stalled if it's not expanding, rather the economy is humming along exactly as it was before.

What you meant to say is the 'European services sector has stopped accelerating.'

"although London was lower again. In the UK, there is growing awareness their Brexit recession is upon them now"

70% of the FTSE100 are net exporters, so assuming the recession brings with it a lower exchange rate, you would expect to see London up.